HL Deb 01 June 1932 vol 84 cc530-7

THE EARL OF IDDESLEIGH rose to call the attention of His Majesty's Government to the practice of claiming Income Tax from persons holding military or civilian Government appointments in India and the Colonies who reside for more than six months in this country when on leave; and to move for Papers. The noble Earl said: My Lords, I am going to ask His Majesty's Government to consider extending the period of exemption from Income Tax from six months to one year in the case of Government servants in India and in the Colonies when home on leave. I am very well aware that any person who suggests even the smallest alleviation of the yoke of taxation which we have to bear in the present emergency must adopt a defensive and even an apologetic attitude.

My motive in raising the matter at the present time is twofold. In the first place, it was raised last year by my noble friend Viscount Elibank, and I am most anxious that it should not be forgotten, but that it should receive the most careful consideration of every Government. In the second place I hope to show that the direct loss to the Exchequer may very well be smaller than appears at first sight and that the gain to British trade may be well worth considering. This is not perhaps the most suitable opportunity to pay a tribute to those very gallant gentlemen the members of the Indian Civil Service and the officers of the Indian Army and of the British Army in India. Suffice it to say that any concession which might be made on their behalf at the present juncture would be peculiarly appropriate. The civil servants are bearing an immense burden of responsibility. They are carrying out their duties at the risk of their lives. The officers of the British Army in India and the Indian Army have to be prepared at any moment for the most distasteful duty, I suppose, that lies within a soldier's part—the duty of leading out their troops in aid of the civil power to suppress rioting and commotion. Recent events in Bombay, when the troops and the civil servants alike behaved with such consummate coolness and gallantry, will be fresh in the memory of noble Lords.

For reasons of health, officers stationed in the tropics are necessarily granted fairly lengthy periods of leave. It is no uncommon thing for an officer to receive nine months or even a year's leave, to be spent at home. They naturally desire to spend that period in the home country to see their relatives and friends and to renew acquaintance with the normal pleasures of English life. But if they remain for so long a period as six months in this country—six months in any one financial year—they are compelled to pay Income Tax on all the money which they receive while in this country and on any money which may be remitted to them in this country during that financial year. That is the position in the case of those who have no domicile here. If they have a residence in this country they would be compelled to pay Income Tax to the full amount during the financial year if they visited the country even for a day. It is particularly hard in the case of those officers who have children being educated in England, for if they spend more than six months here they are taxed on any sums which they may remit to England for the children's education.

In those circumstances it is no wonder that a certain number of officers spend a portion of their leave on the Continent. A man with nine months leave will spend several months abroad and will take care to be in this country for less than six months. I have no idea of the number of officers who take this course, but I have heard of a number of instances recently and I think it may be supposed that the proportion of officers taking this course will increase while the burden of Income Tax is so very heavy. They are not wealthy men. Their salaries are by no means on a too generous scale and their expenses while on leave are very considerable and unusual. The position is an extremely unfortunate one. It involves British internal trade in a considerable loss. A man on leave is generally a good spender, and it is, from the most severe economic point of view, a thousand pities that he should spend his money out of the country.

The remedy is comparatively simple. It is to increase the period of exemption from Income Tax to one year. How much would this cost? We cannot answer that question until the Government has made some investigation into the number of officers who do in fact pay tax while on leave. I suggest that this examination should be made with as much care as possible. Two noble Lords far more eloquent than myself have pleaded this cause. I have already referred to the Motion of the noble Viscount, Lord Elibank, last year. May I be allowed to quote from the reply given to him by the noble Lord, Lord Passfield? Speaking of the case of officers on leave, he said: That, I think, is a somewhat hard case. I am not Chancellor of the Exchequer, but I shall certainly take an opportunity of representing that case to the Chancellor of the Exchequer, because I have been brought into contact with it in the Colonial Office, and I think it is a little hard on the British official who has gone out to the tropics and comes home that he should be charged in that way. In response to a, question addressed to the noble Lord, Lord Passfield, later in the year, my noble friend Viscount Elibank was informed that those representations had failed.

I am certain, however, that they ought to be renewed from time to time. I trust that the present Secretary of State for the Colonies will not be backward in making them. I am sure that he will be joined by the Secretary of State for India and perhaps by the noble and learned Viscount the Secretary of State for War. I very much hope that the noble Viscount, Lord Snowden, will give, if not an affirmative, at least a sympathetic answer to the considerations I have put forward, which very vitally affect a class of men to whom we owe a particular debt of gratitude. I beg to move.


My Lords, the question which has been raised by the noble Earl is one which, as he himself said, has often engaged the attention of Parliament. It was under the consideration of your Lordships about twelve months ago. It has become something of a hardy annual. There is, I know, a great deal of interest in this question arising out of the feeling of grievance at the taxation to which the Motion calls attention. The noble Earl has confined his request to one for consideration of an extension of the period of residence in this country which would render a visitor liable to taxation. Perhaps before I give a reply to that direct question I may deal briefly with the law as it stands at present in regard to the taxation of visitors to this country. The liability to British Income Tax in respect of income derived from sources outside the United Kingdom is determined by residence, and the first thing is to see in what circumstances visitors to this country become resident within the terms of Income Tax law. Lord Passfield, I believe, in the debate to which the noble Earl has referred, gave an interpretation of the law in this respect and therefore I will just state it very briefly in one or two sentences. A visitor is charge- able as a resident for an isolated year in which he is here for six months or upwards; or for any year in which, a place of abode available for his use being maintained here, he visits the United Kingdom; or if as part of his habit of life he is regularly here for substantial periods. "Substantial period" in practice is interpreted as being three months.

I may point out that the particular classes to which the noble Earl calls attention—persons, that is, holding military or civilian appointments in India or the Colonies—are in no different circumstances from other visitors in this country, and one of the difficulties in the way of making a special exemption in favour of these particular classes would be that we most certainly could not confine it to these people alone. If the principle were once surrendered, I think it would be impossible to prevent the extension of it to other visitors. By becoming a resident in this sense in the United Kingdom a visitor does not extend his taxation liability in respect of income derived from United Kingdom sources; he is chargeable on such income whether he is resident in the United Kingdom or not, with one or two exceptions. There are certain war loans in respect of which the tax is not ordinarily charged.

As regards income from sources outside the United Kingdom, Indian and Colonial officials of the class to whom the Motion refers incur in a year in which they are resident here liability in respect of remittances out of pay received abroad and in respect of any leave pay issued in this country. As I said, these particular classes are exactly in the same position as all other visitors to this country, but I would like to point out, although I have no doubt the noble Earl is familiar with the fact, that six months does not always mean six months —if I may put it like that. It is six months within an Income-Tax year and, therefore, if a visitor to this country were to select a particular period of the year for commencing his holiday in this country he might live here for nearly ten months without rendering himself liable to Income Tax. If he came, say, in December, he would have four months of one Income-Tax year and then he could reside here for more than five months after the end of the following March.

As to an extension to twelve months this was a matter considered by the Royal Commission on the Income Tax and that Commission, after exhaustively examining the whole problem, came to the conclusion not to recommend that there should be an extension of the period of non-liability, but that it ought to be restricted in the sense that six months residence in this country, whether it overlapped into a second Income-Tax year or not, should make the visitor liable to the Tax. The Royal Commission said that any person who continuously resides for six months within the United Kingdom where that six months residence falls within one or two Income-Tax years should be liable to be assessed as a British resident for a complete year—apportioned if necessary between two years of assessment. This Royal Commission, therefore, which had all the facts before them, not only refrained from making any recommendation of a relaxation of the rule, but recommended that it should be strengthened.

The noble Earl said that he was of opinion that if the relaxation for which he asks were conceded there probably would be very little loss of revenue and the trade of the country would be stimulated by the spending power of the visitors concerned. In regard to the amount of revenue involved, may I say that this is by no means the determining factor in the Government's hesitation to make any relaxation of this rule? I am not in a position to give your Lordships even an estimate of the amount of revenue which would be lost by extending the period from six to twelve months. It might not be very large, but it would be extremely difficult and very expensive to get at the actual cost because the assessments are spread over innumerable tax districts. The collection of the information would not only be very prolonged; it would involve a great amount of labour and very considerable expense. But as I said, that is not the chief reason. The main reason is that it would be impossible to discriminate between the classes to which the Motion refers and all other visitors to this country, and the Indian and Colonial officials are, I should think, but a very small percentage of the number of people who come to reside temporarily in the United Kingdom and therefore render themselves liable to Income Tax. Having once made the concession in the case of a small class, and it being im- possible to prevent an extension of it, the loss of revenue would be very considerable indeed, and I think your Lordships will agree that this is hardly a time when the Exchequer can afford to sacrifice revenue even of a very small amount.

Speaking as one who has had some experience of dealing with taxation matters, I may say that this is by no means the only grievance felt by taxpayers. As I have often said in the other place, if I had, as Chancellor of the Exchequer, a surplus of some tens of millions and I had a difficulty in knowing how to dispose of it, I think I should make a good many reforms in the incidence of taxation, where I am convinced that the incidence at present presses very harshly; but these considerations cannot be taken into account in the present financial position of the country. I have tried to give the noble Earl and your Lordships the reason why the Government do not feel justified at the present time in entertaining this proposal for the extension of the period from six months to twelve months, and the main reason for that is, I repeat once more, that it would be quite impossible to restrict that consideration to this particular class. May I say that I associate myself most warmly with the tribute that the noble Earl paid to the servants of the country in India and in the Colonies? They go out there, I believe, inspired by high motives. They live in all cases an arduous life, and in some cases a very dangerous one, and no tribute that we could pay to their services would, I am sure, be too generous. I regret that I have not been able to give the noble Earl a more satisfactory reply than this, but I am quite sure he will appreciate the difficulties that I have stated, and also the impossibility of doing anything at the present time which would involve a sacrifice of revenue. I am not, I repeat, and I am quite sure the Government are not, without sympathy with this grievance which I know is quite honestly felt but which is a grievance with which I regret we are not able at the present time to do anything to deal.


My Lords, I am grateful to the noble Viscount for the sympathetic tone of his answer, and I cannot say that I am surprised or particularly disappointed by the unsatisfactory contents of it. If I may make a few remarks upon the subject, his references to the recommendations of the Royal Commission on Income Tax were extremely alarming and I hope they may not be carried into effect. To Government servants in India the fact of the six months having all to be in one Income Tax year is not particularly comforting, for, as many of your Lordships know, it is the practice in India to begin one's leave before the hot weather and to come back here just before the beginning of the ordinary Income-Tax year, and so the majority of long-leave periods do fall within the Income-Tax year. I much regret that the noble Viscount is unable to make an exception in the case of these officers. The usual ground on which in politics we are anxious not to make exceptions of certain classes is that a certain amount of jealousy may be aroused. I do not think that if we had the courage to make this exception any jealousy at all would be instilled into anybody. No foreigner who was forced to pay Income Tax after six months would grudge the exemption of a further six months to officers of His Majesty's Government. But, my Lords, I will not say more, and as I believe there are no Papers which could advantageously be laid, I will ask leave to withdraw my Motion for Papers.

Motion for Papers, by leave, withdrawn.