PART III (Hansard, 17 July 1969)

§ Mr. John Hall
I beg to move Amendment No. 115, in page 150, line 35, at end insert: (3a) Section 25(4) of the Finance Act, 1965 shall not be applied by virtue of section 25(7) of that Act on any date falling after 15th 1023 April, 1969, but sections 25(4), (5) and (6) and 26(9) of the Finance Act, 1965 shall apply as if a life interest in possession in settled property terminated on any occasion when (after taking account of section 31(3) of this Act) all or any part of the settled property either—

(a) passed for the purpose of estate duty by virtue of sub-paragraph (iii) of section 2(1)(b) of the Finance Act. 1894 (as substituted by section 30(2) of this Act); or

(b) would have passed as aforesaid but for any exemption from estate duty.
This Amendment arises from the need to change the 15-year rule now that estate duty is payable on the death of a beneficiary under a discretionary trust. I understand that the House discussed earlier today some of the effects of the new legislation regarding discretionary trusts, but I should be out of order in following that on the present Amendment.
If the Amendment is accepted, it may be necessary—this was an oversight on my part—to introduce a manuscript Amendment, because we should find it necessary to delete paragraph 10 of Schedule 17.
As I understand, if the Bill is enacted without the Amendment, the effect of the existing capital gains legislation on discretionary trusts will be as follows. First, capital gains tax will continue to be payable at 15-year intervals as now. Second, capital gains tax will not be payable on the death of a beneficiary except where the trust comes to an end. Third, estate duty will be payable on the death of a beneficiary under a discretionary trust but, in valuing the settled property for estate duty—I hope that I read paragraph 10 aright—allowance will be made for capital gains tax prospectively payable at the next 15-year interval.
It seems to me that, now that discretionary trusts are subject to extra estate duty in this way, there is no reason why they should suffer capital gains tax every 15 years on a notional disposal. When I first looked at it, it seemed such an eminently reasonable proposal that my first instinct was to table a simple Amendment repealing the 15-year rule. However, on closer examination, I came to the conclusion that that rather straightforward approach was not quite so simple or in some respects so equitable as might at first sight appear. For that reason, I put down the Amendment the effect of which is to replace the automatic 15-year rule 1024 which now applies by a rule the effect of which is that the trust be treated as though a life interest has come to an end on each occasion when settled property passes for estate duty purposes.
The new rule will not put discretionary trusts on a more favourable footing than other trusts. It will not result in notional disposals occurring more frequently than hitherto. The Chief Secretary will realise that that follows from Section 25(6) of the Finance Act 1965. It could result in trustees holding property longer than 15 years without any notional disposals. It could result in the trustees of a discretionary trust obtaining a part of the £5,000 exemption on death which otherwise might be unused.
For all those reasons, I take it that the right hon. Gentleman will regard this as a reasonable Amendment, and I commend it to the House.

§ Mr. Diamond
I am attracted by the idea that, instead of having to deal with assets on two separate occasions, one should as a matter of convenience value them on one occasion, that one occasion serving for both estate duty and capital gains tax. To the extent that that is incorporated in the proposal put by the hon. Member for Wycombe (Mr. John Hall), it seems an idea which we ought to watch and consider whether we can make use of it.
I could not accept the Amendment, so the hon. Gentleman can relax about the manuscript Amendment to his Amendment which he had in mind. None the less, I feel that we should watch during the coming year how this matter might be worked out and consider whether we can put forward a proposal to meet the timesaving purpose of his Amendment. Considerable investigation would have to take place. I should have to make sure that it would be convenient and that it could be capable of being worked in a number of ways which one has not had time yet to examine.
It is an idea well worth pursuing, however, and I hope that, on the understanding that we shall give it careful thought during the coming year and, if we can make use of it, bring something forward in a year's time, the hon. Gentleman will feel that, as on previous occasions in Committee, his time and energy spent on the matter has once more borne fruit.

§ Mr. John Hall
In view of the kindly words addressed to me by the Chief Secretary, I would be hard-hearted indeed if I did not respond. Therefore, in view of his undertaking to examine this suggestion over the next year and possibly introduce something in the next Finance Bill, I beg to ask leave to withdraw the Amendment.