LOAN TO PAY ESTATE DUTY (Hansard, 15 July 1969)

§ Mr. Diamond
I beg to move, That the Clause be read a Second time.

§ Mr. Deputy Speaker (Mr. Harry Gourlay)
With this new Clause the House may also discuss the following Amendments: No. 30, in page 19, line 38, at beginning insert: (1) the following subsections shall not apply in respect of interest paid on money borrowed to pay Estate Duty No. 46, in page 21, line 43, at end insert: (3) Subject to the provisions of this section interest is eligible for relief under this section if it is paid on money applied to the payment of estate duty until such time as the assets of whatever nature securing the loan are disposed of or distributed to the beneficiaries.

§ Mr. Diamond
The Clause follows on representations which were made on both sides of the Standing Committee and which I have been willing, and indeed content, to accept, because here we have a special set of circumstances which are not mirrored in any other case that I have found or of which I am aware, where the State itself compels—I repeat "compels"—the borrowing of money, no matter to what amount, in the circumstance that we all know of—that is, where an affidavit has to be put in to obtain the right to wind up the estate of a deceased person and, before that affidavit can be accepted, the cash has to accompany it, and where there are no means whatsoever of touching the personalty of the estate to finance the duty which has to be paid.
I would not for one moment suggest that the method of collecting this duty, again hallowed by precedent and by many years, should be changed. It is a convenient one for the estate duty collector and should remain, but, if it is to remain, I am bound to recognise that the State itself is putting a compulsion upon an individual to borrow money. There is no way of avoiding it in respect of the matters referred to in the Clause—that is, personalty and those matters where executors themselves are responsible and not others.
In those circumstances I think it is right that we should recognise this and take it completely outside other circumstances. I repeat that I am not aware of any other case which is on all fours or at all parallel with this and I have therefore been content and quite willing to accede to the representations which were made and to put the Clause before the House. I will leave it at that and listen to arguments based on the Clause and on the Amendments and perhaps say a few words later.

§ Mr. Patrick Jenkin (Wanstead and Woodford)
Those who served on the Standing Committee will remember that the Amendment to provide relief for interest paid on loans raised to provide for estate duty was the first Amendment we came to on Clause 18. The Chief Secretary on that occasion, and on that occasion alone throughout the whole of the debates on Clause 18, expressed sympathy. Therefore, of all the new Clauses 502 and of all the Amendments to Clauses 18 and 19 which we found in the current Notice Paper, this was the one which we expected with the greatest of optimism to see. Here it is. We are very glad to see it.
The Chief Secretary has explained that it is confined to particular circumstances —for instance, that it is only a loan raised to pay estate duty on personal property, because it is only that estate duty the payment for which is conditional upon the granting of probate. Estate duty on real property can be paid by instalments and therefore, on the argument that the relief is applicable only because the State compels the payment, that would be excluded.
Furthermore, the Chief Secretary made it clear in Committee that there would have to be a time limit. The time limit is, we would believe, the somewhat short one of one year as contrasted with the three years in the Section 55 case where the valuation of shares in a director-controlled company is being dealt with.
I want to comment upon the grounds upon which the relief has been granted. Here I am doing no more than echoing in the present context arguments which have already been put in the context of the earlier Clause. For where is the principle of Clause 18? In Committee I argued for the relief which is embodied in the Clause on the grounds of the great hardship which the absence of relief would cause to the beneficiaries of the estate if the whole or a substantial part of the estate was swallowed up in paying interest on the loan and there was nothing left for the beneficiaries to live on until the estate had been distributed and the loan had been paid off.
The Chief Secretary was hot in his indignation: no such argument could possibly be adduced, in his view, to support the case. He said this: It is not a question of additional hardship. I have said that I am bound to reject that argument because the purpose behind the whole of the Clause is that money should be more difficult to borrow and not easier to borrow."—[OFFICIAL REPORT, Standing Committee F, 18th June, 1969; c. 299.] The right hon. Gentleman has now sought to justify, as indeed he justified his sympathy in Committee, on the ground that this was a case of the State compelling someone to borrow money.
503 The right hon. Gentleman is guilty of sophistry. He is failing to distinguish between the reasons in equity why tax relief should be granted in particular circumstances from the surrounding circumstances, from the conditions of relief which will entitle the tax payer to this equitable treatment. The only reason throughout all these Clauses why it is right for the Government to accede to the case which has been advanced for the granting of tax relief is that it is inequitable not to grant it—that is, it is a matter of hardship: it is a hardship to a man buying a share in a partnership that he would not be allowed to claim tax relief on the interest paid on a loan to enable him to purchase his share; it would be a hardship for a proprietor of a close company not to be able to claim interest on a loan raised to put capital into the company; and, equally, it would be a hardship to the estate of a deceased person if the executors had to pay the loan interest gross out of the net income of the estate.
This is the essence of the case which we seek to make about the whole of Clause 18 and of which the new Clause is but an example. With each concession that the Government feel themselves bound to make in the interests of equity, so they are eroding any principle that there may ever have been in the Clause in the first place.
I want to make it abundantly clear that we think that the Government are absolutely right to make these concessions—to pick, as my hon. Friend the Member for Worthing (Mr. Higgins) rather graphically put it, the pellets out of the targets which were not meant to be hit by the shotgun. But it leaves us in a state of complete confusion as to what the principle is that the Government are seeking to adhere to when they maintain the rest of the Clause.