§ LORD GAINFORD rose to ask His Majesty's Government whether it is not the case that owing to the high taxation many citizens of this country live abroad to avoid paying Income and other Taxes; also whether for the same reason foreigners have not in many instances disposed of their British investments, and if these facts are accurate whether any estimate can be formed as to the probable loss that our finances here thereby incurred.
§ The noble Lord said: My Lords, this Question has stood for some weeks on the Notice Paper in the name of Lord Lamington. I heard front him yesterday that he would be unable to ask the Question himself, and as he desired that it should be put in ample time before the Budget he asked me to put it in his behalf. I do not desire to occupy more than a few 124 moments of your Lordships' time, but I think a few illustrations ought to be given to show how necessary it is that the Government should attend to a matter of such great importance to the nation and especially to the Revenue. Every one knows that the high taxation has greatly interfered with the prosperity of trade. This Question raises the point of individuals changing their domicile and their investments owing to the high taxation from which we are now suffering.
§ I was recently in America and noticed a disposition on the part of Englishmen doing business there to remove their business premises from here to America in order to avoid the excessive double taxation which falls on those who have an English domicile and carry on business in America. They are taxed in America as well as in this country. The American law is much more just, and an American citizen carrying on business in another country as well as his own is taxed only to the extent to which the tax in America requires; in other words, he has only to pay to the American Government in connection with the business carried on in another country the difference between the tax in that other country and that which is levied in America. The effect of our law, on the contrary, is to divert the business and the domicile of individuals to other countries instead of retaining them here.
§ Let me mention also the great and increasing number of individuals who have served the British Empire in Australia, China, Hong Kong and other parts of the Empire and for a period of many years have been exiled front their homes in the service of their country. They come back here, sometimes for good, at other times with a view of remaining here for a year in order to be at home in their native country but owing to the system of taxation they find it necessary to leave the country before six months have expired. Yesterday I was told of an individual who declined to go to church on Easter Sunday last because the six months had expired and he was afraid of being seen. There are many other cases. I have knowledge of individuals who have come home but are now leaving the country before the expiration of the six months, and of a great number of others who are being driven away. They are removing their securities, selling out, and settling abroad, 125 although they really want to settle at home. A case was mentioned to me to-clay of a medical man of world wide reputation who is receiving an income of£12,000 a year. He is proposing to go abroad and remain abroad for over six months in the year because he knows he can obtain exactly the same income by practising abroad as he does at home.
§ I mention these cases because they are of a class that is increasing in number. It is obvious that when men who have served the Empire abroad, as many have done, come back to this country in the hope of remaining here for the rest of their lives, and find it absolutely impossible to live here more than the period which is permitted without incurring Income Tax upon the small savings they have made, the grievance is a real one. But it is not on account of the hardship to individuals that I raise the point, so much as because those individuals are driven more and more to realise their securities in this country and to reside abroad. About a month ago there appeared in The Times a letter signed by a banker, who stated that a very large number of securities were being realised by investors, who were withdrawing their investments in order that they might reside permanently abroad and escape taxation at home. It is a matter which, to my mind, requires the attention of the Government, and I hope the Government will give it their consideration between now and. the introduction of the Budget. If any information can be given by the noble Lord who answers for the Government in reply to the Questions I have asked on behalf of Lord Lamington, I shall be grateful.
§ VISCOUNT NOVARMy Lords, my noble friend has called attention to a matter which is of great importance not only to individuals but also to the finances of the nation. A great number of visitors from overseas have to leave the country at the end of a certain period in order to escape the taxation. My noble friend also referred to those who seek residence abroad in order to escape the higher scale of living at home, as another source of loss. This all results in a grave loss to the finances of the country. It is unnecessary to leave the Empire and go to a foreign country. If you go to Ceylon you find yourself in a country where there is no direct taxation upon land whatever, and 126 in many of His Majesty's overseas Dominions the taxation is about half what it is in this country. Therefore, there may be great migration within the Empire in order to escape the heavy burden of taxation in the United Kingdom. There is also the case of those who come from His Majesty's Overseas Dominions to this country, and who have to expedite their departure owing to the oppressive taxation they find here. That is to be regretted from many points of view. But the serious effect on this country will be that instead of emigration from this country being amongst those who have little capital, it will probably be amongst those who have most.
§ LORD HYLTONMy Lords, I will answer the three parts of the Question put to-day as well as I can. I am afraid that it is impossible, wit bout further notice, to go into the question of the double Income Tax. I remember that a session or two ago we had a very technical discussion upon that subject, and if due notice be given such information will be supplied as is in the possession of the Treasury. The noble Lord asked whether it is not the case that owing to high taxation many citizens of this country live abroad in order to avoid paying income and other Taxes. No one will dispute that the taxation at present levied in this country is high, but as to whether many persons leave this country and live abroad for the purpose of escaping high taxation, one finds it rather difficult to define the word "many." It will hardly be disputed that there are citizens of this country who have left these shores and are now living abroad.
This is no new question. We have all heard of our acquaintances, our friends, and in some eases our relatives leaving this country, for a time at all events, in order to do what is commonly called retrench. Abroad they are able to reduce the standard of living to which they have been accustomed in this country, and which they may have felt themselves called upon to keep up here. I am prepared to admit that, but what I am not prepared to admit is the assumption in the Question that citizens of this country live abroad in order to avoid paying Income and other Taxes. Unless they remove not only themselves but their wealth abroad the mere fact of their living abroad for a time does not enable them to avoid payment of income Tax in this country.
127 The second Question asked by the noble Lord is of a different kind—namely, whether, for the same reason, foreigners have not in many instances disposed of their British investments. As regards the sale by foreigners of British investments in order to avoid payment of British taxation, the only direct evidence which we have does not support the suggestion made. The estimated net capital value of estates for Estate Duty purposes, where the deceased had a foreign domicile, was in 1920–21 1.58 per cent. of the total net capital paying Estate Duty, as compared with a pre-war average for the ten years ended March 31, 1915, of 1.49 per cent.
I may mention, as a matter of more or less interest bearing on this subject, that Section 47 of the Finance (No. 2) Act, 1915, authorised the issue of British Government securities with a condition that neither the capital nor the interest thereof should be liable to any taxation in the United Kingdom, present or future, so long as the beneficial owners of the securities were neither domiciled nor ordinarily resident in the United Kingdom. Under an amending section—Section 44 (1) of the Finance Act, 1916—the exemption from Income Tax and Super-Tax is given where the beneficial owner is not ordinarily resident in the United Kingdom without regard to his domicile. Large blocks of British Government securities have been issued under this condition, including the 5 per cent. War Loan, National War Bonds, Funding Loan and Victory Bonds. There is thus open to foreigners a large field of British investment which does not lay the investor under the burden of the principal heads of British taxation. It may, therefore, be assumed that the advantages offered to foreigners by these particular securities have led in numerous cases to a change in the description of British investments held, but there are no further statistics available that I can furnish to the House on that particular point.
As to the third Question, it is impossible for me to give an answer. No estimate has been formed, and I am afraid from the data in the possession of the Treasury it would be difficult to form an estimate, of the loss our finances have incurred. I am sure the House will sympathise with the view put forward by the two noble Lords who have taken part in this discussion that citizens of this country should be compelled by stress of circumstances to 128 live abroad. In the natural course of events I should have assured noble Lords that this matter would be brought to the consideration of the Chancellor of the Exchequer, but if I were to do that in present circumstances it would be merely beating the air, for the Chancellor of the Exchequer is but too well acquainted with the dire financial stress of this country. The particular point brought forward by the noble Lord this afternoon is one with which, I am sure, the Chancellor of the Exchequer is already acquainted.