§ Mr. Barry Sheerman (Huddersfield)
I beg to move amendment No. 16, in page 10, line 3, at end insert—'(1B) Property which is normally situated in the United Kingdom but which at the date of the death is temporarily outside the United Kingdom shall be treated for the purpose of subsection (1) above as property in the United Kingdom unless immediately before the date of the death it has been outside the United Kingdom for a continuous period exceeding one year.'.
The Second Deputy Chairman
I suggest that with this it will be convenient to take the following amendments: No. 17, in line 9, leave out 'This' and insert `Subsections 1 and 2 of this'.
No. 18, in line 11, at end add—'(4) Where the estate of a person who died before the passing of this Act included immediately before his death any land in the United Kingdom other than settled land, and he did not indicate by his will how the relevant tax was to be borne his personal representatives shall not be liable at the suit of any beneficiary of the estate for acting in good faith on either of the two views mentioned below.In this subsection "the relevant tax" means tax on the value transferred by the chargeable transfer made on the death so far as it is attributable to the value of the land and the two views referred to are—
- (a) the view that the relevant tax fell to be borne by the land and
- (b) the view that the relevant tax fell to be borne as part of the general testamentary and administration expenses of the estate.(5) Subsection (4) of this section shall apply to deaths before 5 June 1981 in relation to land situate in Scotland and to deaths before the day on which this Act is passed in relation to land situate in England and Wales or Northern Ireland.'.
§ Mr. Sheerman
I congratulate the new hon. Member for Elmet (Mr. Batiste) on his speech; I feel it proper that he should receive congratulations from the Back Benches as well as the Front Benches. I enjoyed his speech and there were elements in it which showed that in any election one can never predict the quality of people coming into Parliament. The press may predict that placemen" are being brought in, but as the vote last night showed, men and women of independent judgment have come here. I enjoyed the hon. Gentleman's speech, especially the humorous passages in it, and I thank him for his kind remarks about some of my former colleagues on the Opposition Benches.
It might help if I gave some background to this series of technical amendments. Capital transfer tax was introduced under section 28, and the related paragraphs of schedule 4, of the Finance Act 1975. Until 1981, the accepted view was that when free real property passed to a beneficiary under a will, the beneficiary himself or herself was liable to pay capital transfer tax, when relevant. A decision by the Court of Session in Scotland in Re Dougal in 1981 gave a new interpretation to the law 1060 governing capital transfer tax. The decision was that capital transfer tax should be paid not by the beneficiary but out of the residue of the estate.
Because England and Scotland have separate legal systems, there was confusion as to whether that new interpretation of the law should hold good in English courts. Clause 13 of this Bill confirms the Scottish decision for both England and Scotland, and thus removes uncertainty for all cases where a death occurs after the Finance Bill becomes law.
However, it is not clear under present law, as modified by this clause, what happens in the case of moveable property—that is dealt with by amendment No. 16—and it is not clear what the implications of the law now are for those cases in which capital transfer tax was charged to the beneficiary under the old, pre-1981 interpretation of the law on free real property between the passing of the 1975 Act and the present. This series of amendments seeks to clarify the law on both points.
The proposed subsection (1B), which is to be inserted in section 28 of the Finance Act 1975, provides that all moveable property which is normally in England shall be treated as being in the United Kingdom at the moment of death of its owner, even if it is actually abroad at the time, except in cases where the property has been outside the country for more than one year. To give a simple example, if one lends one's car to a son or daughter and it is taken on holiday to France, and if one dies while it is there, the car, the property, is counted as having been in the United Kingdom for purposes of tax.
Amendment No. 17 is technical and allows amendment No. 18 to take place. That amendment would add subsections (4) and (5) to clause 13. It is designed to protect personal representatives of a deceased person, executors—sometimes a much-maligned class of people; the result of Agatha Christie novels or occurrences in real life—who have administered the estate either according to the pre-1981 interpretation or to the later Scottish decision in Re Dougal. As the law stands, there is a possibility that disgruntled beneficiaries could take the executors to court.
It may be that a beneficiary has paid capital transfer tax when, on the new interpretation, he would not have been liable, or it may be that other beneficiaries under the will consider that they have been unjustly treated in having to pay capital transfer tax from the residue of the estate, when the common view was that the recipient of the free real property should be liable, until the 1981 decision, to pay the tax. In either case, provided that those administering the estate acted in good faith, and provided that there was no instruction to the contrary included in the terms of the will, there should be no possibility of aggrieved beneficiaries taking legal action against those administering the estate.
The differences in dates for Scotland and England proposed in subsection (5) are the natural consequence of the differing interpretations of the law relating to capital transfer tax which have obtained in Scotland and England between 5 June 1981 and the date of the passing of the Bill.
I appreciate that these are technical amendments. I thank hon. Members for bearing with me and I look forward with interest to the Minister's response.
§ Mr. John Moore
The hon. Member for Huddersfield (Mr. Sheerman) and I share what I was about to call a clear 1061 advantage but, then, my right hon. and learned Friend the Chief Secretary is sitting behind me and he is a lawyer; I was about to say that we are not lawyers. The hon. Gentleman was courteous enough to alert me in advance of what is an important area of great technical and legal difficulty, as opposed to financial technicality. The hon. Member for Livingston (Mr. Cook), who I see taking a keen interest in this subject, will be proud to know that it was Scottish law, as in so many other things, which led the way, and we are seeking in the clause to carry that forward.
As the hon. Member for Huddersfield said, clause 13 is intended to remove uncertainty about the incidence of capital transfer tax where the will is silent about incidence. Until the judgment in a Scottish case in June 1981—called variously Re Dougal or Cowie's Trustees—there has been room for doubt as to the rule in such circumstances in cases in the rest of the United Kingdom. The clause attempts to remove that uncertainty by laying down a rule of incidence, and the rule follows the Re Dougal decision. The proposed rule is quite arbitrary and leaves not unimportant questions unanswered. There is no obvious reason why a period of one year should have been chosen as a test. Moreover, the rule would apparently operate only if the property concerned was normally situated here but was temporarily situated elsewhere at the time of death. The amendment gives no guidance on how these preliminary questions are to be determined.
Amendments Nos 17 and 18 relate to the absence of protection of personal representatives. As the clause will not become effective until the Bill is enacted, uncertainty will remain until then for personal representatives administering estates outside Scotland. It has been suggested that those who have administered estates on the basis of one view or the other during this period of uncertainty may be open to legal action by disgruntled beneficiaries. There have been fears that faced with this danger some personal representatives will not act at all. It has therefore been suggested that the legislation should contain provisions retrospectively covering actions taken by them, whether they have acted on the basis of the Dougal decision or on a previous understanding of the law. Amendment No. 18 would attempt to provide that sort of protection.
Amendment No. 17 is a consequential change to the commencement provisions of clause 13. Ministers have sympathy with executors, who take on a responsible job, often for no reward. They have no wish to make life more burdensome for such people. In any area of uncertainty executors have a duty to administer the estate in accordance with the law. It is not open to an executor to make up his own mind, without proper guidance, on the course of action that he should take where there is uncertainty. The amendment would introduce a novel concept into the administration of estates by providing that an executor could sidestep areas of uncertainty, leaving beneficiaries to fight out the matter among themselves.
Uncertainty about the incidence of tax is only one of many uncertainties with which an executor may be faced in construing a will. There is no reason why beneficiaries should retrospectively be deprived by legislation of their rights to have the estate properly administered in accordance with the law prevailing at the time.
1062 It is clear that these rights are matters for the courts. Existing law provides executors with an appropriate means of protection. Section 61 of the Trustees Act 1925 allows the court to exonerate an executor who has acted reasonably and honestly. For Scotland there is broadly similar provision in section 32 of the Trusts (Scotland) Act 1921. The provisions of these Acts are of general application, but there is no obvious reason why they should be supplemented by provisions to cover this rather special case. We believe that they are adequate as they stand.
It has been argued that if reliance were to be placed on them alone there could be a flood of applications to the courts. We feel that these fears have been much exaggerated. There has been no such flood in Scotland since the Dougal decision upset the previously accepted view of the law. There is no cause to think that the situation would be any different in the rest of the country.
Treasury Ministers have been aware for a considerable time of views expressed by the Law Society and others that there should be retrospective protection for executors. However, after careful consideration we have, with the agreement of the Lord Chancellor, concluded that the current safeguards for executors strike the right balance between the security of the executor and the rights of the beneficiary.
I hope that this explanation will be helpful. The hon. Member for Huddersfield, like myself, does not have a legal mind. However, I thank him for raising issues that are clearly important following the improvement that the clause will introduce in the post-Dougal era.
§ Mr. Sheerman
I hope that the benefit to Re Dougal, wherever he may be, will be felt very shortly. I beg to ask leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.