I beg to move, in page 29, line 18, to leave out "or partly."

I will not take up the time of the Committee for very long. The Clause as it stands provides that if a deceased person has control of a company for a continuous period of two years falling wholly or partly within the five years ending on the death of the deceased, the assets basis for valuation of the estate for death duty purposes shall apply. If the words "or partly" were allowed to stand the test period of five years would be extended in an extreme case to seven years. Therefore, I feel that these words ought to be deleted.

I am glad to be able to tell my hon. Friend that the Government are prepared to accept this Amendment, which makes a slight alteration in the Bill but one that improves its operation.

Can we be given an assurance by the Solicitor-General that the Government are prepared to accept this Amendment and stick to their decision should the 1922 Committee decide to go against them, and that on this occasion the Government will not give way to that Committee?

I should like to thank my right hon. and learned Friend for the gracious way in which he has accepted my proposal.

I beg to move, in page 29, line 30, at the end to insert:

"For this purpose the expression debenture' shall have the same meaning as in subsection (4) of this section."

I do not propose to delay the Committee in what is, after all, a very simple point which may arise as a result of an error of drafting. The object of this Amendment is to ensure that the expression "debentures" in this Clause shall have the same meaning as in subsection (4). In this Clause it is clearly laid down that temporary debentures shall be excluded from the calculation when determining whether a deceased had a beneficial interest in one-half of the capital.

It is surely only logical, when determining whether the beneficial interest is equal to one-half on the basis of income, that dividends from temporary debentures should also be excluded. As the Clause at present stands, interest on temporary debentures is not excluded from the calculation and the proposed Amendment ensures that temporary debentures shall be ignored in determining the income, as is the case in determining the capital. I very much hope that my right hon. and learned Friend will be prepared to accept this Amendment.

I am sure that my hon. Friend will be delighted to know that the Government are prepared to accept this Amendment for the reasons he has advanced. I would only say that the wording of the Amendment may not be entirely acceptable and it may be necessary to make some improvements in it on the Report stage.

I wonder whether the right hon. and learned Gentleman has been answering the correct Amendment. The first Amendment on the Paper in the name of the hon. Member for Beverley (Mr. Odey) is in page 29, line 25, to leave out "one-half" and to insert "three-quarters."

That Amendment was not selected.

I gather it has not been selected, but I listened as carefully as I could to the speech of the hon. Member, and he seemed to be speaking to that Amendment and not to the one in line 30.

I beg to move, in page 29, line 37, to leave out the second "or," and to insert "and."

My right hon. and learned Friend has accepted the last two Amendments and I hope that he will accept this one. Subsection (4) re-enacts a test previously contained in Section 55 (1, c) of the Finance Act, 1940. It is only now to be applied in the circumstances laid down in subsection (5). The wording, however, would appear to draw a material distinction between the position for the future and the position in the past.

In the terms of Section 55, the test was that the deceased had a beneficial interest in possession of shares in, or debentures of, the company representing one-half or more of the aggregate nominal amount of the shares in, and debentures of, the company then issued. In subsection (4) as now drafted the word "or" is utilised in substitution for "and." The result would therefore appear to be that the test is where the deceased held 50 per cent. or more of the shares issued or of the debentures issued. This cannot but be wrong, and I suggest that it was correct in its previous form. The Amendment is designed to adjust it to that form.

I am sure my hon. Friend will be gratified to know that the Government are prepared to accept this Amendment which corrects a small drafting error.

After the kindness of the Government in accepting three Amendments from my hon. Friends, it may seem a little unkind for me to criticise the Clause. The first 10 lines of subsection (1) do away with considerable injustices from which companies and other individuals have suffered, but from the eleventh line onwards it seems that a great many difficulties are put in the way of those members of a family who succeed to shares in an estate.

Above all, the position is made extremely difficult where a gift of shares is given during the lifetime of the deceased, or under a disposition as indicated in the Clause, and the recipient is someone who, through them, obtains control or the equivalent of control in a company in conjunction with relatives. We believed that one of the main objects of this Clause was to make it a little easier for the family companies to carry on, but all the latter part of it, from the eleventh line onwards, re-imposes many of the existing difficulties on those who desire to pass their shares on to members of their family. Therefore, I ask the Solicitor-General to explain exactly what advantage is given to family companies as compared with their position under the present law.

I think it is right to say that this Clause makes things a little easier for family companies to carry on. The principle behind the subsection to which my right hon. and learned Friend has referred is that where the exchange of shares does not result in the family losing control of the company, and does not mean that the assets value cannot be realised, it is right that the basis of valuation should be the assets value. That principle runs throughout this complicated Clause.

For instance, if there were a transfer from one member of the family to another member, it might be that while neither individual had control separately, jointly they could exercise control and could realise the assets value. Where that possibility exists, we feel that it is right to retain, for the purposes of Estate Duty valuation, the assets value basis.

I want to draw to the attention of the Solicitor-General the point that we thought the idea of Clauses 25, 26 and 27 was to bring relief to family businesses to enable them to carry on from one generation of the family to another. My right hon. and learned Friend said that if there was to be no realisation of the shares of these private companies, the assets basis must be used. Many of my hon. Friends on this side of the Committee will not agree with that.

We are exceedingly grateful for the concession given in Clause 25 that, when that valuation has been arrived at, the Estate Duty payable is to be reduced by 45 per cent., but in principle many of my hon. Friends and myself feel that the assets basis as distinct from the earnings basis—the genuine valuation of that company—is the worst possible basis that could be devised. I am exceedingly sorry that it has been thought necessary in Clause 25 to introduce a concession with one hand and in Clause 26 to take away a very large part of it with the other, and I venture to register my protest.

I think it would be for the convenience of the Committee if we discussed the next Amendment on the Order Paper in the name of the hon. and gallant Member for Cheltenham (Major Hicks Beach) together with the one following in page 31, line 13, in the name of the hon. Member for Beverley (Mr. Odey).

I beg to move, in page 30, line 46, to leave out paragraph (a).

Clause 27, in principle, is a good Clause. It gives a concession to estates or shares which have been valued under Section 55 of the Finance Act, 1940, and allows the substitution of a sale price if a sale takes place within three years; but that concession, if I may so describe it, is subject to three provisos set out in the Clause.

The first, with which we are concerned in this Amendment, provides that the Commissioners of Inland Revenue have to be satisfied, before giving a price valuation concession, that no person concerned, either as a vendor or as having an interest in the proceeds of sale, was a relative of any person concerned either as purchaser or as having an interest in the purchase.

Those of us who have practical experience in these matters will agree that the proviso to paragraph (a) will negative the concession which it is intended to give in a great many cases, because in all assessments under Section 55 of the 1940 Act it is generally the case that they are small family businesses and the only probable purchasers—in fact, very often the only possible ones—are members of the family.

The Solicitor-General may say that this is a safeguard which is essential for the Treasury, but paragraph (b) says that the sale must be made at arm's length at a price freely negotiated at the time of sale. I should have thought that gave the Treasury an ample safeguard. If this Amendment is accepted, it will mean that they have a full discretion under paragraph (b) apart from the discretion under paragraph (c). It will also mean that where the Commissioners of Inland Revenue are satisfied that there has been a genuine sale within the three-year period to a member of the family, the price concession shall stand.

I understand, Sir Charles, that it is the desire of the Committee to consider, with the Amendment moved by my hon. and gallant Friend, the one in my name in page 31, line 13, which seeks to insert at the end:

Provided that, where the purchaser is a relative, and the Commissioners of Inland Revenue are not satisfied that the price obtained represented one freely negotiated at arm's length, the price which shall be substituted as the value of the shares and debentures sold shall be the price which in the opinion of the Commissioners would represent a price freely negotiated at arm's length subject to the right of appeal to the courts by the executors, administrators or trustees.

That Amendment has not been selected but the point can be made on the present Amendment.

I beg your pardon, Sir Charles. If I had been in a position to move my Amendment, the object would have been to provide relatives desiring to acquire an interest in a family business with a safeguard which they might well need if they found themselves in the position of not being able to agree with the value placed upon the shares by the Commissioners of Inland Revenue.

The Amendment would have achieved the effect of the omission of paragraph (a) and would have given an additional safeguard of appeal to the courts. I see, however, that you are becoming slightly restive, so I will only say that I realise that the general object of my Amendment will be achieved by the removal of paragraph (a).

I support the Amendment. While we welcome the provisions in the Bill for mitigation of hardships created under Section 45 of the Finance Act, 1940, we regret that it falls short of completely removing discrimination against owners of shares in controlled companies. In view of the safeguards provided in Clause 27 (1, b), we protest against the inclusion of subsection (1, a) of the same Clause, which we think is a typical example of such discrimination.

Our objection is on the ground that subsection (1, b) adequately protects the Exchequer from the risk of loss of revenue. If it does not, then why include it? It may be contended that on occasion it may be difficult to determine whether any specific transaction is at market value, but surely the answer to that is that the onus of proof is on the party claiming benefit under the Clause. If he fails, then he cannot get the benefit of the Clause as originally drafted, but if he succeeds then he should not be debarred from his benefit simply because the vendor or the person for whose benefit he is acting is a relative of the purchaser or the person for whose benefit he is acting.

We feel that the paragraph is unjust. We protest against it. We hope that it will be removed. I do not know whether my right hon. and learned Friend the Solicitor-General is sympathetic in this case. One can usually tell from the back of his neck, for instance when he is playing chess. I shall not pursue that line of thought today, but will conclude by expressing the hope that the Amendment will be accepted.

On behalf of the whole Committee, I should like to welcome the hon. and gallant Member for Knutsford (Lieut.-Colonel Bromley-Davenport) back to our debates. We have invited him on more than one occasion to participate and he has shown himself unusually coy. It may be difficult to judge the Solicitor-General's feeling from the back of his neck, but we are never in any doubt as to the hon. and gallant Member's feelings on any subject at all.

The Amendment goes extremely wide. The Chancellor told us on Clause 25 that, after very long consideration—he referred to a year-long examination at the Treasury—he had decided not to give up the assets basis of valuation in favour of valuation by Stock Exchange values. In effect, the subsection says that the assets basis of valuation can be given up in favour of a different basis of valuation, in this case, the basis of puchase price, in what, I imagine, would be a rather small number of cases where, within three years of death, shares or debentures are sold to a relative.

This is clearly a concession to cover a relatively small number of cases, but if it is extended, as it would be by the Amendment, I cannot help feeling that the assets basis of valuation would disappear by the back-door and a completely different basis would come in by the same door despite the fact that the Chancellor, after a year's consideration, has decided to retain that basis. If the Amendment were accepted, it would become common practice for sales of shares and debentures to be made to relatives within three years of death.

The hon. and gallant Member for Knutsford said that the Inland Revenue were protected by subsection (1, b). I can see that there is a protection, but it would be very much harder to interpret that subsection in the case of sales made within a family than it would be in other cases. It would be much more difficult to decide whether a sale was a genuine arm's length sale if it was within a family than if it was taking place in an ordinary commercial way between two strangers.

While one's instincts are naturally in favour of the Amendment and the arguments employed by the hon. and gallant Member for Cheltenham (Major Hicks Beach), it would widen the Clause so that the assets basis of valuation would almost disappear. We really ought to make up our mind whether we believe in this basis of valuation or net. The Chancellor, despite very heavy pressure from his own benches, decided to stick to it. If we are to stick to it, we ought to make it perfectly clear. If we are to give it up we ought to do so openly in all cases and we ought not pass an Amendment of this sort which would so widen the avenue of concessions that the assets basis of valuation would completely disappear without any of us noticing it.

For these reasons, for the moment I remain unconvinced by the arguments in favour of the Amendment.

I am sorry to have to disappoint my hon. Friend by saying that we are not prepared to accept the Amendment. The object of the Clause is, as far as possible, to avoid injustice, and it was an injustice where some one had to sell a parcel of shares to a stranger in order to secure enough money to pay Estate Duty—sometimes at a price which probably bore no relation to the assets value—that the shares so sold should be valued at an assets value basis. The Clause remedies that. To go further, as the Amendment suggests, would be to open a very wide door indeed to avoidance of the intention of the Clause.

It may well be that the transfer of shares from one member of a family to another still leaves the recipient of those shares in a position to realise the assets value of the shares if he wishes. In such a case we do not think that it would be right that the shares should be valued at the price at which they were sold between the members of the family. My hon. and gallant Friend the Member for Cheltenham (Major Hicks Beach) suggests that it is sufficient to rely on subsection (1, b). In our view, it is not sufficient. It is a matter of great difficulty in the case of sales between close relatives. I would emphasise that this is not just a sale between any relative but between relatives as defined in Clause 28 (1, d) as meaning:

"husband, wife, ancestor, lineal descendant, brother, or sister."

It is a pretty close relation. It is a very hard matter to determine, on sales between those relatives, that the sale was not

… made at arm's length for a price freely negotiated at the time of sale."

We have considered the matter very carefully in view of the feelings of my hon. Friends. We feel that we could not accept the Amendment without opening a very wide door for avoiding the operation of the assets value basis in cases where the family can still realise the assets value for the shares that have been transferred from one member to another. I have put the case shortly because I know that the Committee want to get on to the new Clauses at a fairly early stage. It is because we feel that there are so many dangers which would accompany the deletion of the subsection that we have reached the conclusion that we must adhere to it and keep it in the Bill.

Would I be right to interpret the words of my right hon. and learned Friend as meaning that the Government think that this proposal is not unjust, that in fact it is reasonable, but that they find it administratively difficult to carry out?

I do not think that that is the interpretation which I would ask my right hon. Friend to put on my words. If we left out subsection (1,a) it would mean that the way was open for the avoidance of the proper scale of duty on the assumption that we are retaining the assets value basis for cases where the family retain control and are so able to realise the assets value of the shares if they wish.

rose—

In view of the very full explanation given by the Solicitor-General, I beg to ask leave to withdraw the Amendment—[HON. MEMBERS: "No".]

rose—

On a point of order, Sir Charles, I did not understand that the Committee gave leave to the hon. and gallant Member to withdraw the Amendment.

As the Committee did not give leave, I was putting the Question.

We understood we were still on the Amendment. At least one hon. Member opposite rose in his place in order to carry on the debate, Sir Charles. I am afraid you did not see him. When my hon. Friend the Member for Islington, East (Mr. E. Fletcher) rose, we understood that you were not closing the debate but that you were proposing the Question and that the Amendment was still open to debate.

I was putting the Question. I did not see anyone rising. No one hailed me indicating that he wished to speak.

Would it have been in order, Sir Charles, for an hon. Member to hail you?

The hon. Member should have drawn attention to himself.

I beg to move, in page 31, line 13, at the end, to insert:

"and in so far as may be just in the circumstances for the value of any remaining shares of the same class not sold."

The provisions of subsection (1) are designed to remove an anomaly and their purpose is to ensure that where shares have been valued on an assets basis and any such shares are subsequently sold and realised at a price lower than the assets basis of valuation, that lower price shall be used for the purpose of working out the amount of Estate Duty they should attract. It means that one is actually paying out in relation to what one has actually received for the shares, which is good as far as it goes, but it does not apply to those shares not actually sold. This may be fair in some circumstances, but, equally, it may be unfair in others.

To give an example, if a deceased person had 75 per cent. of the shares in a company and 10 per cent. only were sold, that is plainly a minority interest. They would be sold at a price probably well below the true value because one would not be surrendering control, which would remain with the majority shareholding, and the small parcel would be expected only to command a lowish price. Therefore, the benefit of the relief of the subsection would be confined to those actually sold, which is quite fair.

If one takes the proposition the other way round and one is dealing with 75 per cent. of the shares of a company of which 60 per cent. are sold and 15 per cent. only are left unsold. Suppose the 60 per cent. are sold at lower than their assets valuation, it is plainly unfair that the remaining 15 per cent. should be valued on the assets basis to attract duty on that basis and could not have the benefit of being valued on the basis of what the 60 per cent. holding actually fetched in the open market. One should remember, particularly, that in the second case control would be sold with the 60 per cent. and, even then, could not produce a figure equal to the assets basis. It is obvious that the remaining shares could not reach figures in the market as high as those actually sold. It is plainly unfair that the small minority holding should continue to the valued on the assets basis; it ought to be accorded the benefit of this subsection.

The two examples I have given are clear-cut. In one case the benefit should not apply and in the other case it should apply. But there will be some marginal cases, and those we must leave to the Inland Revenue authorities to judge fairly where the true balance should lie. That explains the wording of my Amendment, which says:

"in so far as may be just in the circumstances"—

obviously there may be many and varied circumstances—

"for the value of any remaining shares"

—and so on. Therefore, on behalf of the holders of shares which are not sold, I seek the kindness and indulgence of the Solicitor-General to see that they are accorded full justice.

I regret that I must disappoint my hon. Friend. As he indicated when moving the Amendment, it would not work properly in a case where there was a sale of a majority holding and a retention of a minority holding, because it would be quite wrong to give the same value to the shares which were retained, bearing in mind that they were not capable of being realised on an assets basis.

The second case my hon. Friend put was one in which he said 60 per cent. of the shares would be sold out of a substantial holding. He suggested that the minority retained should be valued on the same basis, and not on the assets value basis. That is to say, the sale price of the 60 per cent. should be taken as the valuation. I am able to tell my hon. Friend that it is already the practice, where the controlled holding is sold at arm's length, to adopt the sale price as the value for Estate Duty purposes, subject to any adjustment for changes of circumstances since the date of death, and this would apply to shares retained as well as to the shares sold. That meets the point my hon. Friend made in regard to that particular category or shares.

There are other shares where control is broken up so that neither the shares sold nor those retained carry control as, for instance, where 40 per cent. are sold and 40 per cent. retained out of an 80 per cent. holding. It may well be that although 40 per cent. is sold the purchaser of that 40 per cent. has other shares in his possession and is so able, if he chooses, to realise the assets value. It depends on the proportion of the possession of other shares by him, or other members of the family working in association with him. It could be less than that, where, as seems a very unlikely case, the control is broken up so that neither the family nor anyone else has control.

To give an instance, suppose the deceased's holding was 60 per cent. and the other 40 per cent. were held by a number of unrelated shareholders, then, if 30 per cent. or more of the 60 per cent. were sold it would seem prima facie reasonable to adopt the price realised for the shares sold as the value of the assets retained. That would not be so if 20 per cent, were sold and 40 per cent, retained. The value of the 40 per cent. holding would be much greater than that of the 20 per cent, holding. The holder of 40 per cent., where no other shareholder had more than 20 per cent., would be in a dominating position in the company, although he would not get actual control.

I hope that by these observations I have been able to convince my hon. Friend that it would not lead to a fair result to say that the price at which shares are sold under the provisions of the Clause should be taken to be the value of the remaining shares of the same class not sold, whether or not the remaining shares constituted a minority or majority holding and whether or not the quantity of shares sold led to the splitting up of control.

Both the hon. Member for Altrincham and Sale (Mr. Erroll) and the Solicitor-General gave us instances depending on control formal or informal. There are other reasons for rejecting the Amendment.

As we were told just now by the right hon. and learned Gentleman, this is intended to be a form of relief or justice in a certain special case, in effect where shares are sold to meet Estate Duty. If the Amendment were accepted, it would be an invitation and an inducement to have sales, which might be of comparatively small quantities of shares, for a different purpose, and through those sales to extend the scope of what is offered considerably beyond the special cases which is intended to meet.

It might well be that executors, having to consider what property to sell in order to meet Estate Duty, would be induced to sell this type of share, perhaps only in comparatively small quantities, in order to get a relief which they would not otherwise have. It seems to me that proceedings of that sort would not be fair to those who might not get the relief or would not be fair, by and large, to the Revenue. I should regard an Amendment of this sort as offering an inducement which, on public grounds, seems objectionable.

I want to ask the Solicitor-General one or two questions about subsection (5). I am not clear about it as it now stands. Broadly, it appears to describe how the concessions in subsections (1) and (4) operate in the case of a share split or bonus issue. It appears to give the relief of subsection (1) in respect of the sale of shares or debentures within three years of death and the relief of subsection (4), the so-called quick succession relief, where two deaths occur within five years.

It appears to give the two reliefs to bonus shares as well as to the original shares in respect of which the bonus issue was made, but I am not clear how far this goes. It seems clear that the two reliefs are given to bonus shares, from which it would appear to follow logically that bonus shares are now subject to Estate Duty, but I am not clear that they are subject to Estate Duty. This is a point on which I should be grateful for some clarification.

I understand from people who are much better informed about these matters than I am that, as a result of a court decision in 1940 in the case of the Attorney-General v. Oldham, bonus shares in certain circumstances do not attract Estate Duty at all. The case where they apparently do not attract Estate Duty is the following.

The owner of a private business or a family business may make a transfer of shares to someone within five years of his death. If it were more than five years before his death, this provision would not apply at all, because the shares transferred would not be subject to Estate Duty. If, after the transfer of shares is made, but before the man dies, a bonus issue of shares is made, it appears that, as a result of the judgment which I have mentioned, the bonus issue of shares does not itself attract duty. If this is the case, it appears that this is a comparatively simple way of avoiding large sums of Estate Duty.

I will give an instance to show how easily this could happen. I understand that it frequently happens under the law as it now stands. Let us assume a company with an issued share capital of 100,000 £1 shares but with net assets, including reserves and undistributed profits, equal to £500,000. On the basis of assets valuation or any other common sense basis, the actual value of the shares is £5, although their nominal is £1.

Let us suppose that the sole shareholder of the business transfers 50,000 shares—that is, half his shares—to his son. At the date of transfer the son's shares are worth £250,000, which is 50,000 shares multiplied by £5, the value of each share. If after the assignment of the shares takes place a bonus issue is declared, say, on a one-for-one basis, the son then has his original 50,000 shares plus 50,000 bonus shares. In other words, he has a total of 100,000 shares.

Assuming that the value of the net assets of the company does not in the meantime increase, the 100,000 shares are still worth only £250,000. In other words, they are worth exactly the same as the 50,000 shares which were originally assigned to the son.

Although the 100,000 shares are now worth only the same as the 50,000 shares when first assigned, if the owner of the business who transferred the shares dies within five years of the transfer, a very different picture emerges from the Estate Duty point of view because, under the court judgment to which I referred, bonus shares are apparently not subject to Estate Duty. Therefore, for the purposes of Estate Duty only, the 50,000 shares originally assigned are involved, and their value after the share split is now only £125,000 instead of their original value before the bonus issue was made of £250,000.

The difference from an Estate Duty point of view is a very large one. Estate Duty at 60 per cent., as it would be on £250,000, amounts to £150,000. Estate Duty at 50 per cent., as it would be on £125,000, amounts to only £62,500. Therefore, there is as a result of the bonus issue, if the facts are as I have said, a saving in duty of no less than £87,500, the saving being due partly to the reduced value—that is, to the lower sum on which duty is assessed—and partly to the fact that, because the sum on which the duty is assessed is lower, the duty falls at the lower rate.

I do not know whether the example as I have given it is a valid one under the law as it now stands. I have every reason to believe that it is. If it is, this appears to be an extremely simple way of avoiding very large sums of Estate Duty.

The specific question that I want to ask is what the position will be as a result of subsection (5). It appears that the subsection extends certain reliefs to bonus shares. Does it follow from that that bonus shares are subject to Estate Duty? If it does, presumably the example which I have given is not a valid one at all. In that case, there seems to be a considerable mystery here which ought to be cleared up.

4.30 p.m.

We should be very grateful to the Solicitor-General if he would make a general comment, which I think this Clause gives him a convenient opportunity of doing, on the question of Estate Duty and bonus issues of shares made in the circumstances which I have described. There is a good deal of uneasiness whether, in the kind of circumstances which I have related, the issue of bonus shares is not a convenient and too easy method of avoiding Estate Duty.

Before we part with this Clause, I should like the Solicitor-General to comment on one matter. It seems that the object of this Clause, as well as of the preceding Clauses, is to avoid the breaking up of family businesses owing to Estate Duty. The object is to avoid the family having to sell the business to a combine or break up the assets because they have to find money with which to pay the Estate Duty. It is felt by the Chancellor that there is advantage in businesses of this type, and that they contribute something to our economy which bigger businesses do not provide. Though one may agree with its objective, it seems to me that there are difficulties when we come to Clause 27.

Am I not right in thinking that the effect of the Clause will be that, in certain cases, it might well be more advantageous—in some cases, considerably so—to the family to sell the business outright to a large combine rather than to other members of the same family? It may well be greatly advantageous to sell the business outside the family and, if that is the case, would they not be defeating one of the main purposes of the Government in these Clauses. I should be glad to hear the Solicitor-General's comment on that point, because it is, perhaps, a matter that should be considered between now and Report stage.

I should like to support what has been said by my hon. Friend the Member for Gloucestershire, South (Mr. Crosland), because the case to which he referred related to a well-known company—Messrs. Tate and Lyle—which is always particularly interesting in taxation methods.

In this case, Mr. Tate, shortly before his death, handed over a number of shares to a younger Mr. Tate, and the shares "pupped" in the interval between being handed over and the death of Mr. Tate. That was just too bad for the Revenue, because the result was that, when the court had to consider which were the shares upon which Estate Duty should be raised, the court, both in the first instance and again in the Court of Appeal, held that obviously only the shares that were actually handed over could be liable to Estate Duty. A good deal was said at the time by the Crown, which, in these matters, sometimes looks first one way and then the other, about acting in the spirit of the matter—that one must not look too hard at the actual text of the Act, because it was the spirit that mattered. A number of instances were given, more or less of an animal character, about mares in foal, tame deer and so on, which produced in the same sort of way as shares.

There is obviously a very open means of evasion in the case of companies of the character that we are now considering, because it is perfectly possible to give shares away. It appears to be perfectly possible for the family, in the case we are now considering, to arrange for the bonus issue when the donor is beginning to look "a bit dicky," to use a crude phrase, and, in these circumstances, to get out of paying the Revenue quite considerable sums of money. The Crown then, as distinct from the Crown now, said that that was dead against the spirit and intention of this kind of legislation.

We are only dealing with one kind of firm now, and Messrs. Tate and Lyle, whatever they may have been in the past, are by now, I imagine, valued on an assets basis. There remain the smaller group, where, though, of course, the evasion would not be so much, the opportunity for repetition seems to be considerable. In these circumstances, what astonishes me is that the Government have thought fit in this case only to put in the provision at the end of a Clause which, if I read it rightly, does provide for similar treatment on this point both of the original shares and of the bonus shares. Why no more?

Since 1940, it has always been open to the Government to say, "Why did you not do it?", though we are getting a little tired of that excuse. I wonder why, when dealing with this matter, they have entirely failed, as I read the Clause, to deal with the far wider and much more substantial point which arises out of that particular case. I am not going to repeat the very strong arguments put by my hon. Friend, and I do not believe that any hon. Member of the Committee considers that what was done in the case of the Attorney-General v. Oldham was not right, as far as the law was concerned, but that it was dead against the wish of this Committee with regard to Estate Duty. We do not want the door to be left open, when an opportunity might be taken of dealing with something else when we are concerned with a very narrow field, and I want to ask the Government why they did not go the whole hog, do the job properly and cover that major point.

May I put to the learned Solicitor-General another point concerning a different subsection of this Clause? Clause 27 is something of a mixed grill, and I think that a few moments spent on the matters under discussion might be useful.

Before coming to subsection (3), on which I wish to ask a question, I should like to express the hope that the right hon. and learned Gentleman will be able to assure us that subsection (5) will, in fact, deal with the type of case which was so clearly explained by my hon. Friend the Member for Gloucestershire, South (Mr. Crosland). When one sees the figures in an example like this, one realises what enchanting possibilities there are when a person possesses wealth. The football pools have nothing to compare with this kind of exercise. Here one is bound to win a prize if one only knows what to do with one's resources. The example given by my hon. and learned Friend shows how a simple transaction from father to son may eventually lead to a very substantial relief from Estate Duty on the family resources.

I have done my best to see whether subsection (5) means what it appears to mean. In parenthesis, perhaps I might make an appeal for a revision of our out-of-date procedure in Committee so that when a complicated matter comes before us we can have an explanation of the Clauses. We could then study them, instead of having to probe their meaning on the Floor of the Committee by asking hon. and right hon. Gentlemen on the Government Front Bench to tell us the purpose of the Clauses.

My hon. Friend the Member for Gloucestershire, South raised a particular matter on which I understand there has, up till now, been a genuine difference of opinion among those who offer themselves as experts. It is whether subsection (5) does or does not stop the practice of avoidance of Estate Duty by the issue of bonus shares during the lifetime of one member of a family to another member of the family, thereby in the end paying Estate Duty only on the shares actually transferred, even though at the time of death they are worth probably half what they were worth at the time of transfer, owing to the subsequent issue of bonus shares.

Subsection (3) appears to deal with what I understand to be an injustice in regard to companies where Estate Duty has been levied on the assets basis, when an additional levy of Profits Tax is made on distributed profits after the date of death. When profits are distributed there is an additional charge to Profits Tax. If the distribution is made after the date of death, although it arises from conditions and circumstances existing before the date of death, the distribution charge for Profits Tax is not, strictly speaking, allowable against the assets basis of valuation. It is not regarded as a charge against the valuation not even as a contingent liability against it. If subsection (3) removes that anomaly, the Committee will approve of it.

I notice that the Clause says, in page 31, line 35:

"Any liability of the company arising, or which may arise, after the death for taxation on income or profits shall be taken into account as if it were an actual but contingent liability at the date of the death."

That seems to cover possible charges to taxation, apart from Profits Tax, on the distribution of profits made after death. Does it permit of Income Tax, recoverable as a result of some misdemeanour, failure or neglect on the part of the taxpaying company, after death to be set off against the assets basis of valuation? If so, where there is some culpable failure, or even worse, on the part of the company to disclose the true liability to Income Tax before the date of death, one wonders whether liability arising and discovered after death should be given any special relief from Estate Duty. I hope that that does not sound too vindictive, but any deterrent we can put into our legislation against the malpractices which go on in a small number of cases, the better for the health of our taxation system.

I should like the Solicitor-General to find the right place in his brief this time and to tell us just what subsection (3) of the Clause is going to do, and also to give the assurance asked for by my hon. Friend the Member for Gloucestershire, South.

The hon. Member for Gloucestershire, South (Mr. Crosland) and the hon. and learned Member for Kettering (Mr. Mitchison) raised questions in regard to subsection (5). As they no doubt realise, that subsection deals with the case in which there has been some change in the capital structure of a company either by way of the issue of bonus shares or in other ways, as by a sub-division of shares into smaller amounts or their consolidation into larger amounts.

The intention of the subsection is to provide that subsections (1) and (4) shall apply to the new shares after the change as they applied to the old shares before the change, provided that the new shares derive from shares of the same class which have had to be valued on the assets basis, on a death occurring before the change. I hope that the hon. and learned Member for Kettering will feel that his fears in regard to bonus shares in relation to the operation of the Clause are laid and that the Clause deals with the matter satisfactorily.

Before the Solicitor-General leaves that point, perhaps, I may reassure him that I have never had any fears on the point, except that I completely fail to understand why the Clause does not go a great deal further?

If I discussed matters which were not in the Clause I should be out of order, especially in a debate on the Question "That the Clause stand part of the Bill."

On the matter raised by the hon. Member for Sowerby (Mr. Houghton), subsection (3) makes provision, subject to certain limitations, for Income Tax and Profits Tax which are referable to income or profits accruing before death to be deemed as a contingent liability at the date of death and so to be allowable in whole or part as a deduction from the value of the assets "by reference to such estimation as appears to the Commissioners to be reasonable." I am sure that the hon. Member will agree with me that that is a desirable provision in relation to Income Tax, and that it means a slight alteration of the decision in the case of "Re Duffy (deceased)," which was decided in 1948 in relation to Profits Tax. It is a matter on which considerable doubt has been expressed in the case of Estate Duty where Profits Tax liability is concerned. I could give the hon. Gentleman a very long explanation of precisely what subsection (3) does. It is extremely technical and I would be only too glad to explain it later, as I feel sure the Committee would wish to get on.

I do not want to add anything so far as subsection (3) is concerned, but while the Solicitor-General was speaking my hon. and learned Friend the Member for Kettering (Mr. Mitchison) intervened to point out that the right hon. and learned Gentleman had not so far dealt with the main point made by my hon. and learned Friend. The only way in which the Solicitor-General purported to deal with it was to say that he thought that it would be out of order to go outside the Clause. I want to look into the Clause in order to point out what does not figure within it.

What does not figure inside its four walls is the very matter with which my hon. and learned Friend was dealing. He was saying—and I feel sure that the Solicitor-General must have understood—that we have the decision in the case of the Attorney-General v. Oldham which was decided as long ago as 1940 and still has not been put right. I quite agree that since then several Governments have intervened. So far as that aspect of Clause 27 is concerned, the only point we put is whether, while the Government were putting right what they considered to be anomalies in the workings of this particular section of the Estate Duty code, it would not have been a very excellent opportunity also to put right the anomaly which has existed since the decision in the case of the Attorney-General v. Oldham?

It is to that point that we have not yet had an answer. The anomaly has been very clearly put by my hon. and learned Friend the Member for Kettering and by my hon. Friend the Member for Gloucestershire, South (Mr. Crosland). It concerns the situation which arises when there is a gift of shares and, before the death, the shares have, as my hon. and learned Friend put it so graphically, pupped. Have not the Government that point clearly in mind, and do they not agree that this would be a very suitable opportunity to deal with the matter?

On a point of order, Mr. Hoy. I think we are not allowed to discuss on the Question, "That the Clause stand part of the Bill" anything which is not in the Clause.

I am most anxious to keep within the rules of order, Mr. Hoy, but in criticising a Clause actually in the Bill am I not entitled to look strictly at its wording and see whether it goes far enough? I would respectfully submit that it was in order to examine and appraise the conditions of the Clause as it stands and to express a mild word of regret that it does not go further.

It is rather difficult for a layman to give an interpretation of something which might be strictly legal, but I would say that the right hon. and learned Gentleman would not be in order if he went outside what is in the Clause. I think he certainly might ask a question, but it would not be in order to debate something not contained in the Clause.

I am obliged, Mr. Hoy, and take that Ruling to mean that I was strictly in order.

Further to that point, Mr. Hoy. If I am asked a question about something not in the Clause—and there is no reference to the subject matter of the Attorney-General v. Oldham in the Clause—surely it would be out of order for me to seek to give an answer to the question?

I thought that I had made it clear that the Solicitor-General should not attempt to reply to remark's about something not in the Clause. All I say is that it would not be right for the Committee to debate something not in the Clause itself.

I am much obliged for that Ruling, Mr. Hoy. In effect, it draws the line between myself and the right hon. and learned Gentleman. We are both right and both wrong.

If I might try in obedience to your Ruling, to stick strictly to my side of the tape, I would simply conclude by voicing, as I have said, a note of regret, and almost of lament, that the Government have framed the Clause as they have done—I am talking only about the Clause—and have not found themselves able to take a somewhat wider view, and do not contemplate bringing within its provisions these very important matters which my hon. and learned Friends have raised with such insistence in the course of this debate.

It has not been made clear what need there is for this subsection at all. As my hon. Friend the Member for Gloucestershire, South (Mr. Grosland) pointed out so clearly, if under the most recent ruling of the courts Estate Duty is not paid on bonus shares which are issued in the period of five years, why is it necessary to have this subsection granting relief for substantially the same circumstances? As I understand, neither in the case of subsection (1), which refers to the sale of shares within three years of death, or subsection (4) which refers to death within five years, would Estate Duty, under the present ruling of the court, be payable on bonus shares. I admit that this is a very complicated question, but, if that is the case, what is the purpose of introducing this subsection at all?

That is what the Solicitor-General did not make clear and what we are trying to find out. It is rather important. I do not know how the courts will interpret this in future. I do not know if courts do interpret by inference, but will they by inference interpret this as meaning that it is the view of the Government—or Parliament—that bonus shares issued within the period of five years of death are, in fact, to be liable to Estate Duty on their full value and not on the value of the number of shares at the date of death? That is the important point.

Frankly, it is extremely confusing. We still do not know the Solicitor-General's views on this. Does he hold a view contrary to that of the courts? If that is the case, we can well understand his subsection. But, if he accepts the view of the courts—as presumably he must—why on earth is this subsection needed at all? We are extremely concerned, of course, with this obvious method of Estate Duty evasion, but, as you have pointed out, Mr. Hoy, it would not be in order for us to discuss that. However, I think that I am in order in asking why it is necessary to put into this Bill this farrago of words which seems to have no meaning at all.

I should like to repeat in a very much simpler way the question addressed to the Solicitor-General by my hon. Friend the Member for Edmonton (Mr. Albu). He can give to the Committee an assurance, which on this side we should be very glad to have, simply by replying to this question. Is it the opinion of the Solicitor-General that, if this subsection were not in the Clause, the Inland Revenue would lose money? If the Solicitor-General can assure us that the subsection has been put in to protect the Revenue, then I do not doubt that we on this side would be very much more disposed to accept the whole thing. Surely all that matters is, does it or does it not protect the Revenue? If it does, let us say so. If it does not, we should like to know why—and we should have our own idea why the subsection has been put in.

I rose to my feet only very slowly, because I wished to give the Solicitor-General every opportunity to intervene, and I could hardly believe that he would not do so. I was extremely surprised at the right hon. and learned Gentleman's reply.

As on several occasions when hon. Members sat down the hon. Gentleman gave indications that he intended to rise, I thought I would wait until I heard his observations. I did that as a matter of courtesy and for no other reason, because I can get to my feet without his inspiration.

May I say straight away that the need for this subsection is clearly established, because, if it were not there, there would be all sorts of arguments as to what effect an alteration of shares would have on the operation of subsections (1), (2), (3) and (4). It removes that doubt.

Regarding the other questions put to me in relation to the case of the Attorney-General v. Oldham and to the issue of bonus shares in relation to Estate Duty generally, I dare say that we could have a very interesting debate on that. However, I do not think that I could answer those questions without causing you, Mr. Hoy, to rise to your feet in much the same way, perhaps, as the hon. Member for Stechford (Mr. Roy Jenkins) has caused me to rise to mine. While it would be an interesting matter for debate, I do not believe that I could answer those questions and still remain within the bounds of order. That being so, I must disappoint the hon. Gentleman opposite by not giving my views on the interesting case which was decided in 1940.

I am sorry if there is any confusion between the Solicitor-General and myself. My hon. Friend the Member for Nottingham, South (Mr. Norman Smith) made a sign to the Solicitor-General which was intended to ask him whether or not he was going to get to his feet. Quite frankly, the right hon. and learned Gentleman gave no indication that he was going to reply. I am bound to say that, while it is courteous of him to rise to his feet, he has not by so doing helped the Committee very much, and he has not replied, at least not in a way that I can understand, to the point put to him by my hon. Friend the Member for Edmonton (Mr. Albu).

I still do not understand what would be the position if subsection (5) were not included in the Clause. Would this relief which is being accorded to bonus shares exist or not; would bonus shares be called upon to pay this duty or not? The Solicitor-General dealt with this point in only one sentence. I was unable to take down what he said, but I found that it shed very little light indeed on the decision. The right hon. and learned Gentleman did not say what the position would be if this subsection were not in the Clause.

We are in difficulties because we all recognise that there is an underlying

As it appears that the Clause cannot be discussed without transgressing the rules of order, and as none of us would wish that to happen, I can only draw the conclusion that it is a most unsatisfactory Clause, and must therefore ask my hon. Friends to divide against it.

I wish to draw my right hon. Friend's attention to some peculiarities in the Clause as drafted. At the foot of page 32, we find a reference to a person who has

"powers equivalent to control."

In the middle of page 33 there is a reference to a person who

"has or had control"

without any qualifying word. On the same page at line 43, we find the words:

"… the Commissioners are satisfied do not materially affect the effective control."

We therefore have three different descriptions of "control." I know that legislation sometimes exists for the benefit of solicitors and others, but it seems to me that some simplification could be introduced into this Clause with advantage to all.

I should like to ask a question on subsection (1,d). The definition of "relative" seems a little strange. Apparently, so far as buying and selling companies is concerned, the forbidden degree of consanguinity includes ancestors. For instance, apparently a person may not sell to his paternal grandmother but he may sell to his daughter's child. Surely one's daughter's daughter is not a lineal descendant. [Interruption.] She is? Then I give way on that point. But then what does "lineal" mean?

Why are these particular relationships chosen? What happens to stepdaughters and stepsons? It seems to me that if one wanted to sell to one's stepson or stepdaughter it would be as difficult to establish that the sale was at arm's length, as it would if the sales were to a grandmother, and the same applies to nephews and nieces. If we are to draw a line between certain relationships, it would be useful if the Solicitor-General could explain why this line is drawn according to the definition in this subsection.

May I draw the attention of my right hon. and learned Friend to the wording of subsection (3, c)? This subsection lays down means and conditions under which control is obtained, or supposed to be obtained, but paragraph (c) contains some very peculiar points. One is:

… there shall, in so far as the Commissioners of Inland Revenue so direct, he disregarded—

(i) any limited interest subsisting at the relevant time in any shares …"

By reference to other Clauses, a limited share means something of this sort: if the deceased leaves the shares for life to some person, or for some shorter period and then to a relative.

The Commissioners are apparently to be given a free hand to decide in which cases they will or will not have regard to limited interests. I should have thought it was a serious matter to give that sort of power to the Commissioners without, so far as I can see, an appeal to any tribunal of any sort or kind. If shares were left to a young person for life and then to a relative, that would be a limited interest. It would be likely to go on for a very long time, and presumably therefore could not and would not be disregarded. On the other hand, if the shares were left to an elderly person who was likely to die very quickly, the Commissioners might think fit to disregard the matter. If the shares were left to a person for six months and then to a relative the Commissioners would almost certainly disregard that limited interest. But it is a very serious discretionary power to give to the Commissioners without there being any form of appeal.

Subsection (3, a (ii)) is even more extraordinary. There, apparently, the Commissioners are to decide whether voting rights which may or may not affect the effective control of the company's affairs shall be taken into account. I should have thought that it was a purely legal question whether or not voting rights conferred upon shareholders by virtue of their preference shares had any effect upon the control of the company. Whether or not the Commissioners should be given a discretion to say that certain voting rights affect control, I suggest that it is highly undesirable to give discretionary powers of this sort to the Commissioners unless there is some process by which a decision which is very nearly a legal one can be appealed from and tested.

I have been thinking of what was said by the hon. Member for Orkney and Shetland (Mr. Grimond), and I cannot see the significance of the word "lineal." I think the definition would be quite appropriate if that word were left out.

If we are now suggesting ways and means of improving the grammar or the wording of the Clause, I would ask the right hon. and learned Gentleman to look at the first line in subsection (2), which containes a reference to

"The two last foregoing sections. …

" I can find only one "last foregoing section." I was wondering whether anything had been done to tighten up the wording or grammar in that case.

I cannot remember the occasion, but I remember the right hon. Gentleman drawing attention to this point some time ago.

It was on the Landlord and Tenant Bill.

I can give the right hon. Member the assurance that I gave him on that occasion. We shall look into that drafting point, and into the point made by my hon. Friend the Member for Langstone (Mr. Stevens) about the references to "control." In subsection (1,d) we have sought to take a fairly narrow definition of "relative." We want to exclude those cases in which it will be specially difficult to establish that the sale of the shares was at arms' length and at a freely negotiated price. I shall certainly consider whether the word "lineal" is necessary before the word "descendant." My impression is that it is, in order to exclude stepsons, stepdaughters, and similar relations.

Does that mean that a sale between step-relations would not be allowed or would be allowed?

It excludes a sale between a stepmother and a stepson from the operation of Clause 27 (1,a).

Is my right hon. and learned Friend suggesting that a stepson, a stepdaughter, an adopted son or an adopted daughter is a descendant? If so, I do not agree with him.

I hope I had made it clear that I was not suggesting that. I said that I should look at the use of the word again, but that I thought it might be desirable to retain it in order to make it quite clear what was meant by the subsection.

My right hon. and learned Friend the Member for Kensington, South (Sir P. Spens) raised a point of more substance, on a matter which has given me considerable difficulty. It is quite right that subsection (3,c) reserves a complete and unappealable discretion to the Commissioners, and we want to be satisfied that that is desirable before letting it go by. The discretion really relates to a problem which is small in compass. The subsection can apply only to cases where the application of the assets basis does not depend upon a deceased person having voting control. It is estimated that these what I might call quasi-control cases have, up to now, represented less than one-quarter of the total number of Section 55 cases.

The cases in which the Commissioners' discretion under subsection (3) would operate form only a small fraction of that fraction. In most cases the nature of the limited interest would be irrelevant, because the limited interest or voting preference shares would normally be clearly indicated as being in or out of the assets basis. It is only a small number of cases on the borderline with which we are concerned here. It is important to bear that fact in mind, especially when one considers what alternative could be inserted.

The precise type of limited interest which should be disregarded is very difficult to define in a way which would enable the courts to adjudicate upon the matter. The forms of limited interest may be many. One simple instance would be where a beneficiary was entitled to shares subject to a limited interest of only six months' duration. If there were not some escape provision such as this, that limited interest would be sufficient to take the case out of the ambit of Clause 26 (5). Something must be done to provide some flexibility. I can assure my right hon. and learned Friend that although we have thought very carefully whether some alternative method might not be adopted, we have come to the conclusion that any such alternative would have to be so complex and so lengthy that, on balance, it is best to leave the discretion in the Commissioners in this exceptionally narrow field.

My right hon. and learned Friend drew particular attention to the question of voting preference shares, which is dealt with in paragraph (c, ii). The position there is much the same. The existence of voting rights which are exercisable by virtue of preference shares may have no effect on the actual control of the company; those rights may be in the hands of an employee who never attends company meetings, or, if he does, is unlikely to vote against his employer. Other similar instances could be given. It is not unreasonable that in certain cases voting rights of that kind should be ignored, for the purposes of the Clause.

It is almost impossible to give a precise definition of the circumstances in which the voting rights attached to such shares should be disregarded without creating many anomalies and possible hardships. We have again come to the conclusion that, on balance, it is best to give this wide discretion to the Commissioners in this extremely narrow field, in the belief that in the exercise of their discretion they will seek to avoid hardship, injustice and the inequitable operation of the preceding Clauses.

I do not know what the right hon. and learned Gentleman the Member for Kensington, South (Sir P. Spens) or the right hon. Gentleman the Member for Blackburn, West (Mr. Assheton) or my hon. Friends think about the reply of the Solicitor-General, but I found it most unsatisfactory. I thought it a very sorry performance, and I think a great many hon. and right hon. Members on both sides of the Committee will wonder where we are getting to if that is the best reply we can have from the Government.

The Solicitor-General said—I wrote it down—that as this matter was so complicated and applied to a relatively limited number of cases only, it was extremely difficult, if not impossible, to provide a precise definition, and he thought, therefore, it would be better to leave these very complicated matters to the discretion of the Commissioners in order that there might be a measure of flexibility. What does that mean?

We are now dealing with the definition Clause, and if there is in any Clause in any Measure where one expects to find precision, it is in the interpretation Clause. We all concede that this is a highly complicated matter. It involves very abstruse propositions in the consideration of hypothetical cases. Therefore, that necessitates the use of language that should be as clear and precise as possible in order that the taxpayers may understand it. It may well be that this group of Clauses will apply in only a small number of cases, but in those cases where it does apply the amounts of Estate Duty will be very large indeed.

It is a matter of very great moment to executors faced with paying Estate Duty to know whether the asset value applies or whether the other value applies. In Clause 25 concessions have been made in the rate of duty in Section 55 cases, and in Clause 27 an attempt is made to prevent abuses by tightening up the loopholes that may arise where there are sales of family businesses to relatives within three years of death.

What the Solicitor-General in fact is saying is that there may be borderline cases. Those borderline cases will depend on whether or not the deceased had control. That in turn will depend on what is meant by control. In other cases it will depend on whether the sale is a sale to a relative as defined in this Clause or to somebody who is not a relative. Complicated though it may be, I am sure that all Members on both sides of the Committee, since this is not a political matter, will agree that it is our duty to get it as clearly defined as we can.

I do not think it is satisfactory that the taxpayers' liability should be left to the discretion of the Commissioners without any clear guidance in the Measure how that discretion is to be exercised. There may be cases in which £20,000 or £30,000 or £50,000 of duty are involved. Granted that the Commissioners will carry out their discretion to the best of their ability, that is not the way in which we ought to legislate, because fiscal law, like penal and criminal law, should be carefully and precisely defined. If there is any doubt about it, the person against whom the claim arises should have the benefit of the doubt. In any event, he should have the benefit of an appeal from a decision of the Commissioners to a judicial tribunal.

I think the Solicitor-General agrees with me in saying that this is an exceptional and unprecedented instance of giving discretion to the Commissioners. However exceptional the circumstances may be, it seems to me thoroughly indefensible on principle.

I want to consider two major questions that have been raised in the debate. Let us take first the definition of a relative. The Solicitor-General's answer was most unsatisfactory. The whole object of defining a relative is to add an additional safeguard to the provisions of Clause 27 (1,a). A moment ago, when we were discussing that on an Amendment moved by the hon. and gallant Member for Cheltenham (Major Hicks Beach), the hon. and gallant Member asked why have that paragraph in at all, for, he said, it was quite unnecessary in view of Clause 27 (1,b), which ruled out any sale unless it was negotiated at arms' length. The Solicitor-General then justified his resistance of the Amendment by saying there might be a sale to a relative, and if there were it would not be easy to tell whether it was a sale at arms' length or not.

We now come to consider the definition of a relative, and we are told that for the purposes of Clause 27 a son is a relative and a stepson is not, a lineal descendant is a relative but no other kind of descendant is. I must add in fairness that the Solicitor-General did not seem to be very clear what form of descendants there were other than lineal descendants, but he was good enough to say he was going to look into that matter. He should have looked into that matter before now, because it is here and now the Committee has to decide whether to accept the words "lineal descendant" with some quite unknown limitation of the words. I am not myself prepared to leave it in abeyance in that unsatisfactory way.

The major question is this. I was not convinced by the Solicitor-General's reply to the arguments of the hon. and gallant Member for Cheltenham, but if they had any validity at all those arguments hold good to precisely the same degree for a sale to a relative as for a sale to a son. I should think they would be equally valid if there were a sale to a son-in-law as compared with a sale to a daughter, but under this definition of relative a sale to a daughter is suspect but a sale to a son-in-law is aboveboard. That really cannot make sense at all. This definition of relative is so loosely drawn as to be completely nugatory, as to destroy the purpose for which, according to the Solicitor-General, it is necessary to have it in the Bill as a safeguard.

It may be that if my observations are well-founded they will give some comfort to the hon. and gallant Member for Cheltenham and his friends. Be that as it may, my object in making these few observations is not to expatiate on the problems of whether the definition of a relative should be more widely or more narrowly drawn, but to point out that it is not good enough that it should be prepared in this very loose manner and should contain a number of words of which the Solicitor-General is unable to give us an explanation.

I want to pass to the question of whether the Commissioners of Inland Revenue should be left as the sole and final judges, in any case which arises, as to whether control exists, in as far as control may depend upon there being either limited interests or upon their voting rights being derived not from ordinary shares but from preference shares. Both these are very vexed questions. The right hon. and learned Member for Kensington, South (Sir P. Spens) knows perfectly well, as do other hon. Members, that it is a highly technical matter in a great many cases to say whether or not the voting rights which are given to preference shareholders in the articles of a company do or do not confer any measure of control. It may depend upon whether the preference dividend is in arrear. It may well depend upon an almost infinite variety of circumstances—many of which are daily considered by those whose duty it is to frame articles of association for companies in which there are a large number of members of one family interested in one respect or another.

In so far as the problem which will concern the Commissioners in a number of cases is as to the existence of control, it seems to me that in this definition Clause we should face the task, however difficult it may be, and try to define with much greater accuracy and precision what we mean by control.

I am particularly worried by the phrase in subsection (3, c, ii) where it refers to any voting rights

"which do not materially affect the effective control."

What on earth does that mean? Does it mean that there may be voting rights which affect the control although they do not materially affect the control? May there be other voting rights which materially affect the control but do not materially affect the effective control? I think my hon. and learned Friend the Member for Kettering (Mr. Mitchison), at any rate, will agree with me that the proposition has only to be stated in those terms to show how impossible it will be for the Commissioners to discharge the task entrusted to them.

It seems to me, therefore, that if questions arise under a definition Section provided in this very loose, vague and unsatisfactory way, the least we should insist upon is that there should be an appeal, as in every other case, from the Commissioners to the courts of law. For those reasons I very much hope that my hon. Friends will express their dissatisfaction with this unsatisfactory Clause by not accepting it in its present form.

I want to refer briefly to subsection (7), which deals with the date of the application of the Clause. In doing so, Sir Charles, I shall be in some difficulty in keeping within your Ruling.

What influenced the Treasury or the Government in setting the date for bringing in this part of the Bill as the commencement of the Act? If there was a positive opinion on the subject, I should like to have it. We have been debating this Clause for some time and we might have felt that, if my right hon. Friend wanted to do good, he could possibly have done it at an earlier date. Why was this and not some other date—perhaps Budget Day—put into the Clause?

My right hon. Friend the Financial Secretary may say that he gave consideration to the amount of revenue which would be lost by using some other date, but I could show—although I doubt whether I should be allowed to bring the argument forward with you watching me so closely, Sir Charles—that, by taking another date, money would be saved. My right hon. Friend the Financial Secretary is undoubtedly aware of cases of this nature, because I have put one to him. I cannot carry this argument very far, but I should like my right hon. Friend to tell the Committee why this date was chosen and not some other date, for instance the date on which the Chancellor introduced the Budget.

I understand that my hon. and gallant Friend the Member for Roxburgh and Selkirk (Commander Donaldson) has spoken to the Financial Secretary on this subject and has had some discussion with him about it. I am afraid I cannot add to what he was told in those discussions.

Subsection (7) is very clear in its terms. It is required to specify from what date these provisions shall have effect, and it makes them take effect in relation to any death occurring after the commencement of the Act. I gather that my hon. and gallant Friend wanted the subsection to take effect in relation to any death occurring after the date of the Budget. That was considered in the discussions which my hon. and gallant Friend had with the Financial Secretary, and he was told that it was more usual in relief provisions of this sort to make them operate from the date of the commencement of the Act and not from the date of the Budget. But my right hon. Friend will be only too glad to discuss the matter further with my hon. and gallant Friend.

A number of my hon. Friends have approached the debate in

I beg to move, in page 35, line 15, to leave out from second "property," to the end of line 22, and to insert:

"settled by the will of the deceased."

As I understand it, the Clause was intended to create a straight rise of from £2,000 to £10,000 in small estates which need not be aggregated with anything else and which only have to bear duty at the rate applicable to their capital value. At first, one thought that this was the only alteration that was being made, but on looking into the present position it appears that under existing legislation a free estate of £2,000 is not aggregated with any settled property whatever, except property settled by the will of the deceased. That is the only portion of the very wide types of property which are included in the definition of settled property which has to be added in with any free estate to make up the £2,000.

One finds from the Clause, however, 'that the deceased's free estate has to be aggregated with a large amount of settled property. It has to be aggregated with any property

"comprised in a settlement made by the deceased or made, directly or indirectly, on his behalf or at his expense or out of funds provided by him …"

It has also to be aggregated with property not comprised in the settlement of which the deceased was

"competent to dispose and has disposed by the exercise by his will or otherwise of a power conferred by the settlement."

Finally, it has to be aggregated with property which

"devolves on his personal representatives as assets for payment of his debts"

which, as far as I remember, means property over which the deceased has exercised a general power of appointment.

That means that it is not simply a mere straight rise from £2,000 to £10,000 in the value of the free estate. It is a rise from £2,000 to £10,000 in respect of a quite substantial mass of property much greater than is at present aggregated with the free estate. In the circumstances, I wonder what the effect of the Clause is likely to be. It seems to me that there will be a very great deterrent for settlements to be made, not only by a person for his own benefit, but by other people for his benefit. If this misfortune happens, the benefits of the Clause will be minimised accordingly.

It looks at first sight as though the benefit of the increase from £2,000 to £10,000 is very largely taken away by the fact that any personal savings or free estate have to be aggregated with a mass of other settled property. I should, therefore, like an explanation as to what is thought to be the effect of the benefit of the Clause.

As my right hon. and learned Friend the Member for Kensington. South (Sir P. Spens) said, subsection (1) is mainly a relieving subsection whose purpose is to raise the total of free estate which does not require to be aggregated with settled estate from £2,000, without a taper, to £10,000, with a taper. As my right hon. and learned Friend has pointed out, the words to which his Amendment relate make an alteration in the existing law with respect to what is put in with the settled estate and what is put in what one might call the free estate bag.

Under existing law, property settled by the deceased in his will is added to the free estate and, therefore, not aggregated with other settled property. On the other hand, property settled by the deceased during his lifetime—for example. to himself for life with the remainder to his children—goes in with the settled estate. That seems to be a somewhat illogical distinction between property both sets of which have been dealt with by the deceased in effecting a settlement. Therefore, what the Clause does is to put both property settled by the deceased in his will and property settled by the deceased by an instrument during his lifetime in with the free estate and separate from the rest of the settled estate.

The logic, it seems to us, which justifies this provision is this. The object of the whole subsection is to deal with the very severe hardship which can and does arise on occasions when a large settled estate passes, in accordance with the settlement, possibly to persons other than the deceased tenant-for-life's near relatives, but requires to be aggregated with his quite small free estate. As a result, it may well be that his close relatives to whom the free estate comes obtain a small free estate minus the very high rate of duty which results from aggregating it with the settled estate. The extreme example could be of a free estate, under existing law, of £2,001, a very large settled estate passing in another direction and the unfortunate beneficiaries of the free estate finding their £2,000 subjected to duty at 80 per cent. and, therefore, receiving £400.

That is the object, and, therefore, in pursuit of that object it seems to us right to draw a distinction between, on the one hand, property of which the deceased could dispose and property of which he could not. That is to say, if the deceased is concerned, in the case I have suggested, to secure that his near relatives are properly provided for—that property which he can dispose of he will use for that purpose—it can go with the free estate.

On the other hand, in pursuit of the objects that I have outlined, one puts in a separate category the estate of which the deceased was tenant for life and whose destination he cannot control. The test, in other words, is whether the deceased could have freely disposed of the property. In both cases which directly arise—the case where the deceased creates a settlement by his will on his death or by deed during his lifetime—ex hypothesi the property is at his disposal.

It therefore seems to us logical and sensible, and in accordance with the intention of the subsection as a whole, that that property which he is free to dispose of should go with the other property which he is free to dispose of for purposes of aggregation and not be aggregated with the property of which he is not free to dispose.

I think my right hon. and learned Friend will see that this is the proper way to carry out the intention and to end the curious anomaly by which property settled by the deceased in his will went into one estate and property settled during his lifetime went into another. Therefore, the purpose of this subsection would be to the effect that the dependants of persons, being tenants for life of settled property, shall be given a chance to have a reasonably sized estate without suffering the disadvantage of having it considered with the settled estate. This draws a line of distinction between whether a deceased can dispose freely of the property or not. In both cases he can, and in this case it seems to us that it should go with the free property of which he could properly dispose.