Section forty-six of the Finance Act, 1946 (which, inter alia, increased the size of estates on which no duty is payable), shall have effect and shall be deemed always to have had effect as if the following proviso were added thereto:
Provided that nothing in this section shall effect the relief given by subsection (2) of section five of the Finance Act, 1894 (which relates to settled property), so far as respects the payment of estate duty on the death of the surviving party of a marriage in cases where but for the passing of this Act estate duty would have been paid upon the death of the other party to the marriage." —[Major Hicks Beach.]
§ Brought up, and read the First time.
§ 9.30 p.m.
Major W. Hicks Beach (Cheltenham)
I beg to move, "That the Clause be read a Second time."
The object of this new Clause is to put right an anomaly arising under Section 46 of the Finance Act, 1946. Under that Section, which was introduced with the approval of all parties, the exemption of Estate Duty liability was raised from £100 to a limit of £2,000. As I understand the position, that exemption operates perfectly well in the case of estates where aggregation does not arise, but certain complications, and, in particular, complications to which I propose to refer, have arisen in the case of aggregation between two estates under the present law.
I think I should briefly refer to the position so far as aggregation is concerned. All interests of a person on decease are aggregated for purposes of arriving at the duty and for allocating the rate of duty to the interests concerned. Perhaps I may give a short example. If a man or woman died with an estate of £10,000 and they had a life interest in a settlement of £5,000, those two interests would be aggregated and duty would be payable on the £15,000 at that rate.
I should mention that there are several important concessions to the taxpayer in aggregation at present. In the first place, there is a concession which arises under 1800 Section 5 of the 1894 Act as amended, which, in effect, does this. It provides that duty is not payable twice on the death of two spouses in respect of a settlement or will in which a life interest is given. There is also an important concession under Section 16 of the Act, as amended by the 1946 Finance Act, whereby, in effect, estates up to £1,000 are not aggregable for duty.
The best way of explaining the object of this Clause is to give an example of where I think the anomaly which I seek to remove has arisen. I make no apology for having mentioned this example before in 1951. My attention was drawn to a case in which a woman died in 1946 after the passing of the 1946 Finance Act, leaving an estate of £1,400. Very properly, her advisers claimed exemption for that estate, and no duty was payable on her death. Under her will she gave her life interest to her second husband, her first husband having predeceased her. She gave the capital subject to the life interest to her daughter of her first marriage.
Subsequently, the second husband died. It so happened that he died with an estate of £9,000. It was claimed, quite properly, by the Revenue that the life interest in the £1,400 of the second husband meant, in effect, that that estate over which the husband had no control at all fell to be aggregated with the £9,000. That meant that there was a claim of something in the neighbourhood of £60. This is where the anomaly arises.
If that lady, when she died shortly after the passing of the 1946 Finance Act, had been worth £2,001, her estate would have paid duty because that estate was over the £2,000, and the duty would have been £1. Having paid that duty, it would have meant that her estate, in the circumstances as they were, would not have been aggregated with her second husband's estate. Her estate had another grievance in so far as if she died before the passing of the 1946 Act, the estate would have had to pay less duty than, in fact, actually happened, because duty 1801 would have been paid at the old rate. I suggest that this is an anomaly which cannot have been the intention of Parliament at the time when the 1946 Finance Bill was introduced.
As regards the new Clause, those of us who are members of either branch of the legal profession will agree that to try to draw a Clause which is understandable dealing with Estate Duty problems is one of the hardest things we could have to do, because so many Amendments since 1894 have been passed into law that it is extremely difficult to do. However, I believe that this Clause will carry out the object which I have in mind, but, for the assistance of hon. Members of the Committee, I might say that all I am seeking to do is to ensure that, once an estate has been exempted from duty, it cannot again come to aggregation at a later date. I hope the new Clause does that quite simply, and it is the only object.
I would say, in conclusion, that this is a limited and small point, but it is an attempt to help small estates. I am one of those who believe that the time has come when there should be a review of the whole system of aggregation as far as Estate Duty is concerned, and I am encouraged by some remarks made by the Financial Secretary when it was suggested that some sort of review might have been contemplated in other directions as far as Estate Duty is concerned. I should be perfectly happy if I received an assurance from the Government that this particular point of aggregation is to be included in that review. This new Clause is a start in the right direction towards curing one of the many anomalies that exist in the law of aggregation.
§ The Solicitor-General
My hon. and gallant Friend the Member for Cheltenham (Major Hicks Beach) has drawn attention to one of the anomalies which arise from the application of this part of the Finance Act, 1946, relating to Estate Duty. It is the case that the effect of raising the limit of exemption from Estate Duty has meant that, where there is several property on the death, for instance, of the first spouse, no duty is paid, and, therefore, there can be no exemption on the death of the second spouse, but that is only one of a number of anomalies. In that case, it will depend 1802 upon whether the estate of the first spouse is greater than the estate of the second; if it is greater, the Revenue will win, if it is less, the estate will gain.
There are a large number of anomalies, and that is one of the reasons why my right hon. Friend has said that the matter is being fully considered, and why my hon. Friend the Economic Secretary made a statement with regard to it earlier this afternoon. I am glad to hear that that announcement gave pleasure to my hon. and gallant Friend, and I hope that, in the circumstances, he will withdraw the proposed new Clause, because I assure him that this anomaly and the others in relation to aggregation, with which we are all familiar, will be considered in the course of that review.
Major Hicks Beach
In view of the statement of my hon. and learned Friend the Solicitor-General, I beg to ask leave to withdraw the Motion.
§ Hon. Members: No. We did not hear the hon. Member.
§ Question put, and negatived.