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Clause 39—(Collection Of Duty From Trustees After Disposition Of Determination Of Life Interest, Etc)

Volume 477: debated on Tuesday 4 July 1950

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

I beg to move, in page 38, line 28, to leave out from "settlement," to the end of line 29.

The effect of this Amendment is to relieve personal representatives of trustees from the liability under which they are placed under the present wording of this Clause. This was a point made when the Clause was being considered in Committee, and I undertook to consider it. I feel that we are able to give effect to the proposal made by several hon. Members, and we therefore relieve the personal representatives of trustees from that liability.

I am again obliged to the right hon. and learned Gentleman for meeting us on this point, but this slight Amendment which relieves the personal representatives of a trustee from personal liability under this extremely bad Clause does not go by any means far enough to remedy the evil of the Clause. However, so far as it goes it is good, and therefore there is no need for me to say anything more about it.

Amendment agreed to.

Further Amendments made: In page 38, line 32, leave out from "settlement," to "for," in line 33.

In page 39, line 9, leave out from "settlement," to end of line.—[ The Solicitor-General.]

11.0 p.m.

I beg to move, in page 39 line 11, at the end, to insert:

"or in excess of the value at the time of accountability of any proper investments held by the trustees in respect of a contingent claim in the amount so certified where the said value is then less than the said amount."
The House will appreciate that under this Clause it is possible for the trustees to obtain a certificate of the amount which they may be liable to pay in respect of Death Duties in the event of the person who has transferred the estate dying within five years. Subsection (3) provides that the liability of the trustee shall not be in excess of the amount for which a certificate is given and to some extent that may at first sight appear to be some kind of protection to the trustee because he can, if he obtains a certificate, retain in his hands an amount sufficient to provide for payment of that duty in accordance with the certificate in the event of a death within five years.

But the granting of a certificate and the present provision in subsection (3) gives no safeguard to a trustee against the loss in value of the security he is holding to meet this contingent liability. It may well be that through the acts of the Government the amount retained in their wisdom by the trustees suffers a substantial diminution in value and it would be very hard if trustees who go through this machinery, obtained a certificate and retained an amount, which at the time the certificate was obtained was ample to cover the contingent liability, and then had to make good a deficiency which subsequently came out of their own pockets. The purpose of the Amendment is to provide against that happening.

It seems to us inequitable that in those circumstances a trustee should be liable for a sum in excess of the amount retained by them to meet the certificate when the amount retained was more than sufficient to meet it and when the amount had only diminished as a result of a fall in values. I hope the right hon. and learned Gentleman will be able to go to the extent of this Amendment. At this late hour I do not propose to try to add weight to the arguments in its favour—and they are, in my view, pretty strong —by reiterating the arguments I have endeavoured to put shortly.

I beg to second the Amendment.

It is essential that the House should appreciate the principle underlying the Clause insofar as it is affected by the Amendment. The point of the Amendment is to try to define and limit the liability Parliament is imposing on the trustees by the Clause as a whole. We are imposing an entirely new liability upon trustees, not with regard to their trusteeship, but in making them agents for the Government in the collection of Inland Revenue. Our point is that Parliament in imposing this liability should define it strictly and ensure that the monies which are to be collected as an agent are collected in respect of the agency and not out of the personal pocket of the agent himself. There is obviously bound to be a conflict as a result of what we are doing with regard to the duties of a trustee towards the beneficiary and his duty towards his principal, which is the Government in this new business which we are imposing upon him.

If I may quote a case in point by way of illustration, it is where the remainder man becomes entitled to his share of capital as a result of the surrender of a life interest in the trust. We are here imposing upon the trustee of that trust a duty to ensure that he collects for the Government any Estate Duty which may become liable on that remainder man's estate. That will only happen in the event of the death of the life tenant within five years. It is, therefore, an entirely potential matter, which may or may not arise.

The duty of the trustee is to hand over the funds as soon as he can in order that the remainder man may enjoy his proper right. But that is where the conflict will arise. The trustee has his duty to the remainder man, and Parliament is now imposing upon him a duty towards the Government, What we, therefore, say in this Amendment is that the Government, having already got their full remedy against the remainder man, should not seek powers to take from the trustee anything more than the Government grants in a certificate to the trustee to withhold from the remainder man.

The trustee has his obligation in the trust as to the way in which he handles and deals with the money which has been vested in him. If, in accordance with the trust, he invests that money, which has been certified by the Inland Revenue as being sufficient to meet whatever obligation may or may not arise in payment of duty to the Inland Revenue, in Government securities, and the Government permits those securities to fall in value so that, if and when the time comes, there is a liability upon the trustee to pay over the Death Duties, the effect of our Amendment is to ensure that he shall discharge that liability, so far as he is personally concerned, by realising and handing over to the Government the securities in which he has properly invested the amount which the Inland Revenue have certified as being sufficient. It will not harm the Government, because the Government will still have their rights against the remainder man to pick up any balance which may, in fact, be due to them, but it is as protection for the trustee, and it enables him to fulfil to a limited extent, at any rate, his proper obligation towards those for whom he is trustee.

I sincerely ask the Government to appreciate the full significance of this Amendment, because they are, for the first time by the Clause, importing into the duty of a trustee a personal interest. They are imposing upon the trustee the obligation to protect his own position with regard to the investments, which he is making. This is an entirely improper matter for any Government to impose upon any trustee and is entirely foreign to the conception of trustee.

Therefore, it is up to the Government to enable the trustee to be protected so that he is not influenced in his decision by his own personal liability, which the Government are imposing upon him in this entirely new scheme. I therefore hope that the Government will accept this Amendment, which does not go nearly so far as we should like, but it renders what is legally obnoxious in the imposition of this liability of a personal character upon trustees less malodorous than it was.

As was pointed out when we were discussing on the Committee stage what is now Clause 39, all that the Clause is designed to do is to make it certain that a long existing practice, which had always been thought to be perfectly legal was, infact, valid. That was the main basic intent in putting down Clause 39. It has always been the practice of the Estate Duty Office to agree with trustees an amount thought to be their prospective liability, and if they had to pay more that meant having recourse to the beneficiaries for any excess. The proposal now is that we should give legislative sanction to what was practice.

In any case, we could not adopt this Amendment. It has a fatal defect that it uses the word "proper", and there is no authority set up to decide what are to be the proper investments in any particular case. Therefore, the Clause would be defective, and would require further consideration. If we did accept the Clause on these lines it would be necessary to introduce in many other contexts in Estate Duty legislation similar clauses, because this question does not merely arise in cases of possible liability under Section 43 of the Finance Act, 1940.

Yes. It would not be feasible to introduce provisions in the context of this particular liability. I hope the House for these reasons will agree that we could not accede to this Amendment. It has always been the practice of the Estate Duty Office not to expect the trustees in cases like this to pay out of their own pockets when it was found that the securities turned out to be inadequate for the purpose. In these circumstances they look to the beneficiaries to pay the excess, and I am able to say that the practice which has hitherto prevailed in that respect will be most certainly continued. If trustees in spite of that still feel nervous about the position, it has, after all, always been open to them to ask the beneficiaries to give them the requisite indemnity which will amply cover them, in the event of the securities they have set aside diminishing in value or being inadequate to meet any liability which may arise.

I urge on the House the view that trustees are in a perfectly satisfactory position at the moment. There is a long existing practice behind all this, and that practice will be continued. Even if the trustees feel they want further protection they can ask for an indemnity, but it would not be possible in this context to incorporate this provision without doing the same thing in the many other contexts in which a similar question arises.

11.15 p.m.

So far as the Solicitor-General has met the criticisms made of this Clause on the Committee stage they are satisfactory. but he has left this one plain defect in the Clause. We are putting into an Act of Parliament something for which it has never been decided there was any personal liability on trustees. In that respect this is new legislation, and new legislation of a very serious description.

While it is possible by various well-known procedures in the Chancery Division to protect trustees against the claims of beneficiaries by taking proceedings in chambers and asking the court in the presence of the beneficiaries to approve schemes in which the trustees run any risk, there has always been the difficulty that whenever the matter is taxation, as far as my memory goes, the Crown, quite rightly I think, has refused to accept service to appear in those proceedings and to be party to these sorts of schemes.

It is not merely enough to get a certificate as to what is the prospective liability of trustees. What we want is that the Crown should agree that if trustees set aside an adequate amount of trustee investment approved by the Crown at the time a certificate is given, the Crown will rest content with those securities and the rest of the estate may be distributed. It is unfair to the beneficiaries that distribution should be held up for four or five years because of the possibility that a claim by the Crown will exceed that of the securities set aside.

If the Crown will agree in future to appear in chambers, to allow itself to be served in proceedings under this particular section, that would be one way in which the trustees could under an order of the court in the presence of the Crown set aside security to an amount agreed by the Crown. Thereafter, if there were a claim on the trustees, they would have a fund in their hands sufficient to answer this claim. Indemnity of beneficiaries is no great benefit to trustees when the property is going to be distributed. Further, a beneficiary often is going abroad and indemnity is no sufficient protection of the trustees.

I ask the learned Solictor-General to reconsider this matter. This Amendment may not be in proper form in the matter of detail, but I am certain that it is on the right lines. All I ask is that when we are imposing for the first time a new personal liability on trustees by legislation it should be the duty of the House to see that we do everything we can to protect them from having to put their hands into their own pockets through no fault of their own, but by reason of the action of this House. I ask the Government to consider carefully the situation they are creating, and, if they cannot take

New Schedule.—(Entertainments—full rates of duty.)

Amount of Payment

Rate of Duty

Where the amount of the payment, excluding the amount of duty—
s.d.s.d.s.d.
exceeds7and does not exceed81
exceeds8and does not exceed
exceedsand does not exceed93
exceeds9and does not exceed10½
exceeds10½and does not exceed11½
exceeds11½and does not exceed1
exceeds1and does not exceed119
exceeds11and does not exceed110½
exceeds1and does not exceed1511
exceeds15and does not exceed1811
exceeds18and does not exceed11
exceeds1and does not exceed1913
exceeds19and does not exceed11
exceeds1and does not exceed2016
exceeds20and does not exceed21
exceeds2and does not exceed2217
exceeds22and does not exceed21
exceeds2and does not exceed2620
exceeds26and does not exceed22
exceeds2and does not exceed3026
exceeds30and does not exceed32
exceeds3and does not exceed3527
exceeds35and does not exceed32
exceeds3and does not exceed4234
exceeds42and does not exceed43
exceeds4and does not exceed41142
exceeds411and does not exceed5547
exceeds55and does not exceed51150
exceeds511and does not exceed6552
exceeds65and does not exceed611510
exceeds611510
for the first 6s. lid. and 5d, for every 6d. or part of 6d. over 6s. 11d.

Brought up, and read the First time.

action this year, to say that if possible a proper Clause will be put in in future to protect them against this liability.

Amendment negatived.

Further Amendment made: In page 40, line 3, leave out from "settlement" to "for," in line 4.—[ Mr. Jay.]