§ 'Where any shares in or debentures of a company in respect of which estate duty is chargeable on a death fall to be valued by reference to the value of the company's assets in accordance with section forty-six or section fifty-five of the Finance Act 1940 the duty shall be charged at the reduced rates for the time being in force for the purposes of section twenty-three of the Finance Act 1925 on such proportion of that net value as is attributable to the agricultural value (within the meaning; of the said section twenty-three) of agricultural property let by the company for the purposes-of husbandry or forestry or, where the occupation is partly for those and partly for other purposes, the part of that agricultural value 1347 which ought justly to be apportioned to the occupation for those purposes'.—[Mr. More.]
§ Brought up, and read the First time.
§ Mr. Jasper More (Ludlow)
I beg to move, That the Clause be read a Second time.
This Clause is of practical importance. It could be of real help to agricultural land owners and, if accepted, it would not be materially injurious to the Revenue. It has three statutory predecessors: the Finance Act, 1925, which first introduced the agricultural abatement rate; the Finance Act, 1940, which introduced the valuation of companies' assets by reference to the special code of valuation which it incorporates; and the Finance Act, 1954, which extended the agricultural rate to land held by a family company if that land was actually in the company's occupation.
This leaves what might be called an anomaly, in that, if a family company owns land which is let, that let land does not on the relevant death benefit from the agricultural abatement. I regard this not as injurious to the agricultural interest or in any sense as a grievance but as an inconvenience and something which is positively unpractical.
Not every land owner is in a position to form, or wishes to form, an estate company. But there are families for whom a company structure is the most convenient and most practical way of carrying on an enterprise. It may bring the great and definite advantage of avoiding the fragmentation of an estate, particularly where there are numerous relatives involved. It facilitates the participation of a number of people in the use of assets which physically remain intact. The advantage of this has been recognised to a certain degree in previous fiscal legislation, notably in connection with corporation tax.
The major problem is capital taxation and many families for whom it would be a practical advantage are prevented from forming agricultural estate companies merely by the consideration that they risk losing the 45 per cent. abatement on the land which is let. The object of the Clause is simply to bring the position of let land into line with land which is occupied and farmed by the company and to propose that the existing 45 per 1348 cent. abatement which applies in the case of let land owned by individuals shall be extended to let land when it is owned by a family company.
§ Mr. W. Benyon (Buckingham)
I support my hon. Friend the Member for Ludlow (Mr. More) and I must declare my interest as an owner of agricultural let land. It is totally illogical that when an owner of agricultural let land dies he is entitled to a 45 per cent. rebate on all his agricultural holding, whether it is in hand or whether it is let, but if he is a shareholder in the company his shareholding is valued on an asset basis and the part the company is itself farming gets the 45 per cent. rebate but the let land does not. Not only is that illogical but it militates against proper organisation of modern farming and the introduction of capital from outside into the farming enterprise.
Curiously, the landlord—tenant relationship has become more and not less important in recent times with intensive farming requiring large amounts of capital. Yet every disincentive is now put on the owner of agricultural land, whether he is the owner in his own right or the shareholder in a company letting land. The number of tenants is gradually being reduced, as the recent statistics show. One of the most powerful disincentives of all is the death duty consideration. In many cases by far the most efficient and correct method of running an agricultural enterprise is by company formation.
In another context the Chancellor has already recognised the value of the company structure of family businesses as a whole by the changes he has made in corporation tax. To a certain extent I call in aid Chapter 13.6 of the Bolton Committee Report on Small Firms. Admittedly the report was referring to small industrial businesses and I am referring to those engaged in husbandry or forestry, but the point remains good. The cost to the Exchequer would be nil. No one in his right mind will form an agricultural company with the present death duty provisions. There would be therefore no net loss to the Exchequer by agreeing to the Clause. I hope my right hon. Friend the Chancellor will give consideration to the matter in the future. 1349 12 midnight.
§ Mr. Nott
As the House knows, agricultural land which passes on death enjoys special relief in the form of a 45 per cent. reduction in the amount of duty payable. The relief also applies where what passes on the death is a block of shares in a family company valued on an assets basis; there is relief of 45 per cent. of the duty on the proportion of the value of the shares attributable to agricultural land used for the purposes of husbandry carried out by the company itself, but not where the company lets the land.
The Clause would extend 45 per cent. relief to cases where the company lets the land. I have to admit straight away that there is some logic in the argument put forward by my hon. Friends the Members for Ludlow (Mr. More) and Buckingham (Mr. Benyon) about the tax system not standing in the way of families farming and letting their land in the way which they think fit. However, I have to say to my hon. Friends that, for reasons which I will explain, it is not an appropriate moment for us to extend 45 per cent. relief. It is an important relief and, although there are categories of property which enjoy it, there will inevitably be pressure from many different categories to extend it.
In giving an example, I will refer quickly to the Bolton Committee which was referred to by my hon. Friend. He mentioned one point that the Committee recommended, but it also recommended that the 45 per cent. relief should be extended to the ownership of industrial land and buildings, whether or not the landlord used them for a trade.
The Committee pointed out that there is some element of discrimination in the existing law relating to agricultural land. The 45 per cent. relief is given by reference to ownership only, and it could be argued that the 45 per cent. relief for shares in a company farming its land, which was introduced in 1954, or the existing relief for agricultural land let by an individual, which dates from 1925, is too generous.
That is a matter which I should not wish to argue in this case. However, it cannot be denied that, if the Clause were accepted, which would extend the estate duty relief in the manner proposed, 1350 the gap between the family industrial business and the family agricultural business would be widened further. The Bolton Committee referred to this point.
The principal reason why the Clause is not acceptable to the Government is that the 45 per cent. relief, together with many other matters, will have to be considered fully in the review of estate duty following the publication of the Green Paper, which will set out a possible inheritance tax as an alternative to the present estate duty.
My hon. Friends will be aware that the points which they made in moving the Clause will most appropriately form part of the general discussion which will be developed in the Green Paper. It is for that reason that I should like my hon. Friends not to press the Clause. The whole question of taxation of capital on death is under review and it would not be sensible for us now to take on board a point of importance but nevertheless of detail.
§ Mr. More
I am grateful to the Minister for what he said. No section of the community is more aware of the importance of the Green Paper and the general review which it contemplates in death duty taxation than the agricultural land-owning community. It is good to be told that regard will be given in the general review to the special point which has been raised in the Clause. In the light of what my hon. Friend said, I beg to ask leave to withdraw the Motion.
§ Motion, and Clause, by leave withdrawn.