§ Property which under a disposition not made by the deceased passes immediately on the death of the deceased to some person other than the wife or husband or a lineal ancestor or lineal descendant of the deceased shall not be aggregated with any other property for the purpose of death duties, but shall be an estate by itself, and death duties shall be levied at the proper graduated rate on the principal value thereof. Subsection (I) of section twelve of the Finance Act, 1900, is accordingly repealed.—[Mr. Tartan.]
§ Motion made, and Question proposed—[14th June]—" That the Clause be read a Second time."
§ Question again proposed.
§ 4.31 p.m.
§ Mr. Erroll (Altrincham and Sale)
When this Clause was discussed last week. the Attorney-General, who I am glad to see has just arrived, sought to refute the validity or the appropriateness of it by referring to a committee which sat in the year 1900 to deal with this very point. He said that the conclusions of the 1900 committee were valid then and that they were equally valid today. I submit that there is one very considerable difference between 1900 and 1951; that is that the rates of Death Duty are very much higher now, and what might appear to be a small injustice in 1900 has become a serious matter for aggrieved parties in 1951.
The Attorney-General also said that to accept the Clause would involve the reversal of an important principle, and he went on to enunciate that principle in the following terms:The whole conception is based on this; that the scale of duties should he apportioned by reference to the total aggregate value of the property which passes on death, being property in which the deceased had an interest."—[OFFICIAL REPORT, 14th June, 1951; Vol. 488, c. 2685.]In the examples I am going to quote, which are somewhat similar to those quoted by my hon. Friend the Member for Thirsk and Malton (Mr. Turton), who moved the Clause, it will be seen that the life renters had no interest in the property as such. They never owned the property: 54 they merely received the interest upon it. In a sense it was a windfall to them.
The unfairness of the present state of affairs is borne out by examples of the following sort. I have before me the case of an estate of some £24,000 which had already borne duty. It was left in trust for three persons for their respective lives. One of these three dies and the duty payable is some 26 per cent. instead of 4 per cent., simply because the deceased had left a large free estate which went elsewhere. This meant that the two remaining life renters suffered a severe diminution of income through no fault of their own and simply because the property in which they were interested came to be aggregated with a very much larger estate which was nothing to do with them, neither was it anything to do with the original owner of that estate.
I cannot believe that a principle which justifies this treatment is deserving of the name "principle" at all. It is a thoroughly bad principle and ought to be rescinded or modified. I can conceive the principle operating even more disastrously in the case, for example, of two people who each inherit the sum of £4,000, each subject to separate life rents. "A" gets it all, as the life renter has no other income. "B," however, only gets some £2,000 because the life renter in his case had an inheritance, and the effect of this gearing of the inheritance to the capital from which the life rent was obtained is to tax the capital at an altogether higher rate of Death Duty than was otherwise the case in the matter of "A." Beneficiary "B" suffers very considerably through no fault of his own and gets only half the property which the original owner intended he should have.
The position is further aggravated by the fact that if the original owner of the property were to arrange that his property should pass on his death straight on to the ultimate beneficiary, no duty would be leviable when any would-be life renter died; and such a person could be protected by placing an obligation on the ultimate beneficiary to secure certain income to the person who would otherwise have been a life renter.
I hope the Committee will see that here is no worthy principle, and I am sure that the learned committee of 1900 came to its easy and convenient decision because in those days no great measure of hardship was involved. Now, however, real 55 hardship is caused in thoroughly deserving cases, and any solicitor's office which specialises in this type of business knows that there are cases of hardship and difficulty resulting from the rigid operation of what for convenience is called a principle.
I suggest that if the Attorney-General cannot accept our Clause this year, at any rate he should appoint a fresh committee so that we might have the views of a committee of 1951–52 instead of once more the views of a committee of over half a century ago. He should direct this committee to consider especially if it would be possible to give some measure of relief some breaking away from the rigidity of the principle—to small estates and to those who receive small inheritances and have small incomes, thus overcoming a difficulty which was outlined to me some five years ago that the loss to the Revenue would be so severe if a reversal of this principle were carried out in entirety. I hope, nevertheless, that now we have moved into a fresh week the Attorney-General will see his way to accepting our Clause.
§ Mr. Turton (Thirsk and Malton)
Before we Dome to a decision I hope that the right hon. and learned Gentleman will give his views on the proposal made by my hon. Friend the Member for Altrincham and Sale (Mr. Erroll), and particularly the proposal that this Clause should apply to property up to £10,000 where the deceased has no disposable interest. That would not make large inroads on the Revenue but would remedy many of these cases of harsh injustice.
§ The Attorney-General (Sir Frank Soskice)
I do not think I can add to what I said when we last discussed this matter. The hon. Member for Altrincham and Sale (Mr. Erroll) said the big difference between the present day and the days when this matter was previously considered was the difference in the rates of duty. That cuts both ways. The reason why the original Section in the 1894 Act was amended was that its effect was to give a wholly uncovenanted benefit to strangers to the family. The higher the graduated rates of tax the bigger the benefit such persons get. The change in rates is a stronger and not a weaker reason against the proposal which the hon. Gentleman makes.
56 It is suggested that we should set up another committee, but I do not think reasons have been disclosed in the course of the debate which give rise to the necessity for the whole matter to be re-investigated. This proposal is a complete departure from the system of Death Duties which are not duties upon what a beneficiary receives. They are duties upon the aggregate estate that passes, and for those reasons I do not think I can depart from the view I expressed on the previous occasion.
§ Mr. Brendan Bracken (Bournemouth, East and Christchurch)
My right hon. Friend the Member for Aldershot (Mr. Lyttelton) is engaged in important public business elsewhere. If he were here, he would join with me in expressing sorrow for the learned Attorney-General—and, let me say by way of digression, that there ought to be a Bill introduced into this House, and it would have the approbation of all parties, to prevent cruelty to Attorneys-General, who are so grossly overworked.
If my right hon. Friend were here, he would join with me in expressing regret that the right hon. and learned Gentleman has not met the very important argument put forward by my hon. Friend the Member for Altrincham and Sale (Mr. Erroll). It is quite true that this matter has been discussed before, and, I believe, voted upon before, but we thought that the right hon. Gentleman would have an opportunity of re-considering it and that he would refer it to a committee. This is the first time in a long Parliamentary life when I have known a Minister to say he was unwilling to set up a new committee, and that is a new precedent.
One would have expected, on an issue like this, a contribution from the right hon. Member for Ebbw Vale (Mr. Bevan) who, I am sorry to see is wearing a bandage, which is evidently the result of some physical injury. I hope it was not due to a physical as well as verbal assault made upon the right hon. Gentleman by his colleague the Minister of Local Government and Planning.
§ Question put, and negatived.