§ Secondly, I intend to take measures to close the loopholes which prevent the estate duty from performing the rôle assigned to it. Nothing is more offensive to the vast majority of ordinary taxpayers, most of whom are subject to PAYE, than the knowledge that people far better off than themselves are avoiding taxation by exploiting loopholes in the existing law. If the existing estate duty operated effectively, the great concentrations of private wealth would already have been broken up and with them many of the unfair advantages enjoyed by generation after generation of the heirs and relatives of wealthy men. In practice, however, the estate duty has always been a largely avoidable, indeed, a voluntary, tax. In particular, it does not bite on transfers of wealth made long enough before death to fall outside the charge. My first priority is to remedy its defects.
§ The USA, Australia, Canada and most of Western Europe have found it necessary to reinforce their estate duties or inheritance taxes with gift taxes levied either on the donor or donee. I therefore propose to introduce this year in my second Finance Bill a tax on lifetime gifts—that is, any transactions containing an element of bounty and including gifts in settlement—which will mesh in with the existing estate duty so as effectively to replace it with a comprehensive tax on all transmissions of personal wealth.
§ Since the estate duty is charged on the testator's property and not on the donee's receipts, it follows that the new associated tax on gratuitous transfers of capital during life should fall on the donor, as it does in the United States, but the rates will not necessarily be as high as in the estate duty. The estate duty in its present form has been part of our tax system since the reign of Queen Victoria. We may argue from time to time about the precise rates at which estate duty is levied, but I cannot believe that any hon. Members can reasonably complain if I now take steps to see that a tax which has been on the statute book for nearly 80 years is at last made effective.
314§ The new tax will take effect as from today and will include provision for a charge, falling on trustees, on capital taken out of a settlement and on changes in beneficial interests in possession under a settlement. My hon. Friend the Chief Secretary will give more details of my proposals on Thursday.
§ I recognise that to some who may be affected by these new tax proposals and who are unfamiliar with the way they operate in other Western countries they may seem revolutionary in the extreme. I can assure them that, while I am determined to ensure that the new taxes will be effective instruments for redistributing wealth as a means to greater justice and equality in our society, I am concerned that they should operate fairly on those affected and I will listen to any reasonable representations which will help me to secure this end.