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Death Duties

Volume 463: debated on Wednesday 6 April 1949

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The next, and the major, simplification I propose is with regard to Death Duties. There are, as the Committee knows, at present three duties payable upon death; the Estate Duty, which is charged on property passing on death, at rates graduated according to the total value of the property passing; and the Legacy and Succession Duties, which are charged on the value of the bequests received by beneficiaries, and vary in amount according to the relationship of the beneficiary to the deceased. The two latter duties are complementary; that is, they are charged at the same rates but on different classes of property. All three are separate duties, each with its own complicated legislative code.

This method of imposing three separate taxes on death causes a great deal of unnecessary work, both to the Inland Revenue and to executors. Judged by modern standards of taxation, the Legacy and Succession Duties are most unsatisfactory, in their present form. The rates are unrelated to taxable capacity, but are flat rates, depending on the degree of consanguinity. Thus, a son is charged 2 per cent., a brother 10 per cent., and a more distant relative 20 per cent., regardless of the amount of the benefit received. For instance, an aged aunt, who receives what is, in effect, a charitable legacy of £1,000, pays 20 per cent. tax on it, whereas a son, who inherits £100,000, pays only 2 per cent.

The Legacy and Succession Duties also have the drawback that they impose a proportionately heavier burden on the small than on the large estate. For example, an estate of £6,000, passing wholly to brothers and sisters, pays a total charge of 3 per cent. Estate Duty and 10 per cent. Legacy and Succession Duties, equivalent to a rate of nearly 13 per cent., or 10 per cent over the Estate Duty rate; whereas, at the other extreme, an estate of £3 million would pay only 2½ per cent. over the rate of Estate Duty. It is, no doubt, because of this unequal incidence of the duty that testators, in fact, leave about two-thirds of the total legacies and bequests free of duty, and in all such cases the Legacy and Succession Duties merely become a wholly illogical, extra Estate Duty, falling upon the residue.

The first major reform of the system of Death Duties was brought about by Sir William Harcourt in 1894, when he consolidated the Probate, Inventory, Account and Temporary Estate Duties into a single Estate Duty. This reform was an important landmark in our fiscal history; I think it is now time to complete, by consolidating the three existing duties into a single Duty. The Legacy and Succession Duties will be repealed outright, and the Exchequer will be compensated by a moderate lift in the scale of the new duty, as compared with the existing Estate Duty.