HL Deb 25 March 1943 vol 126 cc914-26

Order of the Day for the House to be put into Committee read.

Moved, That the House do now resolve itself into Committee.—(The Lord Chancellor).

On Question, Motion agreed to.

House in Committee accordingly:

[The EARL OF ONSLOW in the Chair].

Clause 1.

Extension of powers under 15 Geo. 5. c. 18 s. 64 and c. 19 s. 57.

(2) The said circumstances are that the Court is satisfied—

  1. (a) that the action taken or proposed was or would be for the benefit of the persons entitled under the settlement, or under the trust for sale, as the case may be, generally; and either
  2. (b) that the available income from all sources of a person who, as being beneficially entitled to possession or receipt of rents and profits of the land or to reside in a house comprised therein, ought otherwise to have borne the expense of the action taken or proposed has been so reduced by reason of circumstances arising out of war conditions as to render him unable to bear the expense thereof, or unable to bear it without undue hardship; or
  3. (c) in a case in which there is no such person as aforesaid, that the income available for meeting that expense has become insufficient by reason of circumstances so arising.

(3) In determining whether to make such an order as aforesaid the Court shall, as respects the matters referred to in paragraph (b) of the last preceding subsection, have regard to the extent of the obligations, whether legally enforceable or not and whether or not relating to the land, of the person in question, and shall not except for special reason make the order if his available income has been reduced by action taken by him for avoidance of liability to Income Tax, and shall have regard to the extent to which other persons entitled under the settlement or trust for sale are likely to benefit from the action taken or proposed or from the relief which would accrue to that person from the making of the order, and to the extent to which the making of the order would be likely to involve a loss to any other person so entitled without his receiving any corresponding benefit.

(6) No order shall be made by virtue of this section after the expiration of the Emergency Powers (Defence) Act, 1939.

THE LORD CHANCELLOR (VISCOUNT SIMON) moved, in paragraph (b) of subsection (2), to leave out "ought otherwise to have borne" and insert "might otherwise have been expected to bear." The noble and learned Viscount said: I pointed out on the Second Reading that; generally speaking, a tenant for life cannot be compelled to effect the repairs and maintenance which would naturally fall to his charge, and my noble and learned friend Lord Maugham emphasized that the word "ought," which had been inserted in the Bill, might be understood to refer to a positive legal obligation. I feel the force of that criticism, and am grateful to my noble and learned friend. I am proposing, therefore, that the words "might otherwise have been expected to bear" should be inserted, as having a more neutral implication, while quite clearly pointing out, I think, what is intended in the clause.

Amendment moved— Page 2, line 4, leave out ("ought otherwise to have borne") and insert ("might otherwise have been expected to bear").—(The Lord Chancellor.)

On Question, Amendment agreed to.

THE LORD CHANCELLOR moved, in subsection (3), to leave out the words "as respects the matters referred to in paragraph (b) of the last preceding subsection." The noble and learned Viscount said: This is an Amendment of more importance, and I must briefly state the effect of it. An inspection of the Order Paper does not at once lead to a clear understanding of what is involved, but I think that I can deal with it in this way. I wish to delete from Clause 1 (3) any specific reference to an arrangement for the avoidance of liability to Income Tax. This is also a point on which my noble and learned friend Lord Maugham animadverted on the Second Reading. For my own part I do think it is a pity if, for instance, a tenant for life has made highly elaborate and artificial arrangements to receive what he spends in the form of capital instead of income (as can be done by appropriate devices), that he should simply come forward and say: "I have not got any income and so I must ask for some relief under this Bill." On the other hand, if this were made the specific subject of inquiry it would involve in some cases very elaborate investigation which would greatly increase the expense and would throw a great burden on the Chancery Judge. I am satisfied on further reflection that it is better not to insert that provision of the Bill.

The subsection as I propose it should run is one which would require the Chancery Judge to consider all the circumstances. I think the best way to make my proposal quite plain is to read to the Committee subsection (3) as it would run if my Amendment were adopted. It would then run this way: In determining whether to make such an order as aforesaid the Court shall have regard to all the circumstances of the case, including the extent of the obligations, whether legally enforceable or not and whether or not relating to the land, of the person referred to in paragraph (b) of the last preceding subsection, the extent to which other persons entitled under the settlement or trust for sale are likely to benefit from the action taken or proposed or from the relief which would accrue to that person from the making of the order, and the extent to which the making of the order would be likely to involve a loss to any other person so entitled without his receiving any corresponding benefit. Your Lordships will notice therefore that there is no specific reference to the question as to what arrangements had been made which might avoid liability to tax.

I must point out one other matter on which at an earlier stage of the Bill there was some difference of opinion, though I hope there is not now. I do take the view, and I hope your Lordships will support me in this, that it is right that we should in this new Bill call for the action of a Judge. That will particularly arise on an Amendment which is on the Paper in the name of my noble friend Lord Maugham a little later on. But I further take the view that the Bill is correctly drawn in saying that the judge shall examine the whole extent of the income of the applicant, and not merely that bit of income which he is drawing from the particular settlement. It appears to me that if a very rich man—if, indeed, in these days anybody can be so described—has also the position of tenant for life under a settlement of land, the question whether he should get additional power to use capital for the purpose of the present maintenance of the property ought in part to depend on what is the total extent of his resources. Because, of course, if we give him such power the result is that the remainder-men—it may be the children—have so much less, because a portion of the capital is going to be spent by the tenant for life. I think I have explained the nature of the Amendment sufficiently, and I beg to move flat this Amendment be made. It will carry with it the other Amendments on the Paper which are associated with it.

Amendment moved— Page 2, line 14, leave out from ("shall") to ("have") in line 15.—(The Lord Chancellor.)

VISCOUNT MAUGHAN

I am extremely grateful to the Lord Chancellor for his consideration of the points I urged on Second Reading, in particular the one which deals with the question whether the Judge shall have regard to action taken by the tenant for life for avoidance of liability to Income Tax at some previous date. I mentioned them, perhaps wrongly, on Second Reaching, simply because—and I think on the whole it is not a bad practice in his House that one should take that course—simply because I was so desirous to have the Government's consideration of the objections I had to the Bill at an early stage, in order that the Lord Chancellor should consider, and if possible endeavour to meet, such objections as I as a lawyer took to various points which arose on the Bill as it was presented to the House. As I say, I am extremely grateful to the Lord Chancellor, and I am very glad that those words which relate to avoidance of liability to Income Tax have now been deleted.

I must say I maintain my opinion as to the impropriety of these words going into this measure, and I do not quite take the view that a Lord Chancellor who has long been a distinguished Chancellor of the Exchequer may quite naturally take on the subject of avoidance of Income Tax. I take the view, which Lord Chancellors before the noble and learned Viscount have more than once expressed, that your liability to Income Tax is that which is effected by legislation, and that there is nothing to prevent a man taking steps to avoid corning within the real terms and the real meaning of the legislation which deals with the subject. In saying that, I entirely agree that a man who in time of war seeks to diminish his liability to Income Tax is worthy of reprobation. I agree that in times of peace I take the old view that you are bound by what the law has provided, and you are not doing anything wrong if you turn yourself or your property into a private limited company, or do something of that kind for the purpose of avoiding tax. In peace-time I think that is not wrong. It may not be noble, in fact, we may admit it is not noble; but I cannot see anything wrong, and I should very strongly object to clauses of this sort having the effect ex post facto of imposing on a man a liability which the law had not previously imposed. So much for that matter.

As regards the other matter which my noble friend referred to—namely, the question whether, when the matter goes to the Court, the Judge should regard all the available income from all sources of a tenant for life—though that does not arise on any Amendment which is before the Committee—I can conceive arguments in favour of it, and I myself am not inclined to deal with that matter at all. I am not, therefore, satisfied that, in some cases, it will result in justice, but I am not sufficiently concerned with the matter to wish to say anything about it. The net result is that, so far as the Amendment before the Committee is concerned, I am very happy to accept it. It will have the effect that the first Amendment I have on the Paper will not be moved.

On Question, Amendment agreed to.

THE LORD CHANCELLOR

I beg to move this consequential Amendment.

Amendment moved— Page 2, line 15, after ("have regard to") insert ("all the circumstances of the case, including").—(The Lord Chancellor.)

On Question, Amendment agreed to.

THE LORD CHANCELLOR

I move the next Amendment.

Amendment moved— Page 2, line 17, leave out ("in question") and insert ("referred to in paragraph (b) of the last preceding subsection").—(The Lord Chancellor.)

On Question, Amendment agreed to.

THE LORD CHANCELLOR

I move the next Amendment.

Amendment moved— Page 2, line 17, leave out from ("question") to the first ("the") in line 21.—(The Lord Chancellor.)

On Question, Amendment agreed to.

THE LORD CHANCELLOR

I move the next Amendment on the Paper.

VISCOUNT MAUGHAM

One very small point, so small I hardly dare mention it. Does not the word "to" occur twice in line 24? The point is so trivial that I dare say the draftsman would see to it.

THE LORD CHANCELLOR

The noble Viscount is quite right, and I shall amend the Amendment so that it will read to leave out the first "to" in line 24.

Amendment moved— Page 2, line 24, leave out the first ("to").—(The Lord Chancellor.)

On Question, Amendment agreed to.

VISCOUNT MAUGHAM moved to insert after subsection (4): (5) During the continuance of this Act, Part I of the Third Schedule to the Settled Land Act, 1925, shall be treated as amended by the addition of the following words: (xxvi) Repairs not being merely of a decorative character to the principal mansion house or other residential houses the repair of which is already authorized under the said Act, provided that the total sum to be applied under this head shall not exceed the sum of five hundred pounds.

The noble and learned Viscount said: This is an Amendment the nature of which I endeavoured to explain on the Second Reading. I do not propose to weary your Lordships with a repetition of what I said on the last occasion. It is to be found in, I hope, fairly lucid language in the Official Report. I shall only say this. I am strongly of the opinion that with regard to the small repairs I have mentioned here, which are limited to the total sum of £500 and which relate to matters which are as much in the interests of the remainder-men, who are generally the children, as in the interests of the tenant for life, it is a great pity that advantage was not taken by this Bill to enable the sums in question to be provided for out of capital moneys without going to Court. If the sum involved is £100 or £200 or something like that, it is very regrettable that, in order to get that paid for the purposes of repairing the mansion house, it should be necessary for the tenant for life to involve himself in a somewhat expensive proceeding of affidavits and all sorts of red tape before he can get the amount paid out of capital money. It is for that reason that I have put down this Amendment. As your Lordships will see, it relates to a comparatively small matter, and I must admit it is not quite so important as it was when I first put the Amendment down, because the difficulties of the Court, and the expenses incurred in going to the Court, are not so great now that the Lord Chancellor has moved the Amendment which results in the omission of the provision about previous acts of the tenant for life to evade Income Tax.

The substance of my Amendment is that if the sum is small, the tenant for life is unfortunately in this position that he knows, in order to obtain the money out of capital, he has to incur expenses of a legal character which may double the expense that will fall on capital moneys. Thus he may have to spend £100 or £150 in costs in order to mend a roof to the extent of £100 or £150. Thus he will double the cost of doing the repairs which, it may be, in the present state of the world and the present enormous increase of Income Tax and Super Tax, he may be quite unable to bear out of his own funds. I have to admit that the Lord Chancellor has, to some extent, met me, and I also have to accept the view that it is unlikely I can persuade a sufficient number of people to follow me into the Lobby in support of an Amendment the justice of which, perhaps not unnaturally, I still maintain. Accordingly, unless some other supporter arises, I am prepared to accept the view that the Amendment should be negatived. I do not withdraw it, because it is quite possible that in another place a favourable view will be taken of it, but I am content on this occasion, to save your Lordships' time, unless some other noble Lord wishes to address the Committee on the subject, that the Amendment should be negatived.

Amendment moved— Page 2, line 33, at end insert the new subsection.—(Viscount Maugham.)

LORD GREENE

My excuse for making one or two observations must be the fact that I have made a very particular study of this Bill. The Amendment that was last moved by the noble and learned Viscount, Lord Maugham, was one on which, if it had been submitted to a vote, I should have been compelled to differ. It seems to me that it goes against the whole principle of the Bill, for this reason. It has always been the policy of the Legislature to leave tenants for life to bear the cost of repairs out of ordinary income. That has been the policy of the Legislature for close on one hundred years. This Bill departs from this policy for a very good reason—that in present circumstances it may be a hardship on tenants for life to leave them to bear the expense of these repairs out of a very much diminished income. The policy of the Bill quite clearly is that if the tenant for life is to be entitled to dip into capital which belongs to somebody else for the purpose of paying for repairs which normally ought to fall upon him, he should only be allowed to do so in special circumstances of hardship and after he has satisfied the Court that the expenditure is one which ought fairly to be allowed him.

Now the effect of the Amendment would have been to allow the tenant for life, without any reference to hardship, without any examination of anybody as to whether or not he might fairly be expected to defray the expense out of what is left of his income, to go to somebody else's property—namely, the remainder-man's property—and pay out of that property, without any control at all, every single running repair to the house which forms part of the settlement. If your Lordships have looked at the main part of the Bill you will see that it is only in cases where hardship can be shown that the Court is given power to intervene. Under this Amendment no such power of the Court would be interposed between the tenant for life and the remainder-men who are to be so substantially affected. For these reasons, which have briefly endeavoured to explain, I should have opposed this Amendment.

I do not know whether I should be in order in adding perhaps two sentences on another point which the noble and learned Viscount, Lord Maugham, referred to, and that is the provision with regard to avoidance of taxation. I apprehend that that appeared in the Bill for this reason, that if the tenant for life is seeking to put upon the shoulders of the remainder-man something which normally would be an income charge, he ought not to be entitled to get that relief if he has in fact so arranged his affairs that he is not getting any income at all in the true sense because, as the Lord Chancellor pointed out, we are all of us, at any rate in the law, familiar with cases where a person has so arranged his affairs that he receives no income but receives instalments of capital. I do not share the rather moderate views of those expedients which the noble and learned Viscount has just expressed. Personally I venture to take a rather stronger view about them. Apparently it certainly did seem to the framers of this Bill that a person who had done that should not be entitled to come to the Court and say: "It will be a great hardship on me because I have not got enough income left to pay for the repairs of my house." That was the object of it. I must ask the kind indulgence of the Committee for having spoken and I thank your Lordships for the way you have listened to me on this the first occasion on which I have had the honour of addressing you.

THE LORD CHANCELLOR

I will say only just a word as my noble friend is not pressing the Amendment he has moved. Had he persisted in it those of us who hold strong views on this particular matter would have voted against it. The views of those who are opposed to the Amendment are those which have just been expressed in the speech that we have all been very glad to listen to, on the first occasion when the Master of the Rolls has taken part in our discussions. I put the same point in another way. It seems to me that the principle of this Bill involves two propositions. The first is that when the available income from all sources of the tenant for life is insufficient to do what he would normally do, he may properly apply to diminish the capital to the prejudice of those who come after him. The second principle is that the expenditure in question must be for the benefit of the persons entitled under the settlement generally. I cannot help thinking that it would be very difficult, even in a case involving no more than £500, to administer those principles correctly unless you took the ordinary process of applying to the Judge for the purpose of getting an order. There is no reason why such an application should be expensive. In a straightforward case it certainly would not be. I myself have much less knowledge of this matter than either of my noble friends has, but I am quite satisfied that it would be wrong to allow this to be done without the intervention of any judicial authority.

VISCOUNT MAUGHAM

I told your Lordships before that I was not going to take up more time on this. I rise now for two purposes only. The first is to express the pleasure with which I heard the speech of my noble friend the present Master of the Rolls, who, if I may be allowed to say so, was associated so long with me in the same chambers in Lincoln's Inn. It is a most pleasant thing to hear him even if he opposes some of my views. The other thing I want to say is this. I feel that this matter may be discussed in another place, and I say quite shortly that I cannot myself appreciate some of the arguments which have fallen both from my noble and learned friend and from the noble Viscount the Lord Chancellor. It seems to me they have entirely omitted to see that the old view of the Settled Land Act, as it was passed in 1882, was altered when Lord Birkenhead's Act of 1925 came on to the Statute Book. Owing to the enormous increase in Income Tax the Legislature then thought fit to insert a long list of twenty-five matters, called improvements, which the tenant for life by his own motion could procure to be paid for out of capital moneys on the certificate of a surveyor and without approach to the Court. I gave a list of those matters.

I mention only this one at the present moment. There may be repairs of all sorts of things which ordinarily a tenant for life would pay for, such as repairs to a farmhouse, and there is actually included in the twenty-fifth head the rebuilding of the principal mansion house on the settled land without going to the Court at all. It does seem to me extraordinary to make what I cannot but describe as a sort of song and dance over the suggestion that a total of £500 should be expended in repairing the roof of the mansion house for which any ordinary tenant for life would, of course, pay out of his own money. You must not suppose that a tenant for life is hostile to his children. He will do everything he can to keep the property going for their benefit, and it does seem to me that the arguments in favour of this being allowed at a date when many tenants for life have practically no income at all left after their families have been supported are wise. There I must leave it, and submit to have the Amendment negatived.

On Question, Amendment negatived.

THE LORD CHANCELLOR moved, in subsection (6), after "section," to insert "in respect of any action taken or proposed to be taken." The noble and learned Viscount said: The noble Earl, Lord Warwick, on the Second Reading, called attention to this point and I am endeavouring in this Amendment to meet him to some extent. He pointed out that the Bill was limited in this part of the clause so that it would not operate after the expiration of the Emergency Powers (Defence) Act, 1939. I agree that rather more latitude is needed, but I would prefer not to go further than I do in this Amendment because I think we had better see how this legislation works out. If it works satisfactorily it may be that nearer the end of the war we shall want to prolong its operation. The point is that the Bill authorizes application to the Court not only in respect of things that have already been done, but things that are proposed to be done, provided that no order should be made by virtue of this clause after the expiration of the Emergency Powers (Defence) Act. The effect of the Amendment is that no order can be made in respect of any action taken or proposed to be executed after the expiration of that Act, which is a different thing. It does not go as far as the noble Earl suggested. He pointed out, and I think pointed out very truly, that many tenants for life were away fighting, that they cannot attend to their properties now, and that they may not be in a position to formulate plans for going to the Court until after the war. That must be borne in mind, but still I think it would be better to treat this at present as a war measure, a temporary measure, and see how it works out in practice.

Amendment moved— Page 2, line 44, after ("section") insert ("in respect of any action taken or proposed to be taken.")—(The Lord Chancellor.)

VISCOUNT MAUGHAM

The noble Earl, Lord Warwick, cannot be here to-day, but I think I may say that he would probably be content to accept the Amendment. To my mind it seems to be in all the circumstances of the case quite satisfactory.

On Question, Amendment agreed to.

LORD HUTCHISON OF MONTROSE

May I claim indulgence to ask the noble and learned Viscount a question with reference to this clause? I have some experience in dealing as a trustee with things that are dealt with by the first clause of the Bill There is undoubted hardship to the holder of a liferent in certain properties when he is expected to pay for certain things out of income which has been drastically curtailed by taxation. It seems right and proper that this amending Bill should operate in such cases, just as legislation was passed to alleviate the situation in cases where individuals had been left annuities free of Income Tax but where, as the result of taxation, the estate was not large enough to pay those sums. What I want to ask is this. We in Scotland unfortunately have to bear the burden of the Finance Act, and I should like the noble and learned Viscount to explain to me how the burden on the person who receives a liferent in Scotland can be alleviated. I think it would be a great injustice if an Act like this were passed for England and Wales but Scotland was left out.

THE LORD CHANCELLOR

It is always a satisfaction to Englishmen to learn that Scotsmen want to live under English law. Notwithstanding the Act of Union in the time of Queen Anne, there are down to this living day Scotsmen who maintain that not only have they a different land system, as they undoubtedly have, but that it is a system which is much better than ours. Certainly it uses language and expressions which I should be very slow to interpret. The Bill now before your Lordships is essentially an English and Welsh Bill because the Settled Land Act, 1925, and the Trustee Act, 1925, are both Acts which do not apply to Scotland at all. Scotland has a different system which, according to the part of the country in which one lives, is regarded as better or worse. The answer to my noble friend therefore is that we Southerners notice with interest the information he give us that Scotsmen, too, sometimes object to paying—and I can well understand it. He also truly says that the burden of taxation applies to us all alike. The only way in which relief could be framed would be by a separate Bill applying to Scotland. I will willingly consult the Scottish authorities to ascertain whether they are moved by the same considerations which have caused me to introduce this Bill. If that is the case it may be that we shall find some way of meeting the difficulty. I regret to say that in the present Bill it is quite impossible.

LORD HUTCHISON OF MONTROSE

I should like to be allowed to thank my noble and learned friend for his very kind answer, and to say that I will make it my business to draw the attention of the Secretary of State for Scotland to the present situation.

Clause 1, as amended, agreed to.

Remaining clauses agreed to.