HC Deb 04 May 1978 vol 949 cc621-30

Motion made, and Question proposed, That this House do now adjourn.—[Mr.Harper.]

11.29 p.m.

Mr. Robert Banks (Harrogate)

I am most grateful for this opportunity to raise a serious legal matter which is of profound importance to a constituent of mine.

This debate concerns the outrageous delay in obtaining agreement to the amount of estate duty liability arising from the settlement of the estate of the late Mr. Thomas B. Kitson, who died in 1959, and the subsequent sale of his shares in Standard Industrial Trust Limited, a private company. Mr. Kitson practised as a solicitor in Yorkshire, but after the 1914 war he set up Standard Industrial Trust Limited in London and prospered, notably after the Second World War.

Mr. Kitson's will named a number of legatees, but he bequeathed his residuary estate to Mrs. Francis Bearder. His wife had died two years earlier and he had no children. Mrs. Bearder and her husband were old and close friends.

Mr. Kitson's total personal estate amounted to over £500,000. My complaint on behalf of my constituent, Mr. Joseph Bearder, who is a later beneficiary, is that there is no excuse for a delay of some 19 years for releasing the estate from further duty obligations, and that a speedy solution must be arrived at, so that the funds may be given out to the remaining beneficiaries.

One of the beneficiaries, a Mr. B. Bearder, died in January of this year. My constituent is an old man, now over 80 years old. He despairs of receiving his inheritance and of the seemingly endless legal wrangle. He and the others can only be onlookers.

I am reminded of Charles Dickens's book "Bleak House", where he painted in his opening chapter a vivid picture of the fog and the mud that enveloped London, not least the densest fog enveloping the High Court of Chancery. He said: Whole families have inherited legendary hatreds with the suit. The little plaintiff or defendant who was promised a new rocking horse when Jarndyce and Jarndyce should be settled has grown, possessed himself of a real horse and trotted away into the other world. The principal asset in the Kitson estate was a block of shares. Six months after the death of Mr. Kitson in 1959 the executors—Mrs. Bearder's husband, Mr. Francis Bearder and Mr. Kitson's secretary, Mrs. Fane—sold the shares to a Mr. A. F. de Breyne, the other principal director of the company. The share price was 75s. per share, at a cost to Mr. de Breyne of £287,000. Any further estate duty liability arising from any subsequent value placed on the shares is not—and I stress this—a liability falling on the executors or beneficiaries of the estate. That liability stayed with the shares.

A dispute arose between the Estate Duty Office and the solicitors, Herbert Smith and Company, acting for the executors, over a gift of cash by Mr. Kitson for the purchase of other available shares in the company, in the joint names of Mrs. Bearder and Mrs. Fane, in 1955. I do not intend to deal with this point, but the Inland Revenue conceded the argument eight years later.

However, the Estate Duty Office later decided to apply Section 46 of the 1940 Finance Act to the shares, and this is the stumbling block. This section was designed to cover cases in which the object of a transaction in the case of the sale of shares was to evade duty—that is, selling the shares below their real value so as to reduce the rate band of estate duty on the estate, as I see it. The question is, therefore, a technical one of the interpretation and application, or not, of Section 46, and, secondly, the method of calculating a value of the shares based on the company's asset value and the revenue over the previous five years accruing to the shareholder.

I must stress again here that any revised estate duty, whether it may or may not be levied on a higher share valuation, would not fall to be paid by the beneficiaries. If, however, such a higher value of shares were to be established, the amount of duty falling on the other parts of Mr. Kitson's estate may be raised as a consequence of the total sum of the estate coming into a higher band of duty.

Duty on the estate of, I believe, 70 per cent. was paid to the Inland Revenue at the outset and that is indeed a rich picking. Correspondence between the solicitors and the Estate Duty Office proceeded in 1960 after an exploratory meeting. An important letter from the Estate Duty Office was, unfortunately lost in the post in 1962 and it seems that it was not until 1964 that the dialogue continued, with Herbert Smith and Co., who also act for Standard Industrial Trust Ltd., maintaining that it would be unreasonable to invoke Section 46 and the Estate Duty Office pursuing its claim and asking for information.

In 1967 the solicitors provided some of this information and in 1968 provided further pieces of information which en- abled the Estate Duty Office to make a calculation under Section 46. This calculation was of a further dutiable slice applicable to a revised value of the shares which had been sold. The solicitors raised technical questions on this calculation and maintained their opposition.

Here I must go back, because in 1961, Mrs. Bearder, who had inherited the estate from Mr. Kitson, died and left her estate to her husband, Mr. Francis Bearder. He died in 1967 and left his estate to his brother, my constituent, Mr. Joseph Bearder, and others.

During this period of eight years, no release certificate, I am told, had been issued so that none of the parties concerned is able to benefit from the funds willed to them and originating from the Kitson estate. Money in a bank account exists and remains untouched.

In 1969, Mr. Joseph Bearder referred the matter to the Ombudsman who concluded that the failure to complete matters had not been due to maladministration. He considered that both parties had contributed to the time taken. His final sentence was that the sooner both parties got together to agree the figures, the sooner it would be possible to close the matter.

For some extraordinary reason, this produced stalemate. In 1970, both sides resorted to litigation. The solicitors issued a writ and, almost simultaneously, the Estate Duty Office originated a summons. The Estate Duty Office, however, obtained an adjournment of the action in February 1971.

It was not until four years later in 1975 that a reply to an affidavit from the solicitors and an affirmation by Mr. Greenfield of the Estate Duty Office, who is joint editor of "Dymond", the estate duty handbook, were delivered.

In 1974, the last surviving Kitson executor, Mrs. Fane, died and new executors were appointed. Early in 1977, the case was heard in the Chancery Division of the High Court. Judgment was reserved, but on 6th April last year, judgment was given upholding the Inland Revenue's interpretation of the relevant estate duty legislation and ordering Standard Industrial Trust Ltd. to provide certain information needed to calculate the estate duty liability. The court allowed the company six months to provide this information with liberty to apply for an extension of time. I can only regard this as more than generous after the 18 years in which the case had been rumbling along.

In July the company gave notice of appeal and it was set down for hearing in the autumn term last year. This hearing has now been postponed for reasons the Minister may be able to explain. This was done at the request of the Revenue. I believe that the case may now be heard at the end of this year.

As it is over 19 years since Mr. Kitson died, a point of concern is whether interest will be payable on any additional amount of estate duty which may be levied in a final outcome. Can the Minister clarify that point? If it were the intention of either party to this disagreement to protract this affair they have been remarkably successful. Indeed, the costs of both parties must be considerable over this long stretch of time.

The real costs are the human costs of lost expectations, frustration and anguish. How is it that a legal system can permit this state of affairs? It seems abundantly clear that Section 46 of the 1940 Finance Act is open to interpretation fit to ridicule and should be amended. I urge the Minister to bring in amending legislation to clarify the meaning and implications of this section at the next available opportunity.

I seek, among other things, to protect other parties from the fate of the line of beneficiaries in this case. What now is to be done? This protracted legal wrangle brings the law and its processes into disrepute. It must surely now be hastened to a conclusion. The estate which has passed through Mrs. Bearder and Mr. Francis Bearder is not a big sum. I cannot say accurately what it is now. Nevertheless, it is now frozen in a bank, I understand.

Certainly my constituent tells me that no one has had anything in the last legacy. The reason is that a release certificate has not been issued. I ask the Minister to use his discretion and authority to absolve that part of the Kitson estate passed on down through Mrs. Bearder from any further duty liability. Whatever the liability is, it cannot be large. A total of £11,000 has been held by the Estate Duty Office, from an over- payment of duty. I wonder what that sum, with interest, would now amount to. Will the Minister confirm that this sum has been attracting interest?

Finally, will the Minister now issue a release certificate? A period of 19 years is too long for anyone's patience. The legal wrangle over the years does not concern the beneficiaries. They have been able only to watch and wait. Will the Minister allow Mr. Joseph Bearder, now an old man, at least some enjoyment from what is rightly due to him, and the other beneficiaries likewise?

11.43 p.m.

The Minister of State, Treasury (Mr. Denzil Davies)

I fully understand the concern which the hon. Member for Harrogate (Mr. Banks) has expressed on behalf of Mr. Bearder concerning the long time it has taken to resolve this matter. I have written to the hon. Member on two occasions and I assure him that I can quite understand that Mr. Bearder is still not satisfied with the situation. The hon. Member, fairly, did not seek to place the blame upon the Inland Revenue. At one stage he chastised our legal system for allowing this to go on for so long, but I am not responsible for our legal system.

The hon. Member for Harrogate also set out the facts of the case very clearly. The original deceased has been named by the hon. Gentleman and I can therefore mention him. One of the difficulties in a case like this is that confidentiality has to be observed and Ministers do not normally divulge these tax matters in public. The original deceased, Mr. Kitson, from whom Mr. Bearder benefits through the estates of two other people, died in December 1959. As Mr. Bearder is only a beneficiary and not an executor of the original testator, he may not be aware of the full details of the various estates though he and the hon. Member are no doubt aware of the general situation, especially as a result of the report made in 1969 by the Parliamentary Commissioner for Administration.

The substance of the case is that as a result of transactions involving the shares of Standard Industrial Trust—the hon. Member has mentioned the company—a company previously controlled by Mr. Kitson, the value of his shareholdings at his death was considerably reduced.

It is not for me to say what was the purpose of the scheme, but I would have thought that clearly one of the results was avoidance of a certain amount of estate duty. In these circumstances, the Revenue suggested that the case came within the terms of Section 46 of the Finance Act 1940, which is concerned with the situation where the benefits of duties a deceased drew or had power to draw from a company are not adequately reflected in the value of the shares duitable in connection with his death.

Although the original deceased died in 1959, Mr. Bearder's interest arose only in 1967 following a third death, so as far as he is concerned we are dealing only with the situation from 1967 onwards.

Section 46 of the 1940 Act no longer applies for capital transfer tax. When the Government in their wisdom decided to do away with estate duty for the future, we decided not to incorporate into the new CTT provisions a provision similar to Section 46, since we believe that the mischief that it was intended to stop is being stopped now under the new CTT provisions without the need for a complicated provision like Section 46. But for estate duty cases it still applies. Thus, the hon. Gentleman's cry for amendment of Section 46 has been to some extent answered in that it does not apply to future deaths.

When the Parliamentary Commissioner for Administration investigated the case at Mr. Bearder's request in 1969, he upheld the Revenue's right to make the claim it had made, and he found no maladministration in its handling of the case. Fe commented on the long time taken to resolve the dispute and expressed the hope that the parties would get together to settle the outstanding points. There was no criticism of the Revenue administration in relation to this protracted case.

In the event, a negotiated settlement between the executors and the Revenue did not prove possible, and litigation has been necessary to settle what is an extremely complicated point of law. Again as the hon. Gentleman said, since 1969 there has been considerable corre- spondence between the solicitors acting for each side to settle preliminary points to pave the way for the case to be heard in the High Court.

The hearing took place early last year and the court found in favour of the Revenue. I am sure that the House will accept that the Revenue has a duty to maintain a claim that it considers to be well founded. The court's decision shows that the Revenue's view of the merits was justified.

An appeal has been lodged and a further hearing before the Court of Appeal is necessary. I am not sure why there is delay in relation to that hearing. Apparently the answer is that the counsel who argued the original case will wish to argue it in the Court of Appeal. Therefore, the situation may be beyond the control of both parties, as they have to employ counsel for such a complicated case.

I can sympathise with Mr. Bearder over the long wait to get the matter settled. The Revenue is as anxious for finality as he is but not at the expense of forgoing duty that it believes to be legally due.

The hon. Gentleman asked me about release certificates. I will look into the point and write to him. He asked me whether I would use my discretion. I am wary of Ministers using discretion to relieve people of taxation. I do not want to venture far down that road. Even if Ministers have discretion in this matter, the Revenue has a duty to collect tax and it should be collected according to the law and not according to the discretion of Ministers.

Mr. Banks

But surely after 19 years this is grossly unfair.

Mr. Davies

There is unfairness in many aspects of our life but it does not necessarily follow that Ministers should use a so-called discretion to override the law. It may be that the law has to be changed. It is unfortunate that Mr. Bearder has been caught in a very difficult and complicated situation that is not of his own making. When these transactions were entered into in 1959, no doubt those advising at the time must have appreciated the possibility that this section might be applied to the case.

All I am saying is that it is very dangerous to ask Ministers to exercise their discretion in a matter involving law, and I would be very reluctant to do so. But I shall look into the question of release certificates and write to the hon. Gentleman to let him know the results of my inquiries.

The hon. Gentleman also asked me about interest. I would expect that if more duty is payable, interest will become payable as well, and that will presumably come out of the first estate. To that extent, if it does, it depletes what Mr. Bearder might get at the end of the day. But again that is a matter that I had better look into.

I have given the hon. Gentleman an assurance, which I repeat, that the Revenue has no interest at all in dragging out this matter—none whatsoever. It wishes to see the matter finalised.

As I have said, Mr. Bearder's interest in the original estate is derived through the estates of two other persons, and he is not an executor of the original testator, Mr. Kitson. I am not able to disclose—although the hon. Gentleman has—details of the original estate nor of the way in which it has been distributed. However, as will be seen from the report made by the Parliamentary Commissioner, and as the hon. Gentleman has mentioned, the shares in Standard Industrial Trust were sold after the testator's death. It seems improbable, therefore, if any benefit is still to come to Mr. Bearder, that it could be in the form of shares, because they have been sold. If Mr. Bearder wishes to have detailed information about the nature or extent of any such benefit, he should of course, consult the present executors of the original testator. It is not for me to make any statement in that regard.

The Revenue is sympathetic to Mr. Bearder's case. He has been caught up in something which is not of his own doing. He was not a party to the original scheme, but unfortunately at three removes he is a beneficiary in estates which go back to the original estate duty avoidance scheme, if such it was. We shall do all we can to ensure that the case conies forward speedily before the Court of Appeal. Whether that will be the final matter or whether there will be another appeal will be determined in the light of that judgment.

Mr. Banks

The Minister will appreciate that my constituent has waited since 1967, which is some 11 years already. I have found little reason to hope that the case will come to a speedy conclusion within a matter of years. I wonder whether there is any formula at all that the Minister can put forward to enable at least some of the funds which are frozen to be released, so that some enjoyment can be obtained by those who are due to inherit.

Mr. Davies

As I have said, I will look into the question of release certificates—I am not quite sure what is meant by release certificates—but I will see whether something can be done along those lines. But I stress again that this is a matter which has been dealt with according to law, and it is not for me to try in any way to circumvent the legal position. Indeed, I would not wish to do so. I hope that the legal processes will come to an end as soon as possible.

Question put and agreed to.

Adjourned accordingly at seven minutes to Twelve o'clock.