HC Deb 21 March 1972 vol 833 cc1379-82

Green Paper

I turn now to estate duty. As the House knows, a number of threads run consistently through the taxation reforms on which we are engaged—the need to restore incentives, the need to encourage savings, and the need to create conditions in which men and women can, by their efforts, contribute effectively not only to their own well-being but to the prosperity of the country. Last year I announced major reforms of personal income tax, of corporation tax, and of the whole system of indirect taxation.

On the first we legislated last year, and, as I have already said, the second and third will be covered in this year's Finance Bill. The House will be relieved to know that I do not propose that this year's Bill should also provide for the complete reform of the system of taxation of capital on death.

But the time has now come when we should begin to consider whether the estate duty, which has been with us for about 80 years, is in fact the right means of taxing capital on death. Other countries have evolved systems which are fundamentally different from ours. Is it right that, in general, as under the existing system, the amount of duty should be calculated by reference to the value of the whole of the deceased's estate, without regard to its distribution?

May there not be a case for calculating the duty by reference to those who inherit the property rather than by reference to the deceased? Is there not also an argument for scales of duty which vary according to the relationship of an inheritor to the deceased? Is it right that the same rates of duty should be payable in respect of a bequest to a son or a daughter as to a stranger? In other words, while the system of estate duty undoubtedly has considerable advantages, we should consider whether an inheritance tax might not be fairer.

It would be quite wrong to take such a fundamental decision without the fullest public discussion. Over the past year we have been making a thorough review of the complex issues which are involved and of the implications of replacing estate duty by an inheritance tax. The outcome of that review is today being published in a comprehensive Green Paper. It deliberately reaches no conclusion. All I ask is that the whole subject should be considered afresh without preconceived ideas.

Changes

Because full public discussion of a possible reform is bound to take some time, it would be wrong to leave matters where they are. The burden of estate duty has been made much heavier over the years by the fall in the value of money. The present estate duty scale, which broadly speaking dates from 1949, and which was regarded as pretty severe when imposed by Sir Stafford Cripps, has become more and more severe in its incidence as the years have gone by.

I have already told the House of my proposals for relief from estate duty on property going to charities.

There is one particular aspect of estate duty which has been raised on a number of occasions during the past year. It has been suggested that the matrimonial home should be exempt from estate duty. I have considered this proposal carefully, but I cannot agree, because to provide this relief would be very unfair as between the widow whose husband owned his house and the widow whose husband chose to rent it. But, having said that, I have no doubt that there should be special relief for the widow, and that the fairest way to achieve this is to make the relief general.

I have, therefore, decided that in future any property going from a husband to his widow, up to a sum of £15,000, will be left out of account altogether for estate duty purposes. This relief will apply equally to property left by a wife to her husband.

Secondly, I propose to raise again the threshold below which no estate duty is payable. It will be increased from £12,500 to £15,000.

Taking these two reliefs together, the effect, for example, will be that where the estate is left wholly to the widow no duty will be paid at all unless the estate exceeds £30,000 and thereafter the estate duty will fall only on the excess over that sum, and will, of course, start at the lowest rate.

Thirdly, I propose to take action to ease the burden of the duty, which has been increasing because of the fall in the value of money since the 1949 scale was fixed. So far as the smallest estates are concerned, the policy of both Governments in progressively increasing the exemption limit has protected these estates, and this form of relief has to some extent extended to estates immediately above the exemption limit. I have carried this process a step further today.

So far as estates above this range are concerned I would have liked in principle to have gone all the way back-to the 1949 scale re-expressed in real terms—that is, adjusted to take account of the fall in the value of money. I cannot go as far as this, but there will be a completely new scale. This new scale, which appears in the Financial Statement, while giving a measure of relief, still remains generally more severe in real terms than the 1949 scale. It reaches a top rate of 75 per cent. on property over £500,000. I might mention that if I had continued the scale to a top rate of 80 per cent. at, say, £1 million, it would have added to the yield only an extra £500,000.

The relief for the surviving widow—or widower—will cost £60 million in a full year and £30 million in 1972–73. The increase in the threshold and the reduction in the rates will cost £68 million in a full year and £34 million in 1972–73. The relief for charities will cost £15 million in a full year and £7 million in 1972–73. These are big figures, but more than two-thirds of the total cost represents the relief for the widow, for charities and the increase in the threshold. The reduction in rates accounts for less than a third of the cost. While it represents a real measure of relief, as I have already said it leaves the scale generally higher in real terms than it was in 1949, and by international standards our death duty charge is still exceptionally heavy.

These changes will relieve from duty 40 per cent. of estates which would otherwise have been liable, and with the changes I made last year this means that altogether 50 per cent. of estates which would otherwise have been liable to duty will have been wholly relieved—all of them at the lower end of the scale.

All these proposals will take effect in relation to deaths occurring after today.