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Clause 13—(Income Under Revocable And Certain Other Dispositions To Be Treated As Income Of Disponor)

Volume 155: debated on Tuesday 20 June 1922

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  • (1) Any income—
  • (a) of which any person is able, or has at any time since the fifth day of April, nineteen hundred and twenty-two, been able, without the consent of any other person not being his wife or her husband, by means of the exercise of any power of appointment, power of revocation or otherwise howsoever, to obtain for himself the beneficial enjoyment; or
  • (b) which by virtue or in consequence of any disposition made, directly or indirectly, by any person after the first day of May, nineteen hundred and twenty-two (other than a disposition made for valuable and sufficient consideration), is payable to or applicable for the benefit of any other person for a period which cannot exceed six years; or
  • (c)which by virtue or in consequence of any disposition made, directly or in- directly, by any person whether before or after the commencement of this Act, is payable to or applicable for the benefit of a child of that person for some period less than the life of the child; shall, subject to the provisions of this section, but in cases under the above paragraph (c) only if and so long as the child is an infant and unmarried, be deemed for the purposes of the enactments relating to income tax (including super-tax) to be the income of the person who is or was able to obtain the beneficial enjoyment thereof, or by whom the disposition was made, as the case may be, and not to be for those purposes the income of any other person.
  • (2) Where by virtue of paragraph (b) or paragraph (c) of subsection. (1) of this section any income tax or super-tax becomes chargeable on and is paid by the person by whom the disposition was made, that person shall he entitled to recover from any trustee or other person to whom the income is payable by virtue or in consequence of the disposition the amount of the tax so paid, and for that purpose to require the Commissioners concerned to furnish to him a certificate specifying the amount of the income in respect of which he has so paid tax and the amount of the tax so paid, and any certificate so furnished shall he conclusive evidence of the facts appearing thereby.
  • (3) Where any person obtains in respect of any allowance or relief a repayment of income tax in excess of the amount of the repayment to which he would but for the provisions of paragraph (b) or paragraph (c) of subsection (1) of this section have been entitled, an amount equal to the excess shall be paid by him to the trustee or other person to whom the income is payable by virtue or in consequence of the disposition, or where there are two or more such persons shall be apportioned among those persons as the case may require. If any question arises as to the amount of any payment or as to any apportionment to be made under this subsection, that question shall be decided by the General Commissioners whose decision thereon shall be final.
  • (4) Any income, which is deemed by virtue of this section to be the income of any person, shall be deemed to be the highest part of his income.
  • (5) In this section, unless the context otherwise requires—
  • The expression "child" includes stepchild or illegitimate child;
    The expression "disposition" includes any trust, covenant, agreement or arrangement.

    The Amendment standing in the name of the right hon. Member for the Gorbals Division (Mr. G. Barnes)—in Sub-section (1, a), to leave out the words

    "is able, or has at any time since the fifth day of April, nineteen hundred and twenty- two, been able, without the consent of any other person not being his wife or her husband,"—
    is nugatory.

    I am endeavouring to do so. I said the effect would be nugatory. If the right hon. Member can show that it is not nugatory, I will put the Amendment.

    I beg to move, in Subsection (1, a) to leave out the words

    "is able, or has at any time since the fifth day of April, nineteen hundred and twenty-two, been able, without the consent of any other person not being his wife or her husband."
    I agree with the clause in so far as it deals with certain gentlemen who hand over certain sums of money to their sons, nephews or other relatives so as to avoid income tax. I want to get tax from income of that kind, but as the clause is framed it is a good deal wider and will bring into its scope a good many cases not contemplated. There are certain cases where money has been set apart for certain beneficient purposes. Take the case of a man who has put aside a certain sum of money to maintain from the income thereof an imbecile relative. It seems to me that the income from that sum of money which had been paid for many years, and in which case there was no intention to revoke, might be taxed. The income from that money might have been applied to the. purpose for which it was intended for a number of years, but if the man has revoked from the 5th April, 1922, he is liable to pay tax. Surely that is an injustice. I cannot believe that the Government had that in their minds. Take another case. A man leaves a certain sum of money which, on his death, is to be used for the purpose of setting up some institution. He deprives himself of the income. Therefore he is entitled to exemption, but if this Clause passes then, whether he gets the money back or not, he is still liable to tax. Is it the intention to tax not only the man who puts a sum of money into the hands of his son and thereby escape taxation on that sum of money by getting it back, but also to tax the other man who has put aside a sum of money to maintain an imbecile relative or an institution when he is dead? I would like some explanation from the Government. If my Amendment were carried, the question of being taxed would depend entirely upon whether the income was brought back into the man's hands and if it were not he would not be taxed.

    I think that it is because of the way the Clause would read that you, Mr. Chairman, intimated your view that the Amendment would be nugatory and it was therefore out of order. It leaves the law exactly as it stands as any income of which any person obtains himself the beneficial interest is income subject to tax. Therefore I am afraid that the Amendment does not raise any question, and I submit that there is nothing to debate.

    I said that unless it could be shown that it was not nugatory it would be out of Order, and I had to decide on that point.

    I beg to move in Sub-section (1, a) after the word "however" to insert the words

    "under or in consequence of any disposition made directly or indirectly by him."
    The short illustration of what I want to provide against is this: A father of a family may have a close friend who dies and leaves a sum of money, the income of which is to be paid to that father's children unless and until the father should see fit to deprive them of the income and take it for himself. I cannot suppose that in those circumstances it would be intended that the father should be charged on income which is given by some other person altogether for the benefit of his children just by reason of the fact that the person who left the money, trusting the father, as being a good father, has given him a right to take that income for himself if he sees fit.

    The Amendment is, as suggested, not inconsistent with the general scope of the Clause. Subject to re-wording and one minor point, I think we should be disposed to accept it. The minor point is this: Where the disposition is made directly or indirectly by him, there should be a limitation in the case of a wife, or, where the disponor is a woman, a limitation in the case of a husband, in respect of an unlimited power of appointment. Subject to that limitation and the wording we would consider the Amendment for the Report stage.

    I quite agree with the qualification of the Solicitor-General, and by leave will withdraw the Amendment now.

    Amendment, by leave, withdrawn.

    I beg to move in Sub-section (1) to leave out paragraph (b).

    I would like to know what this paragraph means. I am a little puzzled by it. Is it intended to stop some kind of evasion of the tax? Suppose a man makes a grant to a charity and undertakes to pay for three, four or five years so much a year. Is that still to be counted as part of his income? It is very hard if that is to be done. If a man makes the grant for more than six years it would not be counted as part of his income. Why is it part of his income if made for less than six years?

    This Clause does not apply merely to cases of charities, but to all cases in which dispositions are made for a very short space of time. The first part of the Clause deals with cases where the gift which the disponor makes is revocable. That is Sub-section (1a). It is apparent in such cases that you may have many devices adopted by people for putting property apparently out of their hands and ceasing to perform their due obligation by paying income Tax on it, but having the power to call it back at any moment they choose. The second case, though it does not jump to the eye quite as readily as the first, is equally to be animadverted upon. You find people who put out of their power for a short period of time certain properties upon which they would otherwise be deriving income, and that income is no longer assessed for Income Tax. Let me take the case of charities mentioned by my Noble Friend. Charitable gifts should be made after a man has performed his ordinary, obligations. It is not enough for a man to give say, £10,000 in charity, if in fact £5,000 of that has been taken from the Government. [HON. MEMBERS: "Oh, oh!"] Undoubtedly it is taken from the Government. The ordinary person's gifts to charity are those which he makes after paying his Income Tax. He is not entitled to deduct from the amount of his income what he gives in charity before he pays Income Tax. He pays Income Tax as a citizen of the country and what he gives in charity, he deprives himself of—that is the only charitable gift worth having, or at any rate the only one which should be commended. If a man spends £10,000 upon charity and deducts it from his income for the purposes of Income Tax—

    While he gets credit for a charitable gift to that amount he is really depriving the State of a considerable portion of it, which is required by the State to keep up its revenue. Taking the ordinary case upon a single year, it does not make any difference but it seems to us if a man in good health and vigour thinks that over a period of say five years he can foresee certain income and gets credit for a charitable gift of say £5,000 a year for five years it is partly at the expense of the revenue to which the State is entitled as Income Tax upon that money.

    The Noble Lord shakes his head, but it seems to me that under ordinary principles what I say is obvious. It is necessary then to fix some point of time. I do not say six years is the best—it might be two or three or four years, but it must be fixed somewhere. We assume that if a man makes a gift for more than six years that implies a more settled intention, than if it is only for five years, of putting the fund beyond his own power. We might have made it 10 or 15 years, and it may be said if we had made it 20 years it would be still clearer. In initiating this legislation we took what we thought was a reasonable period sufficient to reveal a settled intention. It is possible to make an appeal on the ground of charity, and the Noble Lord has put the best possible case, but a man might, by a revocable deed for a short period of time, make gifts where really there were certain obligations or claims, thereby depriving the State of revenue to which it was entitled. It was at cases of that class we intended to strike and not any special case of gifts for charity, although I do not think it is possible to make special exemptions in favour of charity. Accordingly, I ask the Committee not to favour the Amendment.

    Before asking leave to withdraw my Amendment, I would like to appeal to the Chancellor of the Exchequer on the question of charity and ask whether he will, between this and the Report stage, consider that question again. There is another Amendment which raises that quite specifically, not seeking to strike out the whole Subsection, but seeking to deal with that particular point. I do not want to argue the general principle of the Sub-section, because I do not think it would serve any useful purpose, though I think something might be said on the other side, but I want to point out that, though it may be true that the State will gain a very small sum by excluding such gifts as these to charity, yet the injury done to the charity will be out of all proportion to the benefit done to the State. The right hon. Gentleman may get a few thousand pounds possibly by insisting on this, but the injury done to the charity will be a great deal more, because it will mean a great discouragement, particularly at a time like this, when it is difficult to get money for any charity. To add difficulties of this kind, particularly difficulties which have not existed up to now, will do a very considerable injury, and I hope my right hon. Friend will not shut his mind but will consider whether he cannot do something to meet that case, while leaving the general frame of this Sub-section un-altered.

    I am very willing to consider any proposition of that kind, and I have, of course, made special exemptions in favour of charity before. I will consider it again.

    Amendment, by leave, withdrawn.

    I beg to move in Sub-section (1, b) to leave out the words "and sufficient."

    The phrase is "for valuable and sufficient consideration." The term "valu- able consideration" is very well known to lawyers, but I do not know the meaning of "sufficient consideration," and as far as I am aware it has got no recognised legal meaning. If the Solicitor-General can find some phrase which has a definite legal meaning and which would add something to "valuable consideration" in order to carry out the intention of the Sub-section, he will no doubt meet my point, but in the meantime the use of the word "sufficient" seems only to be calculated to give an opportunity to members of his profession and mine to make money in litigation.

    I am afraid that to take out the words "and sufficient" would defeat the object of the Clause, for if they were taken out we should have it provided that if the disposition was made for a valuable consideration the provisions of Sub-section (1, b) would not apply at all. In law a valuable consideration is, for instance, one penny; in other words, a coach-and-four could be driven through the Clause straight away. Whether the words "and sufficient" are enough to prevent that sort of thing being done, we will, in view of the remarks of the hon. Member carefully consider between now and the Report stage, and see whether more effective words could be introduced, but to take them out is quite impossible.

    Could my hon. and learned Friend say who are to be the judges of a sufficiency of consideration, because I think the Committee will agree that there are obvious objections to putting words in taxing Acts leaving the subject at the mercy of an official, or at the pain of having to go through a Court of Law to override an official. Of course, I agree that the hon. and learned Gentleman is probably right in saying that some amplification is required of a word which, in itself, would imply nothing, but I hope some words will be found which will enable a subject to judge for himself, instead of driving him to some assessor or somebody else who wilt be merely expressing an opinion, as to which there will be nothing to guide him on the subject.

    Of course, the tribunal to decide whether the consideration is sufficient would be the Commissioners, as in every case of Income Tax questions, but we will consider the suggestion of my hon. and learned Friend.

    Amendment negatived.

    The next Amendment in the name of the hon. and gallant Member for Newcastle-under-Lyme (Colonel Wedgwood), in Sub-section (1, b), to leave out the words "cannot exceed six years," and to insert instead thereof the words "may be less than the life of that person," is beyond the Resolution.

    May I ask why my Amendment is not in Order? At present, if a man wants to evade his Income Tax by dividing his property among his children, he is prevented from doing so under paragraph (a), revocable trusts, but under paragraph (b) he is allowed to make a revocable trust for more than six years, and escape. I am seeking by my Amendment to extend that, so that it must be for the life of a child. I want to prevent the father getting rid of his income while the child is at college, and then resuming it. I want to see that the devolution of capital is genuinely for the benefit of the child.

    I beg to move, in Subsection (1, c), to leave out the words "whether before or."

    I can easily understand, as anybody can, the desire to hit the people who have been so wickedly ingenious as to make a settlement before the commencement of the Act, but, when all is said, these settlements are binding, and they were legal when they were made. It is a dangerous thing for the Government to introduce into a taxing Act, whether or not there is precedent for it, proposals which are retrospective in their action. These settlements were perfectly legal, and great judges have said over and over again that the subject is entitled to avoid—not to evade—taxation if he can. People legally parted with income, and they cannot recover it so long as the settlement stands, but this proposal in the Bill will go over years which have passed, and say that these settlements should be subject to a burden which was not in existence at the time— in other words, it is an attempt for the law to be retrospective in its effect. I take great objection to that. My right hon. Friend could easily imagine cases in which future Governments would adopt this principle, and the result would be that none of us would know whether a perfectly legal arrangement that we are making to-day would not 5 or 10 years from now be made the subject of taxation.

    My hon. and learned Friend is under some misapprehension as to the effect of the Bill. It is not retrospective. If we were making a person who had made a disposition by trust, in say five or six years to pay income Tax upon that which he in the interval had so put under trust, he would be right. But the operation of the law will only begin in the coming financial year.

    This is not in any sense retrospective. The hon. and learned Gentleman points to what he terms the anomoly created in the case of some people who a few years ago had made these trusts in favour of their children—whom they are under not merely a moral, but a legal obligation to support. You find people who try to avoid the payment of Income Tax upon a fund set aside for the purpose, while others, who are making the trust now, would become subject to Income Tax in similar instances. But you cannot have two sets of citizens working under different arrangements! Nobody is asked to pay upon these trusts until this year, or pay Income Tax upon the monies thus set aside. It would seem to be absurd to say that because a man happened to have made his trust, perhaps a week or even a month ago, before this legislation comes into operation, that he should escape the liability that every citizen is under who had not been clever enough to have thought of this device soon enough to escape the obligation from Income Tax. Accordingly, I am afraid, with every desire to meet my hon. and learned Friend, I cannot ask the Committee to accept the Amendment.

    My right hon. Friend scarcely appreciates the position I am trying to put forward. I never suggested that it was an attempt to go back and get taxation in respect of past years. Let me give an illustration—an extreme one. My right hon. Friend says that you have two classes of persons—the person who made the settlement before the Act and the one who made it after. The settlement made before the Act would be free from taxation, and after the Act subject- to it. He says that is an anomaly. I say the man who made a settlement before the Act was passed made it believing it would be free from the incidence of taxation, while the man who makes one after the passing of the Bill will do it with his eyes open, and will know he is parting with income notwithstanding that he will still have to pay taxation on it. He will do it knowing what the law is. Let me give an illustration of what I think would be objectionable. Some people have suggested it is an offence for a man to live in a very big house containing say twenty or more bedrooms. Today it is perfectly lawful for a man to take a big house and to pay £500 a year for a lease for 25 years. That does not involve taxation on the sum so paid. But it is conceivable that the Government may go to a man who has taken a big house of that character under such conditions as include a rent of £500, and may call upon him to pay £100 a year as long as he lives in the house. I should call that retrospective legislation, because it would be making the man pay although he had entered into possession before any idea of imposing such taxation was conceived. I hope the Committee will adopt the suggestion I have made. I shall carry my proposal to a division.

    I cannot hope that the Chancellor of the Exchequer will reconsider his decision. Put shortly the case is this Last year, or last month, a person entered into an agreement which was legal. An alteration is subsequently made in the law which provides that after a certain date any agreement entered into in the same sense shall be illegal. There can be no objection to that, because people will know that if they make such an agreement it will be illegal.

    But in this case the agreements are not made illegal; we only say that a person who makes one will after a given date be liable to Income Tax on the property dealt with in the agree- ment. It only means that the liability to Income Tax will continue in the same way as if a man had to maintain his children without the trust.

    When I said "illegal," I did not mean in the sense ordinarily accepted that it was illegal. What I meant was that the man would not be able to avoid the payment of Income Tax. As the law stood a month ago, a man could enter into an agreement under which he would not he liable to taxation on the income involved. It was perfectly illegal for him to do that, but now the Chancellor of the Exchequer says that a person who makes such a settlement shall be liable to be taxed on the income with which he has parted in the settlement. I say it is retrospective to lay it down that a person who made a settlement for a certain number of years made it quite legally, being well aware that he was doing something which would enable him to avoid payment of certain taxation—I say it is retrospective now to make him liable under that same agreement to taxation. You are tearing up the agreement, although it was legal at the time it was entered into, and you are going to say that it is not going to be legal in the future. When you make an alteration in the law there must be anomalies created. Alterations are responsible for the anomalies, but I have never yet known of legislation being passed which says that while it is legal to enter into an agreement, that agreement may be torn up and done away with by new legislation. That is the whole point.

    I sincerely trust that the Chancellor of the Exchequer will not be induced to make this change. I know the case put forward by the hon. member for Bristol (Mr. Inskip). It is that a man who made a settlement before this came into operation now finds he is liable to Income Tax. But he can immediately put, himself right and avoid the taxation altogether if he will only draw up a fresh settlement for the life of the child instead of for a short period of years only. This amendment here is the children's charter.

    The hon. and gallant Gentleman is quite wrong. A man cannot revoke a settlement he has made under which he has parted with his income.

    But he can extend it for the life of the child. The whole point it seems to me is this; are parents to be allowed to settle property temporarily on the children while retaining control over the children? Are we to say that if a man is going to divest himself of his income and to make it over to his children it must be for the life of the children? In ordinary cases a man put his stocks and shares in the joint names of himself and his child and directs that the dividend shall be paid to the child's account. Are we to say that the, parent after divesting himself of his income is to be allowed to set up dummy children as it were to make a temporary alienation of income during the education of the child? The whole advantage of this clause, as I see it, is that it enables the child to get security. It will he able under this Clause to marry as it thinks fit. It will be able to quarrel with its parent and to adopt a different line of business to the one the parent desires it to follow. It makes the child independent. In divesting himself of his capital, however, the parent will not be relieving himself of the liability to pay Income Tax. If the parent retains control by making only a temporary alienation the Government is right to see that that temporary alienation does not save the parent from paying Income Tax.

    I strongly object to any citizen trying to avoid just taxation. In my view this proposal, subject to a reasonable qualification which I will presently suggest, is not in any way retrospective. The only way in which it is retrospective is because it says that if a man has settled £500 a year on his child and therefore avoids paying Income Tax or Super-tax upon the amount in future he will have to pay such taxation provided this Act is passed by the Government, with the qualification that in any settlement that was made prior to this date the person who settles the money should have the right of deducting, before paying that settlement, from the person who receives the benefit of the settlement the amount of the Income Tax or Super-tax. That prevents it in any way from being called retrospective taxation, and it would be just to everyone.

    As I was responsible for putting this Amendment on the Paper, I should like to say a few words about it. I have not the slightest notion what the hon. and gallant Member for Newcastle-under-Lyme (Col. Wedgwood) means by "dummy children." What I mean is that although it may be perfectly right and just to prevent arrangements being made of the kind which this Clause is designed to prevent, it is a most mischievous precedent to set up in this House, that you can alter by legislation deeds which have been entered into under the provisions of the law heretofore. The effect of the Clause as it stands is to materially alter deeds which have been entered into under the law, quite legally, hitherto. Although the Committee might well come to the conclusion that in future these arrangements should not be entered into, it is very wrong to set up a most, dangerous and mischievous precedent and alter arrangements entered into in the past.

    Hon. Members opposite are opposed to retrospective legislation in this respect. I am sorry they did not vote for the last Amendment, which sought to prevent the retrospective assessment of railway workers. It would be better if hon. Members, for the sake of equality amongst all classes, would vote against retrospective legislation in every case, and not simply in cases in which they are particularly interested.

    The right hon. Baronet does. In regard to this proposal of the Government, it is known to everyone that for years wealthy men with young families have been setting aside so much for each child, thereby getting the full allowance for the child, and reducing the rate of tax. That has been done deliberately for the purpose of avoiding Income Tax and Super-tax. These people have not only been depriving the Exchequer of money, but they have been causing other people to pay more Income Tax and Super-tax as a result of their action. The Chancellor of the Exchequer has to meet expenditure, and after putting so much on sugar, tea, beer and other things, he comes to the Income Tax and fixes the rate. If a certain number of people can, by means of these trusts, avoid paying their fair share of Income Tax and Super-tax, it means that other people have to pay a higher rate. A large number of people have for four or five years avoided a certain amount of Income Tax and Super- tax by deliberately creating trusts. There can be no injustice in now asking them to pay their fair share of taxation.

    On the face of it I should have the greatest sympathy with the views put forward by my learned Friend the member for Rushcliffe (Mr. Betterton), and the right hon. Baronet, but I cannot help thinking that they are under a slight misapprehension. Has Parliament the right in future, say, to abolish the freedom from Income Tax on the first £135 of a single person's income? No doubt they will say that Parliament has a perfect right to do that. Parliament also has a perfect right, at any time, to alter the rate of tax which it levies upon persons with any particular income. The effect of this particular Clause, as of course my hon. and learned Friend will admit at once, is not to alter in the slightest degree the settlement that has been made, but to alter the amount of tax which has to be paid by the beneficiary under that settlement.

    My hon. and learned Friend shakes his head. I would ask him if he has read Sub-section (2). Under that Sub-section, if a man who makes a settlement has, as a result of this Clause, to pay tax upon income which he has given away by that settlement, he can recover that tax, and that makes it in effect payable by the person to whom he has given the income. Therefore the only effect of this is to increase the tax payable by the child who becomes the beneficiary under the settlement made. If you admit that this House has the right to alter the rate at which any person in this country is taxed and the incidence of taxation upon members of the family, then you cannot possibly argue that this is retrospective legislation in the way of being legislation which alters instruments which have been made under the law which existed at the time they were made. I am not arguing now the question whether it is right or advisable, but simply the question of retrospective legislation. I suggest this is only an alteration of the rate of tax which is payable by certain members of the family. An agreement previously made is not torn up or affected in the slightest way, it remains perfectly good. The beneficiary under it is entitled to recover; the deed is not altered; it merely increases the taxation and the rate of tax which has to be borne by the beneficiary under it.

    It is quite clear that there is a considerable number of members of the Committee who are anxious about the effect of this Clause. I am asked by the Chancellor of the Exchequer to say at once that between now and the Report stage we will give very careful consideration to this Clause in order to see whether there is ground for the apprehension expressed, and, if necessary to bring up some provision on Report which will remove the grounds of objection. Subject to that, I want to make one or two comments to the Committee which may be important. As regards paragraph (a) of the Clause, dealing with revocable dispositions, obviously this Question does not arise. In that case the remedy of the person who made it, when he is asked to pay taxes under the provisions of this Clause, is to revoke the disposition. With regard to the irrevocable dispositions, there are two categories which we have to consider; those made for a definite period of not less than six years and those which are made in favour of a child for less than the period of the child's life.

    With regard to the law, it has always been open to the disponor to get out of the Clause altogether by extending the existing settlement up to the whole life of the child by a supplementary deed, which can, of course, always be done. As to the cases which come under paragraph (b), namely, settlements in favour of anybody for a period of six years, for that comparatively short period of six years there may be a few cases where the Question will arise. Just let us consider one thing upon that. As was pointed out by the last speaker, under the provisions of this Clause, although the settler will be treated as being personally entitled to the income which, in fact, is being paid to the person in whose favour the disposition has been made, whether it be a child or some other person, yet on paying the tax he will be entitled to recover the tax which he pays from the person who is in fact in receipt of the income. Therefore he is not actually asked to pay out of his pocket. He gets it back from the person who is in receipt of the income. Lastly—and this is an observation of considerable importance—supposing Parliament thought it right to impose a tax on persons who have put their income out of their power for the purpose of maintaining their children, as contemplated, for instance, by paragraph (c), not considering any question of future disposition at all, but simply said, "If parents put their income out of their power they are doing something which, from the taxation point of view, we think is wrong.

    We think it is the moral duty of every parent to support his children and to pay for their maintenance and education." The cost of doing that is part of the ordinary expenditure of any man's income, and being a part of his ordinary expenditure, it comes out of his income after he has paid tax on his income. It is a legitimate view to take that every parent in that position who has put income out of his power should be treated in the same way as any other parent who maintains his children by the same expenditure of money, paying it, out of his pocket instead of through a trustee. That is a view I should like the Committee to consider between now and Report. In so far as that view is justifiable, no question whatever of retrospective legislation arises because it is simply the expression of a view as to what is right and proper in the way of taxation of individual members of the, community. Mark the position. If that view be enforced on all parents who make a disposition of this type in favour of their children—

    12 M.

    For less than the child's life, whether they happen to have made it last February or next August, primâ facie, except from the point of view of retrospective legislation, there is no difference between them. That is a point of view that ought to be considered. On the other hand, if this criticism were accepted and the Amendment adopted, the result would be that those parents who knew perfectly well what they were about, and that it was their duty to maintain their children and wanted simply and solely to escape their proper burden and put it on to other people's shoulders, would get off, while everyone doing it in the future would be hit. It is a question of comparative advantage and disadvantage. There is much to be said for the view ex-pressed in the Clause, in spite of the objection we all have to retrospective legislation.

    I am obliged to the Chancellor of the Exchequer and the Solicitor-General for what they have said. I think Clause 2 requires a great deal of Amendment if it is to have the effect which the hon. Member for Watford suggested. I am quite content to accept the assurance that the matter will be considered, and I ask leave to withdraw the Amendment.

    Amendment negatived.

    I beg to move in Sub-section (1, c), after the word "child" ["for the benefit of a child"], to insert the words "or children."

    I will consider the words if the hon. Member will now withdraw the Amendment.

    Amendment, by leave, withdrawn.

    I beg to move in Sub-section (1, c), after the word "of" ["a child of that person"], to insert the words "that person or of."

    In order to be outside this Clause, the disposition made by a parent must be for some period not less than the life of the child. The object of my Amendment is that it may be for a period less than the life of the child if that period is not less than the life of the parent making the settlement. It is to meet the case of a parent who has a considerable income for life, either as a life tenant or from his own earnings, and is therefore able to make provision for his children under a settlement for as long as he lives, but is unable to saddle his executors with the same liability.

    I am not quite certain that I have fully understood the Amendment, but if it is what I think it is, I think we can accept it. I believe the hon. Member really wants to get at the case of a man who makes a disposition, it may be, for less than the life of his child but for the whole of his own life, out and out, absolutely getting rid of his life interest. If that is what is meant I think that I can favourably consider it.

    I will do so, but I shall have a long list of the assurances which my hon. Friend has given me.

    Amendment, by leave, withdrawn.

    I beg to move, at the end of Sub-section (1, c), to insert the words

    "and at the end of such period becomes payable to or applicable for the benefit of the person by whom the disposition was made."
    The object of this Amendment is to make plain what I think is really meant by the Clause as it stands. As it stands I am afraid that it will tax people who are not intended to be caught. The words proposed show that when the settlement is made for a period less than the life of the child—it may be 18 or 20 years until a child becomes an adult, when the capital shall become the property of the child—the income shall not be caught. These words will make plain that all that is hit is something analogous to the revocable settlement that is made for a time, the benefit of which is to revert to the person who makes the settlement. The Clause reads as if the income, which by virtue of the settlement is applicable to the benefit of the child for a period less than the life of the child, will have to be taxed as if it were the income of the person making the settlement. Those words would lead to this result. Suppose that I settle property on my daughter for a period less than the life of my daughter, say 21 years, that income under the Clause in its present form remains the income of the person making the settlement, and taxation has to be paid upon that money. As the law stands to-day it would be regarded as the income of the person on whom the settlement would be made, and when she became 21 the capital would become hers. If the settlement settled the property on the daughter until she was 21 years old and the capital then became the property of the person making the settlement I would agree, but—

    It is not made clear. The complexity of the Income Tax laws is very great. The Amendment would make plain that the only settlements that are hit are these settlements under which the capital reverts to the person who originally made the settlement.

    I would like a little further assistance from the hon. and learned Member as to the effect of the Amendment, because, if I understood it aright, it is inconsistent with the general purport of the Clause. As I understand him, he means that income which is settled on a child for less than the child's life should be deemed to be the settlor's income only if at the end of the settlement the income is to revert to the settlor, and, for instance, shall not be treated as settlor's income if, at the end of the enjoyment of it by the child, it was to go to some trustee who might be a dummy trustee. Does my hon. and learned Friend suggest that during the time that the child is enjoying the income which ex hypothesi is for the maintenance and education of the child—an ordinary purpose—although it is thereby saving the father the expenditure he would ordinarily make out of income which has paid tax, that expenditure should not be treated as income for taxation purposes just because, at the end of the child's childhood, that income is to go to somebody else. If that is the case, why should not the income be taxed during the childhood of the child and not cease to be income of the father until it becomes the property—absolutely—at some future date of somebody else?

    What I understand is the point put to me by a lawyer, and u hat I understand my hon. and learned Friend the Member for Central Bristol (Mr. Inskip) means is that where a settlement is made for the life of the child the person upon whom the settlement is made should pay the tax if made for the life of that person. That is right. Very well! Then this may arise. Let us suppose that I settle on my daughter the income of £1,000 until she is twenty-one years of age. At twenty-one she does not get the income of £1,000, but takes the £1,000 out and out. It has been put to me that the. question does arise that she would only be exempt if she only had the income for the whole of her life. I am told by members of the legal profession that that is done. Let, us make that clear.

    May I answer that? An income settled upon a child during childhood, the child receiving the capital at the end of her childhood, is outside this Clause altogether. If there is any doubt about it we will put, words in to make it clear.

    I have words down later en the Paper which would, I think, give effect to what my hon. and learned Friend desires to do.

    I think the Amendment does leave the door open to the defeat of the object of the Clause inasmuch as a settlor might settle money on a child for twenty-one years, and then provide that for a very limited period it should be paid, say, to his wife for one year or so, and that then it should revert to the settlor. In that case under the suggested wording the settlor would escape the Income Tax.

    I put down this Amendment with my hon. and learned Friend because it was suggested to me by a Member of the Bar who has gone into it very carefully. The first point made by the right hon. Baronet the Member for the City (Sir F. Banbury) is dealt with by a, subsequent Amendment. The second point is that supposing an income is left to the child for 21 years and afterwards somebody else and never comes back to the settlor at all and is never meant to do so, surely that ought not to come in under this section. I am not in the least against the Clause as far as its whole scope is concerned, but I am raising points which have been put to me by a brother Member of the Bar and which may arise in practice. The-wording of the Clause as it stands is: clearly wrong and I hope the cases, instanced by the right hon. Baronet the Member for the City of London (Sir F. Banbury) and others will be taken into account by the Government. The real test is, does the man permanently devise the whole of the profit in the money that is settled. I hope these matters will be brought within the scope of the Clause.

    May I put a very short illustration to the right hon. Gentleman. A man has a son, a young married man with three or four children of tender years, up to the age of five. He says to the son, "I am prepared to make a settlement on you, providing you with enough money to educate those children until they are twenty-one, the money then to go to those children." That will be a settlement for a period less than the life of that child, and when the time arrives it will not go back to the settlor, but will go on to another generation in the family. I am sure it is intended to meet such a case as that, and therefore I hope some such words as suggested will be accepted.

    I think I may give my hon. Friends an assurance that as regards cases where a genuine disposition is made for all time, as far as the settlor is concerned, if there is any dubiety about the terms of the Clause, I shall be willing to add words making it clear. I think it is plain, however, that the words suggested in the Amendment would leave a loophole. While I cannot accept these words, I am prepared to consider the matter before the Report stage in the light of what has been argued.

    Amendment, by leave, withdrawn.

    I beg to move in Subsection (1), after the word "or" ["or by whom the disposition was made"], to insert the words" of the person if living."

    I hope the Solicitor-General will accept this Amendment which raises a not unimportant point. Indeed, I do not know how any attempt will be made to meet it. In a settlement of this sort if made for less than the life of the child, the income is figured as the income of the person who makes the settlement. If a widow is left, is it to be aggregated with her income for the purpose of fixing Income Tax or Super-tax? Another difficulty arises where a man leaves the income of the estate to his wife for life, subject to her maintaining and educating the children, and the widow makes default. An Order is made in the Chancery Division every day by which in such cases so much is set aside, and the Income Tax is paid not according to the whole sum left, but according to the share appointed for each child.

    Although I am not sure whether it is the correct drafting, subject to that, I will accept the Amendment.

    Amendment agreed to.

    I beg to move, at the end of Sub-section (1), to insert the words

    "Provided that in cases under the above paragraph (c) income shall not be held to include any income derived from capital Which is required by such disposition to be held on trust absolutely for the child at the end of any period less than the life of such child."
    The hon. and learned Gentleman has consented to accept this Amendment.

    I understand that in principle these words express what we intended to incorporate, and, subject to considerations of drafting, we will accept it on Report if my hon. and learned Friend will now withdraw the Amendment.

    I am willing to do what is most convenient to my hon. and learned Friend and the Committee. I do not, however, like all these matters left over from the Committee, as I and others interested may be away when they arise again. If in substance these words are acceptable, I would much sooner have them inserted now, and leave my hon. and learned Friend to alter them afterwards.

    I must say I rather like the principle of getting words in now, but I want rather more than this on the Report stage, as the Chancellor of the Exchequer has promised me more.

    Amendment agreed to.

    Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."

    I wish to ask the Chancellor of the Exchequer how far he intends to go to-night. I have had experience of a good many Finance Bills, and I can congratulate the right hon. Gentleman on having made such satisfactory progress. There have been a large number of contentious Clauses, and many more contentious matters could easily have been raised. He has been extremely courteous, and we have done our best to help him. I think he might be satisfied with the progress already made.

    As my right hon. Friend knows, last night we discussed this topic at a similar hour, and came to an arrangement by which it was perfectly well understood that we should complete the Committee stage of this Bill in four days, and that, in particular we should get to Clause 27 to-night. While I am not anxious to keep the Committee sitting longer than expediency requires, at the same time we must assure ourselves of getting the Bill through in the appropriate time, and I should think it is possible to conclude Part II before rising to-night. That would be rather fewer Clauses than we agreed to take. At any rate, I do hope the Committee will make further progress before we adjourn tonight.

    Question put, and agreed to.

    Clause, as amended, ordered to stand part of the Bill.