Skip to main content

New Clause—(Estate Duty)

Volume 155: debated on Wednesday 28 June 1922

The text on this page has been created from Hansard archive content, it may contain typographical errors.

Notwithstanding the provisions of Section sixty, Sub-section (1), of the Finance (1909–10) Act, 1910, the proviso to Sub-section (5) of Section seven of the Finance Act, 1894, shall continue to operate for the purposes of estimating the principal value of agricultural land for purposes of Estate Duty.—[Captain Fitzroy.]

Brought up, and read the First time.

I beg to move, "That the Clause be read a Second time."

This Clause deals with Death Duties as they affect agricultural estates. Under the original Act of 1894 there were certain provisoes for the protection of agricultural estates. Under the Act of 1909 they were repealed. The first of them was that agricultural land should be assessed for Death Duties on a valuation arrived at by multiplying the net annual income by a maximum multiplier of 25, instead of being assessed on a sum estimated at what it might be expected to sell for if sold piecemeal to the highest bidder. In the Act of 1909 there was inserted in Section 60, Sub-section (1), a provision which really repealed the provisoes of the former Act. The Subsection was introduced really so that its provisions should affect personal estate, that is, money in the form of stock and shares, and was not intended to apply to agricultural estates. I do not know whether it is the intention of Governments to effect, by Finance Acts, the absolute extinction of agricultural estates as agricultural estates. If that is so, no doubt the provisions of the Finance Acts will in a very short time have that effect. But I am quite certain that this Government at any rate has not the intention of destroying agricultural estates. Therefore it seems to me that they should repeal that part of the 1909 Act which affects agricultural estates in the way I have described. To describe it a little more minutely, I might say that under the provisions of the 1894 Act, on the death of the owner of an agricultural estate, his successor was called upon to pay duties on a valuation of 25 years rental value of the estate, and under the 1909 Act this was altered by the inclusion of these Subsections, so that the valuation should be on the basis that the estate should be split up, and the eyes, as it were, taken out of it.

To such lengths has this system proceeded that a certain estate in my constituency, which has become famous owing to the fact that Death Duties under this 1909 Act have been paid on it, has operated in this manner. It is known as the Ellesmere Estate. Lord Ellesmere died, leaving an estate, part of which was situated in Northamptonshire, to his son, and his son decided to dispose of the estate as a unit in order to pay Death Duties. He employed a well-known auctioneer and valuer in London, who acted in conjunction with a local valuer, and they fixed the price which he was entitled to get for his estate, and he sold it for the price fixed by the valuers. I imagine he sold it to a land speculator. At any rate, the purchaser split it up into various small units and sold them by auction, I think employing the valuer who had originally valued it, and he realised a larger figure than he paid for it. The Inland Revenue claimed Death Duties not on the price at which the son had sold the estate, but on the price which the speculator had obtained after it had been split up. That appears at first sight to be an intolerable and incredible state of affairs. Those are the actual facts of the case. The case was taken right through the courts, and ultimately was decided in favour of the Inland Revenue. I am certain it cannot have been the intention of Parliament when they introduced those Subsections into the 1909 Act that such a state of affairs should be created, the actual successor to a property being called upon to pay Death Duties not on the amount at which he actually sold the property, but on the amount which the person to whom he sold it got for it at a subsequent date. I feel sure this must have the sympathy of the Chancellor of the Exchequer, and that he will assure us that as soon as he is able to do it he will reintroduce the original proviso in the 1894 Act and bring the, law back to its origin-al condition.

I want to make quite clear how this question has arisen. It really appears to have been a misapprehension. We recognise that the Chancellor of the Exchequer has shown great sympathy with agricultural and rural interests, and we do not wish to press him unduly to do too much this Session. But this is really such a serious grievance that I hope the Committee will realise it and unilerstand it, and if the right hon. Gentleman cannot give it us this year, we shall get an understanding that it will be most seriously considered next year. The way it has arisen is that under the Finance Act of 1909–10, Subsection (1) of the Section to which my hon. and gallant Friend has referred simply repeals the proviso in the Act of 1894 under which agricultural estates were to be valued on a multiple of the net rental instead of on the assessed capital value. I believe that- was the limit of the intention of the House. Then came Sub-section (2), which had no reference to agricultural property at all, and was not primarily intended to apply to it. What Sub-section (2) said was that

"In the case of any person dying on or after the 30th day of April, 1909, the Commissioners shall fix the price of the property according to the market price at the time of the death of the deceased, and shall not make any reduction in the estimate on account of the estimate being made on the assumption that the whole property is to be placed on the market at one and the same time."
The object of that was, as I understand it and as my recollection carries me back to that date, to deal with cases where large blocks of stocks and shares which were the property of some individual who had died were placed upon the market and had to be valued for Death Duties and a claim was made that a reduction should be allowed on the market price of the day on the ground that it had been necessary to realise the whole of those stocks and shares at once. I do not think it was then realised that the House had any idea that that was going to be read with the previous Sub-section and was going to be applied to agricultural estates.

The effect is that an agricultural estate is placed in an infinitely worse position than a building estate. In the case of a building estate of 100 acres, if you take the aggregate value of the whole or if you take it in lots, there is practically no difference. If you take it as a whole you take it for what anyone would give for it as a whole as it stands. If you take it in lots, the sale of the land which is immediately on the frontage must precede the sale of the other land, and, therefore, when you sell it in lots you have to discount it according to time, and that brings it back to the single value. I have gone into the matter and I know how it is done in practice. Where you are going to sell 100 acres of building land the Inland Revenue are entitled, in assessing the Death Duties, to lot that out to the best advantage. Having lotted it out to the best advantage they say: "In the probabilities of the case and having regard to the sales which have recently taken place here, and the demand in this locality, we consider that of the 100 plots into which we have divided this land five might be sold the first year, and then after they are sold that will bring five or six in another year, and so on." They discount each particular set of plots in proportion to the number of years they think will elapse before they think they can actually be sold, and when that discounting has been done that really brings back the figure to what would be the best price to be obtained for the single plot of 100 acres or thereabouts. When you come to an agricultural estate of 5,000 acres which is divided into, say, 20 farms, 10 or 12 smallholdings and 40 or 50 cottages and small houses, if that is treated in this way there is no discounting whatever. You destroy the unity of the whole property and you say: "If this property was divided up into all these separate units—farms, smallholdings and cottages—and each is put up absolutely separately, and sold as a separate unit, it might fetch so much." There is no discounting whatever. It actually happened in the case to which my hon. and gallant Friend has referred that a person gave a fair price for the property, broke it up into lots, and resold it, and the original seller, who had sold it in order to pay Death Duties, had to pay Death Duties, not on the price that he got, but on the price that the purchaser from him got when he had broken it up into lots. That seems incredible, but that is what happened. Let us take the imaginary property of 5,000 acres, with a value as a single unit of, say, £20 per acre, which would amount to £100,000. Suppose that by breaking up that estate into separate units and selling it separately you got £120,000. The owner of that property has to pay heavy Death Duties. He cannot pay those duties out of his income. These things are all cumulative, because he has to pay Super-tax, and Income Tax on his income. He cannot pay the Death Duties out of his income. Therefore, he is obliged to sell some part of his property in order to pay Death Duties on the whole of the property. That property is valued, not at the £100,000 as a whole, which it would fetch as a single unit, but at £120,000, which is the break-up value.. He sells part of it and he has to pay, say, £30,000 Death Duties. He sells enough of the estate to realise £30,000. What he has left is not going to be worth the difference between £30,000 and £100,000. He is not going to have £70,000 left when he has taken this property of 5,000 acres and broken it, and sold part of it. It is valued for Death Duties at £120,000, and in order to pay the duties on the £120,000 value he has to sell £30,000 worth of the estate. What is going to be the value of the single unit that is left? It will certainly not be the difference between £30,000 and £120,000. The State takes its pound of flesh out of the £30,000.

This is not a fair method of assessment. The owner is left in a very unfair and difficult position. He suffers the cumulative effect of this and all other forms of taxation which fall upon landed property, and it probably means that the house has to be shut up, the property has to be broken up, there is loss of taxation and loss of rates, and the evils which this House have already recognised are exemplified from one end of the country to another. I earnestly appeal to my right hon. Friend to look into this matter most carefully and see whether he cannot restore the Proviso of the 1894 Act. It was a wise provision that was inserted in the original Act. We are not asking for anything new. We are not asking for anything for which there is no precedent. Sir William Harcourt, when he imposed the Death Duties in 1894, recognised the position of agricultural property, and this Proviso of the 25-years' purchase on the net income was specially inserted to enable agricultural properties to continue to exist. All that we ask is that the ill-considered repeal of that Provision should now, when its effects have been realised, be put right. Its effects were not realised at the time the Act of 1909–10 was passed. Everybody realises the atmosphere in which that Act was passed. It was a case of "Down with landed property in every direction." The consequences have now been discovered, and this Committee realises that that is not a sound policy from the national point of view. Therefore, the restoration of this Proviso, which was contained in the original Act, would be a sound policy from the national point of view, and 'would remedy the serious mistake that was made in 1909.

The two speeches that have been made on this Clause are, of course, well informed, coming from hon. Members who understand what they are talking about better than anybody else in the Committee. Much of what we have been told gives food for thought. I want to state, quite simply, the legal aspect of the matter, what the law is, and what it was, in order that I may correct one or two things that have been said, in which I am satisfied hon. Members were wrong. It is quite true that in the Act of 1894 a Proviso was inserted in regard to agricultural land, in which 25 times the annual value, or 25 years' purchase of the annual value was to be taken as representing the capital value upon which Estate Duty should be paid. It is not true to say that 25 times the annual value was the standard measure. Twenty-five times the annual value was the maximum.

If there was any value other than agricultural that could be added. Qua the agricultural part of the estate, I think that was the maximum.

One difference between its being the standard and its being the maximum was that land which was of a lower value than 25 years' purchase did not pay on 25 years but paid on something lower.

Therefore, the effect of that Proviso was, in the case of agricultural land, that you let off the higher value land seine of its duties, whereas the lower value land had to pay the whole, creating a disparity and, to that extent, an injustice, because a tax should be equal. Inequality of taxation is an injustice as between the owner of the high value agricultural land, which got the benefit, and the owner of the low value agricultural land, which got a prejudice. That was one of the reasons why the Proviso was repealed by the Finance Act, 1909–10. Another reason why it was repealed was that it was thought right that there should be no longer a distinction between agricultural land and other land. The basis of the Act of 1894, the Death Duty Act, is that Death Duty is payable on the market value of the land at the time of the death. It was intended that that should be applied to land, and, indeed, to all property, because, in the case of stocks and shares, they are assessed at their market value. Market value if, of course, merely the real value. Sometimes it is difficult to get at it. Take the case of a building estate. The hon. and gallant Member who moved the Amendment, and the right hon. Gentleman who supported it, said, suite correctly, that the valuation is carried out as a mere matter of valuation practice and fact, and not of law, by seeing how you would sell the estate as at the date of the death, if you were going to sell it to the best advantage. It may be that that is an inauspicious time to sell. If that is so, the value is got at, not by imagining a sale at that time, when no sensible man would sell, but by postponing, hypothetically, your sale to some future date, when it might be assumed that it would be a suitable moment to sell. In other words, the valuation is got at, as best you can on the facts, by trying to get at what would be the best market value at the time, providing you could get a willing seller and a willing buyer. That is the basis of the whole system of Death Duties.

The Proviso in regard to agricultural land was, no doubt, inserted because of the peculiar fact attaching to agricultural land, which does not attach to other land as a general rule, namely, that the capital value of the land is very often considerably more than its due proportion in ordinary relation to the annual value. In other words, the annual value is measured in some sort of indirect way, and does not represent in any sense the capital value that many are willing to give for agricultural land. The possession of a large estate in the country has a fancy value which commands in the market a high figure. The basis of taxation for Death Duties is, that the State, on the passing of property on a death, takes a toll on a percentage basis of the capital value as it is at the death. That is the principle of the Estate Duties. The view was taken, no doubt, in 1909, that you must apply that rule to agricultural land as to other land. That was the reason why quite deliberately, whether we agree with it or not, Parliament at that time made the alteration. It was said by the right hon. Gentleman that, although the value of a building estate is got at in that kind of rule of thumb or sensible way for the purpose of getting the real value, something different is done in regard to agricultural land. He gave an illustration, which I listened to carefully, but, quite frankly, I found it very difficult to understand it. I have not the least doubt from the fact that he told us that it was so, that it was so.

I did not say something different was done, but I said it had an absolutely different effect.

That is not what the Act intends, and that is not the law. If that kind of valuation is, in effect, carried out, it is not the intention of Parliament.

The intention of Parliament is to get at the real value, and if you take any hypothetical method which results in a purely fictitious value, it is wrong. It is not law, and the answer to that particular complaint is that it is not the law to-day, and it can be perfectly well put right either by a discussion with the Chancellor of the Exchequer or, if necesasry, by an appeal to the Courts. This Amendment would cost £250,000 or so annually, and at the present time it is a very difficult concession to make. On behalf of the Chancellor of the Exchequer I am not in a position to make the concession asked for. It may be that in a year or two, or in a few years' time, we, as a nation, may be rather better off and may be able to reconsider this matter. The matter is one upon which the arguments in favour of the Amendment are, no doubt, substantial, but at the present time the arguments against it are stronger.

I had not meant to intervene, but the speech of the Solicitor-General makes it very difficult for any layman to understand the aim of the Government. He said that if the description now given of the case in question is the fact, it is not the law, and that it can be put right in the Courts. I understand that the case has been taken to the Courts, and has already been adjudicated upon, and that the Courts have pronounced that under the law as it stands a man can be assessed to Death Duties, not on the price at which he sold the property, but on the price that somebody else is able to get for it.

6.0 P.M.

The law was that the duties were assessed on the real value, and it was a question of what the value was on the facts stated and the facts found by the Court. In that position there was nothing to prevent, hypothetically, of course, the owner who succeeded to the estate selling it in the kind of way in which it was ultimately sold, and the valuers were entitled to look at that as a. measure of the value showing what the value was at the date of death. The Court does not supervise valuation. It must leave these matters to the discretion and understanding of the valuers on the two sides for the Inland Revenue and for the estate. The point is that you want to get at the real value, and I cannot imagine for a moment that there is any general case made that in the case of agricultural land valuations are habitually made at more than the land is worth.

Question, "That the Clause be read a Second time," put, and negatived.