§ 13. Where property is settled by a person on himself for life, and after his death on any other persons with an ultimate reversion of an absolute interest or absolute power of disposition to the settlor, the property shall not be deemed for the purpose of the principal Act to pass to the settlor on the death of any such other person after the commencement of this part of this Act, by reason only that the settlor, being then in possession of the property as tenant for life, becomes, in consequence of such death, entitled to the immediate reversion, or acquires an absolute power to dispose of the whole property.
§ MR. LLOYD-GEORGE moved after the word "settlor," to insert the words "other than for valuable consideration," on the ground that there ought to be no exemption in a case where property was settled for valuable consideration.
§ *THE CHANCELLOR OF THE EXCHEQUER
said the insertion of the words would make the clause ineffective in one of the principal cases to which it was intended it should apply.
§ SIR ROBERT REID (Dumfries Burghs)
said the general effect of the clause was to cut away a part, though he admitted not a large part, of the 972 operation of the Finance Act of 1894. His hon. Friend proposed to insert "other than for valuable consideration." The consequence was the hon. Member would give the benefit of the exemption to voluntary settlement, and deny it to settlement for value. Those persons who had settled their property for valuable consideration would not receive benefit, whereas those who had settled it voluntarily, would receive benefit. That seemed to him to be contrary to the spirit of the Finance Act, and therefore he could not support the Amendment.
§ SIR W. HARCOURT
asked for some explanation of the object of the clause. He had just said that, in his opinion, in the present state of the revenue, it was extremely dangerous to cut down any of the sources of the revenue. He had supported the Government in maintaining taxation on consumable articles upon that ground, but what he remarked about the Bill was that while the Chancellor of the Exchequer maintained the duty on tea as it had existed, and made permanent the duty on beer which had expired, when he came to deal with direct taxation, he set to work to cut down the revenue. He would apply exactly the same rule to direct taxation as to indirect taxation. There were many clauses to which he should feel it necessary to observe that the right hon. Gentleman was opening the door to all that evasion which the hon. Member for King's Lynn had always anticipated. He should like to hear from the Chancellor of the Exchequer what was the reason why he had deprived himself of this source of taxation and which constituted part of the surplus he had to dispose of. Unless some satisfactory explanation was forthcoming he should object to this unequal method of treating direct and indirect taxation.
*MR. GIBSON BOWLES
pointed out that this clause and the next were really intended to effect the reparation of an oversight in the right hon. Gentleman's own Bill. Under the Finance Act of 973 1894 a man who settled his own property on successive trusts which failed, so that the property came back to him, was charged with duty upon it. That was entirely inconsistent with any principle of taxation. He referred the right hon. Gentleman to Clause 12 of the Succession Duty Act, by which it was provided that, when property reverted to the settlor, no duty on that property should be payable; but until this clause was passed they would have the strange contradiction that, while in regard to the same property no passing was held to take place and no Succession Duty was leviable, for Estate Duty, there was held to be a passing and duty was levied. He pointed out that the Amendment of the hon. Member would have the effect of excluding marriage settlements.
§ SIR W. HARCOURT
said his great difficulty hitherto had been to get the hon. Member to understand the principle of the Estate Duty Act of 1894, and up to the present the hon. Gentleman had not even appreciated the elements of the Act. [Laughter.] The Succession Duty looked at what the person got, but the principle of the Estate Duty was founded on the analogue of the Probate Duty, and looked at what the man left.
§ *THE CHANCELLOR OF THE EXCHEQUER
said he had already explained the intention of the clause. It was to meet the case where no property actually passed. If a man settled property first on himself for life, and then on his wife and children for their respective lives, as the law stood, if the wife died in the lifetime of the husband, and there were no children, although the man had all along been in the enjoyment of the property himself and would therefore derive no benefit from the death of the wife, there had been a technical passing of the property at the wife's death, and it was liable to Death Duty. But the property was just as much the husband's before his wife's death as it was after.
§ SIR W. HARCOURT
pointed out, that at present if a man gave property 974 to his son, and that property reverted to the father, it had to pay Probate Duty. He cited the case of a Judge who, in his lifetime gave property to his son, but the son died before the father, and in articulo mortis gave the property back to his father, who had to pay double duty. By this clause they were opening the door to evasion in the matter of settlements, and thereby to the probable leakage of money into the Exchequer.
§ *MR. CHARLES HARRISON (Plymouth)
said he thought this clause was extremely dangerous in its present form. It tended to destroy the Estate Duty Act of 1894. The Chancellor of the Exchequer had put it forward as applying to a very simple case of a settlement, where by failure or accident, or death of the objects of the trust, the fund reverts to the settlor, and he argued that being his own money originally that it ought not to pay duty on its reverter. But the clause as framed was not limited to that simple case. It applied to all settlements alike. Settlement in the form of that which this clause described, was the common form of settlement adopted as regarded those engaged in mercantile or other pursuits. Under this form the corpus or capital voluntarily, or for valuable consideration, which included marriage, was irrevocably disposed of by the settlor, and because it was so placed out of his power, and because he had ceased to have any control over it, the law gave effect to that object for that reason and to such an extent, that in the event of bankruptcy or financial difficulties overtaking the settlor, the creditors have no interest in the corpus or capital because it no longer belonged to the settlor, who had bonâ fide and out and out parted with it, and had only reserved a life interest. The settlement having done its duty in protecting the capital on the ground he had mentioned and been supported by reason of the settlor having absolutely parted with any interest in the capital, then by accidental circumstances of death at 19 975 or under 21 of children, or of the wife, I the capital reverted back to him or to the settlor. This accidental accruer was as much an accruer from a separate source, as if he had taken it under a settlement or document to which he was not a party, and in which case he would have to pay duty, and it ought not to make any difference because originally he had at one time possessed the fund which formed the new accretion and devolution upon him. He had parted with it out and out, and by that bargain, made for his own purposes he ought to be bound, and he ought to pay Estate Duty in the same way as if the money had come from an extraneous source. It would lead to evasion of the duty if the capital were to be in fact and in law at one time to be treated as having been parted with by the settlor, and then subsequently and for obtaining exemption from duty as proposed by this clause as never having been parted with, and as if it were still belonging to and were the moneys of the original settlor. In the case of personalty under such a settlement, devolving, prior to the Finance Act, upon children dying under age, and the settlor succeeding, he would have had to have paid duty on the capital value, and there was no reason now why he should not pay Estate Duty. The Estate Duty and Succession Duty were quite separate in fact and in principle, the one being a charge on capital and the other on income, and as the object of the Act in reference to the Estate Duty was to establish it as a charge upon capital, there was no justification for the exemption now proposed by this clause, which in its terms went far beyond the simple case mentioned by the Chancellor of the Exchequer.
§ MR. LLOYD-GEORGE
pointed out that there was a real distinction between the case of settlement for a valuable consideration and other cases which might come under the clause. A case of that kind might occur in which a wife had property with reversion to the husband for life and afterwards to 976 the children. If the wife died without issue the result would be that the husband would get a reversion which he would not be entitled to expect if all the conditions of the settlement were carried out. He would have got an equivalent in real value, and in a case of that kind it was very unfair that he should escape Estate Duty absolutely. Supposing that before the death of the wife he went to the market and endeavoured to dispose of his ultimate reversion, what could he get for it? There was always the prospect of issue. He had only got the ultimate reversion in the event of there being no issue; or if there was, in the event of the issue dying. That property had no marketable value at all. But after the death of the wife, without issue, he had got a fee simple in his property, and an accession of interest, which was not merely nominal, but was one which he could sell or dispose of in any market. He would take the case of a gentleman who at 70, under the terms of the settlement, had only got his life interest. Supposing the wife and issue died, he got the ultimate reversion. Before these conditions happened, however, what was the value of his life interest? Afterwards, when he got a full fee simple in the property, that was a vast accession of interest which had a marketable value. He submitted that this was a case for the consideration of the Committee.
§ SIR ROBERT REID
pointed out how really dangerous this clause was in the manner in which it was drawn. The case which had been referred to by the Chancellor of the Exchequer was one case which might arise, but that was by no means the only case. It was a great pity that the clause was not limited to the case in which there was a passing of property as between husband and wife. Supposing a man settled property on himself for life, and after his death, upon his son for life, with remainder afterwards to whomsoever he chose, that was a perfectly different case. 977 In the event of the son dying first, a benefit, unquestionably, accrued to the father. If the object of the clause, as explained by the Chancellor of the Exchequer, was intended to be limited to matrimonial cases, then, he thought, it ought to be so stated. If it was not limited in any way he could not help thinking that it was very dangerous. There were other objections, and he would invite the Attorney General to consider these points between then and the Report stage. He had this further observation to make, namely, that this proposal would give relief to settled property only. In his view it was very inadvisable to interfere with the Finance Act of 1894 in order to give relief in the cases of enormous fortunes, whilst the hard cases of poor men and of widows, who were left with large families and small provision, received no relief at all. He thought that he could clearly detect the hand of the hon. Member for King's Lynn in this proposal, of which he believed he was the parent, because he was familiar with the hon. Gentleman's views on this question.
§ THE ATTORNEY GENERAL (Sir RICHARD WEBSTER,) Isle of Wight
said that the hon. and learned Gentleman opposite had asked him what was the particular difficulty which it was sought to meet by this clause. The matter had already been explained more than once. It had been pointed out that the question would not often arise, and that the governing principle of the clause was confined to persons who had settled property to themselves for life, then upon others, and who ultimately found themselves, in consequence of the objects of the settlement having failed, again in possession of their own property. In his view this was not a case intended to be dealt with by the Finance Act of 1894. The clause had been very carefully considered by men who were much more competent to deal with it than he was, and it was only intended to apply 978 in cases where the settled property reverted to the first settlor, who thus merely regained possession of his own property as though he had never parted with it. In the cases which the clause was intended to meet, the hon. and learned Gentleman had proposed that the words, "other than for valuable consideration," ought to be inserted. The principle which the right hon. Gentleman the Chancellor of the Exchequer had adopted in reference to this question was that the property had never ceased to belong to the settlor himself.
§ MR. AUGUSTINE BIRRELL (Fife, W.)
said that he was sorry to find himself wallowing in this morass again. This clause would affect all marriage settlements, and was, therefore, one of very wide application. He could not understand why a Revenue Bill should show such a tenderness for settlements which were usually made by persons engaged in risky undertakings, and made the settlements practically in their own favour. He wished to ask the Attorney General whether he had perfect confidence in the depth of his own wisdom, that these provisions would only apply in the cases to which the right hon. and learned Gentleman had referred.
MR. BRYN ROBERTS (Carnarvonshire, Eifion)
said he could not understand why, because all the persons included in a settlement happened to die in the lifetime of the original settlor, neither Probate nor Estate Duty should be paid on the reversion of the settled property to the settlor.
§ MR. HERBERT LEWIS
pointed out that a will, being revocable, was a totally different thing to a settlement, and he ventured to say that the Attorney General had not made any reply to the case made by his hon. Friend the Member for Carnarvon. That point appeared to him to be one that ought to have been argued.
§ Amendment, by leave, withdrawn.979
§ Question put, "That Clause 13 stand part of the Bill."
§ The Committee divided:—Ayes, 133; Noes, 46.—(Division List, No. 315.)
§ On the return of the CHAIRMAN, after the usual interval,
§ Clause 14,—