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Settled Property

Volume 888: debated on Monday 10 March 1975

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

Amendments made: No. 168, in page 76, line 45, leave out from beginning to

', and' in line 47 and insert:

' In the application of this Schedule to Scotland, any reference to an interest in possession in settled property is a reference to an interest of any kind under a settlement actually being enjoyed by the person in right of that interest'.

No. 169, in page 77, line 20, at end insert:

' (2) In determining whether property comprised in a settlement which became so comprised before 10th December 1974 is excluded property section 43 of this Act shall be disregarded.'

No. 170, in page 77, line 36, at beginning insert :

'The Treasury may from time to time by order made by statutory instrument prescribe a higher and a lower rate for the purposes of this paragraph ; and '

No. 171, in page 77, line 42, leave out from amount ' to but ' in line 3 on page 78, and insert:

  • '(a) shall, if tax is chargeable by reference to the value of that part, be taken to be not less than it would be if the property pro. duced income at the higher rate so prescribed ; and
  • (b) shall, if tax is chargeable by reference to the value of the remainder, be taken to be not more than it would be if the property produced income at the lower rate so prescribed ;
  • No. 172, in page 79, line 7, at end insert :

    ' (5A) If the interest comes to an end and on the same occasion the settlor's spouse becomes beneficially entitled to the settled property, then if—
  • (a) the settlor's spouse is then domiciled in the United Kingdom and resident (within the meaning of the Income Tax Acts) in the United Kingdom in the year of assessment in which the interest comes to an end ; and
  • (b) neither the settlor nor the settlor's spouse had acquired a reversionary interest in the property for a consideration in money or money's worth ;
  • tax shall not be chargeable under this paragraph '.

    No. 173, in page 79, line 16, leave out ' 26th ' and insert 27th '.

    No. 175, in page 79, line 35, at end insert :

    ' unless the transaction is such that, were the trustees beneficially entitled to the settled property, it would not be a transfer of value '.

    No. 179, in page 81, line 6, at end insert :

    ' unless the transaction is such that, were the trustees beneficially entitled to the settled property, it would not be a transfer of value '.

    No. 180, in page 81, line 15, at end insert :

    'and the appropriate Table for the purposes of those paragraphs (including the calculation of any tax that would have been chargeable as mentioned in paragraph 7(2)(a) below) is the Second Table set out in section 35(2) of this Act '.

    No. 181, in page 81, line 16, at beginning insert :

    ' The reference in sub-paragraph 4(a) above to the tax payable on a capital distribution does not include any tax which is payable by a person to whom a distribution payment is made ; and '.

    No. 182, in page 81, line 19, at end insert :

    '(5A) Notwithstanding sub-paragraph (1) above, a distribution payment which is made to the settlor or the settlor's spouse shall not be a capital distribution if the settlor or, as the case may be, the settlor's spouse is domiciled in the United Kingdom at the time the payment is made and resident (within the meaning of the Income Tax Acts) in the United Kingdom in the year of assessment in which it is made '.

    No. 183, in page 81, line 19, at end insert:

    '(6) Sub-paragraph (2) above shall not be taken to apply in the case of a person who, on surviving another person for a specified period, becomes entitled to an interest in possession as from the other person's death '.

    No. 184, page 81, line 19, at end insert :

    ' (7) Where a person entitled to an interest in possession in part of the property comprised in a settlement became so entitled as a member of a class, sub-paragraph (2) above shall not apply on his becoming entitled, as such a member, to an interest in possession in another part of that property, if he becomes so entitled on the death under full age of another member of that class.'

    No. 185, in page 82, line 8, leave out 26th ' and insert 27th '.

    No. 187, in page 82, line 18, leave out 25th ' and insert 26th '.

    No. 189, in page 83, line 13, leave out 25th and insert 26th '.

    No. 191, in page 83, line 40, after for ', insert paragraph 17B(2) below or '

    No. 192, in page 83, line 42, leave out 26th ' and insert 27th '.

    No. 194, in page 83, line 47, after for ' insert paragraph 17B(2) below or '.

    No. 195, in page 84, line 37, at end insert :

    'or, if the following conditions are satisfied, an interest in possession to which a company is beneficially entitled, the conditions being—
  • (a) that the business of the company consists wholly or mainly in the acquisition of interests in settled property ; and
  • (b) that the company has acquired the interest for full consideration in money or money's worth from an individual who was beneficially entitled to the interest '.—[Dr. Gilbert.]
  • I beg to move Amendment No. 196, in page 85, line 43, leave out ' January 1976' and insert ' April 1980 '.

    No. 197, in page 86, line 8, leave out ' twenty ' and insert ' forty '.

    No. 430, in page 86, line 8, leave out ' twenty ' and insert ' fifty '.

    No. 198, page 86, line 15, and the sub-amendments thereto.

    No. 609, in page 87, line 3, at end insert :

    ' (5) For the purposes of this paragraph it shall be assumed that a beneficiary will become entitled to, or to an interest in possession in, settled property on or before attaining the age of 25 years if such is the effect of the trusts of the settlement for the time being in force notwithstanding that those trusts may be altered by the exercise of a power of appointment or otherwise'.

    We have material here for a fairly long debate, and I do not know how long hon. Members wish to take on this group of amendments. However, I ought to report to the House a matter which I have already communicated to the hon. and learned Member for Dover and Deal (Mr. Rees), arising from a question which he raised in Standing Committee. The passage is to be found at cols. 1966–7 of the Official Report of 17th February.

    The hon. and learned Gentleman asked what would need to be the date of the relevant transfer to give rise to a charge to tax some time during the coming year, 1976. It seemed to us at that time that the wording of the question was not precise, but in retrospect I think that it is clear enough from the context that the information which the hon. and learned Gentleman was seeking was in answer to this question: which trusts with nonresident trustees will be unaffected by the postponement of the first relevant anniversary for the periodic charge—and will these have to pay the annual charge in the calendar year 1976—and which will have payment of their first annual charge deferred?

    I hope that I have construed the hon. and learned Gentleman's question correctly. I see that I have, and I am grateful for his acknowledgement.

    The full answer is that the annual charge would be payable in the calendar year 1976 if the relevant transfer arose in the period between 1st April 1970 and 31st December 1975, or at appropriate dates at 10-year intervals before those dates. There would be no annual charge in the calendar year 1976 where the relevant transfer was in the period between 31st December 1965 and 31st March 1970, or, again, at appropriate dates in the previous decades.

    The effect of this is that the postponement of the date of the first relevant anniversary for the periodic charge will defer the date on which the annual charge becomes payable for trusts which would have had an anniversary date of 1st January 1976 to 31st March 1980, but will not give rise to a deferment of the first annual charge for trusts with anniversary dates from 1st April in year zero of the decade to 31st December in year 5 of the decade.

    I apologise if I inadvertently misled the Committee. It is a rather technical point, and I hope that what I have just said will clarify the matter.

    I am sure that I speak for the whole House when I say that we are grateful for the Financial Secretary's pellucid statement, which will, no doubt, give wide satisfaction and clarification both within and outside the House.

    We now approach Schedule 5, which deals with the whole web of fiduciary relationships and interests under settlements. With a great economy of verbiage, we disposed of the whole of Schedule 5 in Standing Committee between four o'clock one afternoon and half-past eight the next morning. I do not think that even the hon. Member for Luton, West (Mr. Sedgemore), whose imagination is sometimes a little feverish—if I may say that in his absence, though I am sure that his hon. Friends the Members for Keighley (Mr. Cryer) and for Bolsover (Mr. Skinner) will defend his reputation, honour and interest should I unwittingly trench upon them—will complain that on that occasion and on those matters the Opposition were filibustering.

    The measure of the complexity of this schedule is evidenced by the fact that on between 20 and 30 points which we drew to the attention of Treasury Ministers the Financial Secretary, with his customary urbanity and insight in these detailed matters, agreed to take the matter away for further thought. Some of those points have come back, but a great number have not.

    Some hon. Members, mainly to be found on the Government benches, would say that in our society in the latter half of the twentieth century there is no place for settlements—that fiduciary relation. ships and interests under trusts are outworn trappings of a feudal age. I hope that I have picked the right phraseology, though it is not phraseology with which I have much sympathy, for the fact is that most settlements were devised long after the end of the feudal era.

    I have no doubt that there are hon. Members on the Labour benches—perhaps even the hon. Member for Keighley (Mr. Cryer), to whom I judge that I am not doing an injustice, having heard his interventions—who would think that this whole question could have been disposed of by a one-clause Bill which merely said that henceforth all property should be vested in the State. There might have to he a complicated schedule dealing with the administrative arrangements, but I have no doubt that the hon. Gentleman and the Financial Secretary would be well capable of exposing and expounding the complexities of such a schedule. I do not believe that such a Bill would commend itself to the country. We are entitled to ask what the Chancellor's long-term objectives might be, and this is an appropriate point at which to ask that question.

    I do not wish to steal my hon. and learned Friend's thunder, for which he has become rightly famous in the last few days. While he is putting that question to the Chancellor, however, will he consider whether the right hon. Gentleman should now or at some time tell us just how far his former membership of the Communist Party influences his thinking in these matters.

    It was perceptive of my hon. Friend to have raised that question, because it is right that the country should know the cast of mind of those who preside over its destiny. I do not think any of us is impugning the loyalty or good faith of the Chancellor, and if I were to seek to do so I am sure that you would call me sharply to order, Mr. Speaker, and I would be the last to want to expose myself to your rebuke. We are, however, entitled to ask about and analyse the thought processes of those who take major decisions on our behalf. This is a point upon which I shall hope to touch further in my brief intervention.

    Like the hon. Member for Epping Forest (Mr. Biggs-Davison)?

    The hon. Member for Bolsover (Mr. Skinner) is quite entitled to probe and lay bare our innermost thoughts, aspirations and ambitions. We must leave the country to judge how far we are doing it justice in what we are seeking to achieve. The hon. Member has made a comment about one of my hon. Friends, and I believe that my hon. Friend can look after himself, but the comment is not particularly germane to the points I wish to raise about the schedule. No doubt if the hon. Member catches your eye, Mr. Speaker, he will be able to explore the question he raises.

    I recall to the House that in his period as Secretary of State for Defence the Chancellor committed us to seven defence reviews, and he is therefore well versed in what are colloquially called "salami tactics ". It may be that we are gradually approaching the situation of the one-clause Bill, where all property is to he vested in the State. We have not quite reached that position in this Bill, but we are entitled to judge the Bill against that background.

    I recall—because, Mr. Speaker, possibly like you, I read my copy of The Times this morning—that the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) detected as one of the Chancellor's prime political qualities a "brutal cleverness ". Of course it always takes a candid friend to expose us for what we are to the audience of the country. It may be that a brutal cleverness is what Mr. Shelepin required to carry him to the head of the KGB, but I wonder whether that is the quality which the country requires of its Chancellor of the Exchequer.

    I shall leave the right hon. Member for Sparkbrook to explore that point, because it was he who made it. It is unfortunate that I should have to discuss the Chancellor in his absence, but since he is nominally piloting the Bill through the House, no doubt my remarks will be retailed to him and no doubt, as on Thursday, he will come in very quickly if he feels that his honour and motives have been impugned. That, of course, is far from my intention this evening, as it was on Thursday.

    9.45 p.m.

    It was a Government pronouncement that settled property was not to be treated any more harshly than property held by an individual absolutely and beneficially. That would be a very correct proposition. Indeed, as one ploughs deeper into the Bill—I use the word "ploughs" advisedly, because one has to plough very deeply to get its inwardness at times —one realises what discrimination there has been against those who have an interest in a settlement against property held by trustees. One asks oneself why this should be. It would not be putting it too highly to say that over a generation this tax will kill off settlements.

    I would only remind the House of that poignant line in the Ballad of Reading Gaol :
    " Yet each man kills the thing he loves ".
    There we have it : obviously the Chancellor really loves settlements. He has the heart of a Chancery lawyer ; not the head. His heart is in Lincoln's Inn, but his head, steeped in the subtleties of dialectical materialism, rests in Highgate Cemetery, alongside Karl Marx.

    I hope that I have not taken too much of the time of the House with a few general observations, but it is right that we should view this provision in its broad context and in its setting against the whole background of this odious tax. I now come to one or two technical matters. Technical, I describe them, but their impact is brutal. Knowing the Financial Secretary's warm heart and the sensitive way in which he responded to our overtures in Committee, and his keen interest in the technicalities of the Bill, I should like to put them to him.

    First, he will recall that in Committee I raised what I called, in a kind of legal shorthand the commorientes. This is the case, often encountered in practice, of a person leaving property to, say, his widow if she survives him for a month. It is the kind of case where both are involved in, say, a motor accident and, under the presumptions of the law, the younger is presumed to have survived, if for only a fraction of time, the death of the other. The words often used are: "I leave to my widow, if she should survive me by one month, my property ".

    Under the Bill as originally drawn that would have involved two charges to the capital transfer tax, one on the death of the husband and a second on the death of the wife. The Financial Secretary saw the force of the objections from our side of the Committee to that arrangement, and I notice that in response to our overtures he has put down Amendment No. 183.

    I ask him to have a further look at that amendment, because, although I recognise his warmth of heart, I am not absolutely confident that he has grasped the technical details. I hate to accelerate the pace of the debate, because I should like to give the Financial Secretary time to receive the timely support and sustenance that he always receives from the Official Box in the course of our debates on these technical matters. I pay tribute to the ready and speedy way in which slips of paper come down like confetti on the devoted head of the Financial Secretary. On this occasion more than one piece of paper may have to be passed to him.

    I ask him to look again at Amendment No. 183, because it seems to proceed on the premise that interest given to the survivor at the expiration of the specified period relates to the date of death. That may be so in some cases, but it is not true in all. He has an interest contingent upon his surviving for a specified period, and the interest, even if survivorship takes place, does not relate back to the date of death. Amendment No. 183 will not achieve the purpose which I hope the Financial Secretary intends and which was very much in my mind when I drew his attention to this point during our epic debates on that long night.

    The second point, which is again of a slightly technical nature, relates to class gifts, and this again I raised in Committee, and again I assume, in response to our overtures, the Financial Secretary has put down Amendment No. 184. I am sorry that the point is of such a technical nature that the hon. Member for Bolsover should lose his appetite for our debates.

    We shall welcome his intervention later.

    It is true that the Financial Secretary has covered the case where there is a possible charge when a member of a class dies so that his interest passes to the surviving members of the class, but what happens when someone is born after a person has achieved an interest in a trust fund, but only a defeasible interest, so that in part his interest is defeated by a subsequent birth? If the Financial Secretary is prepared to cover the one point he should be prepared to cover the other, and I hope that he will look again at Amendment No. 184.

    I am conscious that I am going into the schedule in a certain amount of depth—

    Order. I am getting a little troubled. I thought that the House had passed Amendment No. 184.

    I am grateful for your guidance Mr. Speaker, but I am not seeking to go back. I am merely pointing out that the amendments have not completely covered the points put to the Financial Secretary in Committee, and I have no doubt that he will wish to advance from Amendments Nos. 183 and 184. The point I am making is relevant, because, unless we get some assurance from the Financial Secretary on this matter, many people will be disposed to alter their settlement and take advantage of the amendment which we are debating even though a penalty is imposed. But if some kind of assurance were forthcoming that would not be necessary. I hope that on that basis, Mr. Speaker, you will regard me as being within order.

    Then I come to maintenance and accumulation settlements. These are very much within the scope of the Government amendment, because unless they are covered by paragraph 14 they are settlements which are treated as not having an interest in possession, and if that is so they are subject to this swingeing periodic charge which bears particularly hardly on settled property.

    As I said in Committee, most maintenance and accumulation settlements are subject to some overriding power of appointment, so it cannot be said that a person on achieving a specified age will achieve a vested interest in possession. I say that he may achieve it. The Financial Secretary does not seem to have taken that point on board, because he has not cured that difficulty. Indeed, there is another provision which may vitiate the whole point of Amendment No. 609 and may deprive any maintenance and accumulation settlement of any relief. I hope that the Financial Secretary will address himself to this.

    The Financal Secretary, with his deep knowledge of this matter, will recall Section 32 of the Trustee Act, which allows trustees to advance part of a settled property in favour of persons who may not have an immediate interest in possession. They can override the life interest only with the consent of the life tenant.

    Let us assume a case in which a person is given an interest contingent on his attaining the age of 25. Between 18 and 25 he could consent to appointment in advance by the trustees under Section 32 which would override his interest. In that kind of case it could not be said with certainty that the beneficiary would obtain a vested interest. The Financial Secretary has not chosen to deal with that. Unless he does, it means that the relief given by Schedule 5 will be practically valueless. I hope that the Financial Secretary will look once again at that point.

    Next I come to the question of the assignment by a life tenant of his interest for value. Owing to a peculiarly unfortunate definition of an interest in possession, if a life tenant, an individual, had assigned his life interest to a reversionary company or an institution under the Bill as originally drawn that would not have counted as an interested possession and there would have been a periodic charge.

    Again, the Government have partially responded to the arguments we put forward in Committee, but only where an interest has been assigned to a company whose main business it is to acquire reversionary interests. That is a very narrow range of companies. I call to mind only two or three which embark wholly or mainly on that type of business. A great number of life tenants assign their life interests to institutions or insurance companies. They will be excluded from the relief afforded by the amendment. Again, I ask the Financial Secretary—knowing the sympathetic way in which he views these matters which we have turned up in an unpartisan spirit—to give us some assurances on that matter. I recognise that at this late stage in the debates it may be impossible for him to give more than a verbal assurance. But we have the exhilarating prospect that within a matter of weeks we shall be coming back to these matters and it would foreshorten our debates if the Financial Secretary would give us some generous assurances now.

    Finally on my technical points, I come to the position of settlements in foreign resident trustees. One of the harshest and least-thought-out provisions is the one that seeks to saddle a settlor with the liability for the periodic charge that may arise in that situation. There must be numberless cases in which a settlor who set up his settlements when he was domiciled and resident abroad comes to these shores, whether for a job or another purpose and divests himself of the settlement which he has set up in foreign resident trustees. Apparently, he is to be saddled with the liability for the periodic charge on that settlement. He may have completely divested himself of that property and have no resources to meet that charge. I cannot believe that the Financial Secretary wants to achieve that, and I hope that lie will go back to that point.

    I come now to Amendments Nos. 196 and 198, which are in response to overtures in Committee and are designed to permit people to rearrange their settlements so that they are no longer discretionary settlements where there is not an interest in possession designed to permit them to appoint life interests or absolute interests and there would not be this swingeing periodical charge. I am glad that the Financial Secretary realised how harsh the position might be, but the remedial amendments he seeks to introduce do not go nearly far enough. If discretionary settlements are socially undesirable, instead of some residual penalty as there is under Amendments Nos. 196 and 198 there should be positive encouragement. Why is there any charge at all? Why should not the trustees be entitled to appoint out of discretionary settlements an absolute or life interest without any penalty whatever?

    10.0 p.m.

    We drew the Financial Secretary's attention to the difficulty of piloting through the Chancery Division the many appointments and variations that might be necessary. He took that point on board and we are grateful. I point out that in the original White Paper, which has been subject to the closest scrutiny, like the texts of the early Fathers, there was absolutely no mention of the likelihood that there would be any charge if an interest in possession was created out of a settlement where there was no interest in possession. In reliance on that I am informed by people outside who are conversant with these matters that many appointments were made last year. Is it fair that those appointments should be retrospectively saddled with a measure of capital transfer tax?

    For the future, people are on notice. They will have to make a calculation as to whether it is right to pay the penalty which the Financial Secretary seeks to exact or whether they should leave their settlements in their existing form and pay the periodic charge. I believe that these amendments, although right in principle, are shot through with a touch of meanness which has characterised this Bill throughout.

    The capital transfer tax has been justified on many occassions by many Government spokesmen in these terms. They suggest that it is only perfecting the estate duty introduced by Sir William Harcourt in 1894. They say that estate duty was an avoidable tax and, as though they were carrying on the great work of that notable Liberal Chancellor, they are deciding to plug the loopholes, which, had he envisaged them, he would undobtedly have done 80 years ago.

    There is apparently a virtue in repetition. I have heard the same theme from the Chancellor, the Chief Secretary and the Financial Secretary. I have even heard a noble Lord sing this theme. This is obviously the hard selling line. I tell the Chancellor and his colleagues that the mere assertion of something that is quite inaccurate does not make it true. I have searched the debates of 1894 in vain for any suggestion that Sir William Harcourt intended to impose a tax on lifetime transfers.

    Anyone conversant with the 1894 Finance Act will notice that there was to be only one charge on settlements—when they were set up—and that they were to be free from charges thereafter. This tax involves an entirely novel departure. It is a travesty of language to say that the old estate duty should have been put right because there were so many loopholes in it. It was never designed to catch lifetime gifts. If it were, no doubt, three, if not four, Labour Governments who were charged with the administration of the tax would have put it right.

    I cannot believe that the Chancellor, whom we know from our exchanges to be, underneath his gruff exterior, a man of exquisite sensitivity, really believes that the epitaph on his tomb should be :
    " As Chancellor of the Exchequer he used his considerable powers to extract howls of anguish from his compatriots."
    I do not believe that is how he would like to be remembered by his sorrowing countrymen. There is always time for a death bed repentance. We shall not think the less of him if he comes in sackcloth and ashes and attends, for a moment, our debates on Schedule 5. He can emphasise his sensitivity, perhaps even his change of heart, by accepting our amendment.

    It is difficult to debate a group of amendments when most of the discussion on them has taken place on provisions which have already been passed by the House. However, I shall attempt to cast my mind back to some of the points raised by the hon. and learned Member for Dover and Deal (Mr. Rees). I think that it is right to comment briefly on some of his more general animadversions on our attitudes to trusts.

    The Government have no bias against settled property, and indeed we have no bias against discretionary settlements. My colleagues and I made that clear time after time in Standing Committee. We made clear that discretionary settlements in many cases are a beneficial social instrument.

    If the hon. Member for Staffordshire, South-West (Mr. Cormack) had been in the Standing Committee, he would have known that I said that time after time. Therefore, there is an excuse for the hon. Gentleman. However, there is no excuse for the hon. and learned Member for Dover and Deal who obviously in Standing Committee was not listening. However, he could have read what I said afterwards.

    We made it clear that we constructed this tax without any prejudice whatever against discretionary settlements. We recognise that in a great many circumstances they can be useful social instruments. We have never made it part of our case that discretionary settlements were set up primarily or exclusively for tax avoidance purposes. We have said that we see no reason to continue the incredible tax privileges enjoyed by discretionary settlements.

    The hon. and learned Gentleman appeared to suggest that if the result is to be an end to discretionary settlements it must follow that the vast majority of discretionary settlements have been set up for tax reasons. I do not accept that argument. I am not nearly so pessimistic about the future of discretionary as is the hon. and learned Gentleman. But all we have tried to do is to create a regime by which, as a result of the operation of the periodic charge, there will be, once every 30 years or so, the equivalent of a charge when free property is transferred from one generation to another. We have therefore made provision for offsets where chargeable occasions have arisen from discretionary trusts backwards to the two previous periodic charges. Such matters are subject to the amendments within this group but, as the hon. and learned Gentleman did not refer to them, I take it that he considers them to be of minor importance.

    I was asked how far Government Amendment No. 183 went. That amendment covers a situation where a testator gives his estate to a beneficiary. If that beneficiary survives for a certain period, as is commonly found in wills, that period of survival may be as short as seven days, but is commonly of the order of one month. The exact effect of the provision will depend on the words used. But in general terms there is no interest in possession created until that period which has been laid down in the will has expired. The result is that a tax charge would arise under paragraph 6(2) of the Schedule. It would be excessive to retain this charge in addition to the normal tax charge on the testator's estate on his death. Our amendment No. 183 was tabled to remove it.

    Our amendment also covers a situation in which the testator gives his estate to a beneficiary if he survives for, say, a month, when the gift takes effect at the end of the period. The gift includes any income for that period. Therefore, the beneficiary can then be regarded as having an interest in possession from the death of the testator.

    I do not think that the hon. Gentleman has entirely grasped the point I was making, in that in most clauses of that kind the survivor does not become entitled to an interest in possession as from the other person's death. He becomes entitled as from the end of the specified period—not in every case, but in most cases. I should be grateful if the hon. Gentleman would address his mind to that point.

    I am not sure that I agree with the hon. and learned Gentleman. Is he saying that it would normally be from a specified date or !from the death of the testator? As I understand it, most settlements are drawn in respect to a given period after the death of the testator.

    The point is one of some legal subtlety. Perhaps the hon. Gentleman will wish to have assistance from one of the Law Officers. In most such cases that I have seen, the interest toes effect only from the end of the specified period for which the person must survive. The survivor takes his interest not retrospectively from the death but from the end of the period. I hope that I make the position absolutely clear. Perhaps the hon. Gentleman would care to take advice so that the House may be enlightened by a Law Officer.

    I certainly take the hon. and learned Gentleman's point on board. I think that what I have said covers the vast majority of cases, as I think the hon. and learned Gentleman was good enough to acknowledge.

    I now turn to Amendment No. 184. I said in Committee, as reported at col. 1754 of the Official Report of our Committee proceedings, that where a class of beneficiaries had been enlarged with the birth of a child into the class there should be no further charge when that child died under the age of majority and thus produced an increase in the income to which another member of the class would be entitled. Our amendment covers that situation and goes rather further, because its operation is not restricted to the death of a child whose birth may enlarge the class. It will apply to the death under the age of majority of any member of the class who increases the share of another member. I hope that that relates to the hon. and learned Gentleman's point.

    I apologise for constantly interrupting the hon. Gentleman. I obviously did not put my point with sufficient clarity. I recognise that that situation is covered by Government Amendment No. 184. What I was saying was that a person's interest could be partially or even wholly defeated by the birth of another member, by an addition to the class by birth, rather than a contraction by death. As I understand the tax, that could give rise to a charge to duty. It does not seem to me that that matter has been covered by the amendment.

    I take the hon. and learned Gentleman's point that where there is an increase in the number of individuals in a class there will be a chargeable transfer. I do not think that I gave any undertaking in Committee, that such a situation would be exempt as a chargeable transfer. I shall check what I said, but my recollection is that I recognised all along that there could be an anomalous situation in which a charge. able occasion was created by the birth of a child who subsequently died, so that one ended up with the same number of individuals, or maybe an identical group, who had been beneficiaries. Without the amendment, there could be two chargeable occasions. I recognised that that situation, I think without any prodding from the hon. and learned Gentleman on that occasion, was not appropriate to a second charge.

    10.15 p.m.

    I do not recall on any occasion giving an undertaking of the sort that has been suggested. Normally the addition of another individual to a class gives rise to a charge. However, as the hon. and learned Gentleman presses me, I shall look at my words again. I am fairly clear in my own mind that I was not, subject to correction, giving an assurance of the sort that he believed I was giving.

    The hon. and learned Gentleman asked me some questions in general about why we should have any charge on the distributions out of discretionary settlements. He was talking about Amendments Nos. 196 and 198. The answer is fairly clear. I am sure that the hon. and learned Gentleman appreciates the point. It was made many times in Standing Committee. It is not a point on which I am optimistic of convincing him any more than he would be optimistic of convincing me. When a discretionary settlement is terminated by the creation of an interest in possession or where there is a capital distribution out of a discretionary settlement there has clearly been a change in the ownership of the property and there has been a chargeable transfer. In our view that is a properly chargeable occasion.

    The hon. and learned Gentleman talked about arrangements having been made last year. I think that my right hon. Friend the Chancellor made it clear in his Budget statement last March that there was to be a drastic overhaul of the tax treatment of discretionary settlements. Anyone who was so ill-advised—I do not expect that any of the hon. and learned Gentleman's clients were ill-advised—as to alter their affairs to create an interest in possession without waiting to see the terms of the Bill would have been placed in an unfortunate position. As always, we can only regret that people have been badly advised.

    The hon. and learned Gentleman asked about foreign resident trustees. He asked why we had annual charges or periodic charges for dealing with situations in which the trustees were nonresident. This matter was debated at great length in Standing Committee. In Clause 25 we have already met the point about the need to ensure that where there are two settlors in relation to a settlement the property should be apportioned between them. It is our view that it must be recognised that if the trustees are nonresident they may be unwilling to pay the periodic charge. For that reason we think it only reasonable to have an annual charge which will be offset against the 10-year charge, as that is a payment in advance. For that reason we consider it only reasonable that the settlors should be liable if the trustees do not pay the tax. That may not be agreeable to the hon. and learned Gentleman but that is why we have these provisions in the Bill.

    I did not intend to intervene in this debate, but I feel obliged to do so after having heard what has been said. I shall try to make my remarks brief. I feel that we are in danger of losing sight of the wood for the trees. This is not a matter of petty detail but a question of principle. Paragraph 17 of the White Paper has been referred to and it is necessary to refer to it again. In the White Paper the Government stated clearly the broad principle to be applied to a settled property. Paragraph 17 reads :

    "in general the charge to tax should be neither greater nor smaller than on the charge to property held absolutely."
    The Government have gone back on that and introduced, as regards discretionary trusts, through the working of the periodic charge treatment far more severe than is applied to property holding beneficiaries and many other kinds of trusts.

    The discretionary trust serves a very valuable purpose. I was glad to hear the Financial Secretary concede that tonight, as he did in Committee. The discretionary trust is of great importance to business and to many families, and it has a worthwhile social purpose. However, it was singled out for such harsh treatment by the Government that they were obliged in Committee to move an amendment allowing people to unwind their discretionary trusts, at a price—a small price in the first year, increasing in later years—and to rearrange their affairs.

    What justification can there be for this discrimination against the discretionary trust? If the Government feel obliged to allow people to unwind, why are they charging them a fee to do so? Why should not they be able to rearrange their affairs at no charge? Why should they even have to pay 10 per cent. of the charge? It is monstrous.

    Then there is the argument about the "periodicity" of the periodic charge. It is no good saying that it is assumed that the capital in the trust has been transferred notionally once every 30 years. There is no reason to suppose that a business beneficially owned would be transferred within a 30-year period. It could easily miss a generation, going from the grandparents to the grandchildren. In any event, the period during which it is held will be more than 30 years, because, even under this Government, the average life span is more than 30 years.

    Then there are the employees' trusts. This relates to Government Amendments Nos. 204, 206 and 207 to this schedule. Why have the Government seen fit to charge capital transfer tax to money which is put into employees' trusts? It seems monstrous, and it demands an explanation.

    Finally, we have the newspaper trusts. We heard a lot about this matter in Committee upstairs. The Government have still brought forward no amendment. I believe that they have given an undertaking outside this House to certain newspapers which will be gravely affected by the capital transfer tax. The Guardian and Scott Trust is one. The Government have said apparently that they will see them right, that they are having drafting difficulties, but that something will be brought forward in due course, perhaps in the next Finance Bill. But the Government should tell us. We want to know what the Government intend to do about this very important matter of the newspaper trusts.

    The Financial Secretary omitted to deal with Amendment No. 609. This concerns the paragraph about trusts for the maintenance of children and the very beneficial paragraph which allows the maintenance to go to the children without charge to capital transfer tax.

    My hon. and learned Friend the Member for Dover and Deal (Mr. Rees) pointed out how, in the early part of the paragraph, it was said that these benefits applied only if the trust was for a person of a specified age not exceeding 25 years. As my hon. and learned Friend also pointed out, in very many cases of these trusts there is a power of appointment by which an age may be changed.

    The purpose of Amendment No. 609 is to make certain that trusts for accumulation and maintenance of children should apply even if there is that power of appointment. It merely deals with the fact that in the early stages the age has to be specified. In many cases it may be altered by the terms of the trusts. But in principle, even if the trusts contain that power to alter by appointment, the benefit should still apply.

    We have many other important debates to cover in the pathetically little time left to us, so I shall be brief on this admittedly complicated subject. I think that my right hon. and hon. Friends have said enough to point to the basic dispute with the Government on this matter.

    For the benefit of those who did not follow the jungle of complexities in this matter in Committee, I should explain that the Government intend to impose upon discretionary trusts a kind of wealth tax, a periodic levy, which is a curious animal unrelated to the rest of the capital transfer tax. The Government intend to do that because they believe, as they have often said, that discretionary trusts are for the most part tax avoidance devices, although the Financial Secretary earlier said that he regarded them in some cases as beneficial social instruments. I do not know whether that was to assuage our feelings on the matter or whether he has changed his view. However, it was a slightly different tune from the one that we heard before.

    As the Government gradually realised what they had done and as it dawned on them that there were many hundreds of discretionary trusts which had nothing to do with avoidance, what I might call their sporting instinct came to the top and they decided to give discretionary trusts a chance to escape. However, it was not a very good chance. For those who feel strongly about field sports, I think that this would be regarded as the cruel rather than the sporting side because, as soon as the gate is lifted, it is almost immediately lowered through the rising scale of percentage of the total tax set out in Government Amendment No. 198.

    We think that this manipulation, this sliding guillotine which falls slowly until it finally chops off any capital distribution from the discretionary trusts in 1980, is an unnecessary and absurd piece of proposed legislation.

    We cannot see why it is necessary to have even the 10 per cent. rate, as we argued in Committee, or the 12½ per cent. rate after 31st March 1976. Would it not be a less cruel form of field sport to allow a moratorium during which discretionary trusts could be rearranged?

    The Government's answer will no doubt be "We could not do that because, although we are pretending to let them escape, we know that they are really tax avoidance devices and we want them all in the net."

    That is not so. The truth is that trusts of this kind have been made in this country since the time of Napoleon. There are old trusts, new trusts, trusts for pensioners, trusts for benevolent purposes, trusts for former elderly employees—trusts for all kinds of employee arrangements—which appear not to be eased by the Government's other amendments which I believe are to be taken formally after we have discussed this group to do with employee arrangements.

    To summarise our feelings on the matter, we believe that the Government have designated all discretionary trusts as avoidance devices. Many forms of trusts which were formed long before and since the estate duty legislation of 1894 for protective and other purposes are not avoidance devices but, in the excellent words of the Financial Secretary, benevolent social instruments.

    We cannot see what motive the Government have unless it is the cruel sporting one of insisting on this rising rate of tax on discretionary trusts until they come back fully into the net of the capital transfer tax after 1980.

    In most instances this will be a postponement of the difficulties. In Committee upstairs we discussed the problems of the shipping industry, which, by its very nature, has a large unquoted sector held in discretionary trusts. This proposal will not solve the shipping industry's problem ; it will postpone it. It will make sure that unquoted British shipping will be sold off after 1980 rather than immediately. That is of hardly any benefit to anyone.

    The Financial Secretary did not tackle the maintenance and accumulation settlement point which was put to him. Indeed, the hon. Gentleman did not answer the point made by my hon. and learned Friend the Member for Dover and Deal (Mr. Rees) about the assignment of life interests to insurance companies. He left totally unsatisfactorily dealt with the whole question of why the Government want to place this rising percentage charge on discretionary trusts.

    I advise my hon. Friends to look at the nonsensical and unhelpful Amendment No. 198, and to recognise that it would be greatly improved if we were to add our Amendment (h) to it, and I strongly advise my right hon. Friend and hon. Friends to press that amendment to a Division.

    10.30 p.m.

    I will not detain the Committee long, as I know that the hon. Member for Guildford (Mr. Howell) wishes to move on to other debates. However, I must say a couple of things to the hon. Gentleman. It would make for the more expeditious transaction of our business if one set of his hon. Friends were not trying to get us to debate amendments which have already been passed and another of his hon. Friends did not start debating amendments we had not yet reached. However, be that as it may.

    The next point which needs to be made is that my right hon. Friend and I are used to having our words misrepresented, but normally even the hon. Member for Guildford allows more than 10 minutes to pass before he tries to put words into my mouth which only a few minutes earlier I had been making clear were not the case. He has just said that we regarded all trusts, and discretionary settlements in particular, as tax avoidance devices. It could not have been more than five or six minutes ago that I was saying precisely the reverse. I do not know how many more times I have to say it—[Interruption]. By all means ; if the hon. Gentleman wants a further exposition of our philosophy in this matter. I shall be very happy to give it to him, I thought that hon. Members opposite wanted to pass on to other things. I am the last to want to draw out time at this stage of the debate, but hon. Members opposite must not tempt me too much, because the time has passed for turning the other cheek to many of the allegations which have been made.

    I hesitate to interrupt the tremendous flow which the Financial Secretary is now generating, but has it not occurred to him that the more he emphasises the lack of hostility to discretionary trusts the stronger grows the case of my hon. Friend the Member for Guildford (Mr. Howell) for a moratorium instead of a charge?

    We made it quite clear many times in Standing Committee that we thought that a modest charge on an ascending scale was appropriate if only as an incentive to deal with the problems likely to arise in the courts with the conversions which might be expected of many discretionary settlements into other types of trust.

    I am sure that it will be within the recollection of the hon. Member for Braintree (Mr. Newton), who distinguished himself in Standing Committee by the moderation of his comments, that the criticism that my right hon. Friend and I were attracting on the question—[Interruption]. There were some hon. Gentlemen in Standing Committee who made some very constructive suggestions many times over. The hon. Member for Braintree was certainly one of them. I am the first to acknowledge that. However, it will be within his recollection that the accusation against us in Standing Committee was that the charge was so small that it was not worth collecting, which is rather different from the complaint being made by others of his hon. Friends this evening.

    Perhaps the Financial Secretary will explain to me, because I was not on the Standing Committee, how, when the penalty escalates from 10 per cent. to 20 per cent. over the years, this will help the courts. Surely if the penalty increases it is more likely to push the thing into the early period rather than into the later period.

    Precisely so. The hon. Gentleman makes my point. I agree entirely. The intention was to push settlements into the early period, if possible, to give those concerned an incentive to go before the courts rather than to wait for the last possible moment, which would be the case if there were no charge. That is precisely the point. The point is not directed to the court, but to create a modest incentive to people who might be considering whether to convert to do it as early as possible because there will be a gradually increasing disincentive to do it later. That was the purpose, and I. am glad that I have the hon. Gentleman's assent to that point.

    The hon. Member for Blaby (Mr. Lawson) raised the question of newspaper trusts. I said in Standing Committee, as reported in column 2010, that it would take some time to find a satisfactory formulation to give effect to our intention, and that it might be necessary to discuss the problems involved with those concerned. It was, therefore, not possible to introduce this provision in this Finance Bill. I added that there was no great urgency to introduce the legislation because it would be a considerable time before any newspaper trust would have to pay capital transfer tax following our announcement that the

    Transitional relief for settlements made before 27th March 1974

    13A.—(1) In relation to a settlement made before 27th March 1974 paragraphs 6 to 12 above shall apply with the following modifications.
    5(2) Subject to sub-paragraphs (3) to (5) below, the rate at which tax is chargeable on 5 any capital distribution made before 1st April 1980 out of property comprised in the

    periodic charge would be deferred until 31st March 1980.

    Employee trusts fall to be discussed under Government Amendments Nos. 204, 206 and 207.

    I repeat what I said at the beginning of these remarks, that we have needed no bullying from hon. Members opposite or instruction from them about the value of discretionary trusts. It has always been clear to my right hon. Friend and myself that they were valuable interests. I never said that they were set up principally or exclusively for tax avoidance purposes.

    It seems to me that the hon. Gentleman is coming to the end of his peroration, and he has not dealt with Amendment No. 609.

    I apologise to the right hon. Gentleman for not dealing with Amendment No. 609. I shall do so in a moment. We have always made it clear that our sole purpose was to treat property passing through a discretionary trust on much the same basis as we would have done as between generations. It would have been free property.

    The right hon. Member for Crosby (Mr. Graham Page) asked me to turn to Amendment No. 609. This is in identical terms with Amendment No. 323 tabled in Committee. In our view, this amendment would leave the way wide open for any discretionary settlement to have a period of immunity from the periodic charge as long as the settlor set it up in the form of an accumulation and maintenance trust for minors but ensured that when a suitable opportunity occurred the trustees could exercise their powers of appointment to end the accumulation and maintenance trust. This would be an open-ended invitation to avoidance on a massive scale, and I am sure the right hon. Gentleman appreciates that point. That is why I am unable to commend that amendment to my hon. Friends.

    Amendment agreed to.

    Amendment proposed : No. 198, in page 86, line 15, at end insert :

    10settlement (but not on any capital distribution which, under paragraph 9 above, is treated as made out of property comprised in a separate settlement made after 26th March 1974) shall be the following percentage of the rate at which it would be chargeable apart from this paragraph, that is to say—
    (a) 10 per cent. if the capital distribution is made before 1st April 1976 ;
    (b)12½ per cent. if it is made after 31st March 1976 but before 1st April 1977 ;
    (c)15 per cent. if it is made after 31st March 1977 but before 1st April 1978 ;
    (d)17½ per cent. if it is made after 31st March 1978 but before 1st April 1979 ; and
    (e)20 per cent. if it is made after 31st March 1979.
    15(3) Where any capital distribution made after 31st March 1976 but before 1st April 1977 could not have been made except as the result of some proceedings before a court, this paragraph shall have effect in relation to it as if it had been made before 1st April 1976.
    20(4) Sub-paragraph (2) above does not apply in relation to a capital distribution treated as made under paragraph 12(2) above.
    25(5) Sub-paragraph (2) above does not apply—
    (a)in relation to a capital distribution treated as made under paragraph 6(2) above, unless the person becoming entitled as mentioned therein ; or
    (b)in relation to a capital distribution treated as made under paragraph 14(3) below, unless each of the beneficiaries referred to therein ; or
    (c)in relation to a distribution payment made for the benefit of any person, unless that person ;
    is an individual who is domiciled in the United Kingdom at the time the capital distribution is made and resident (within the meaning of the Income Tax Acts) in the United Kingdom in the year of assessment in which it is made.
    30(6) In this paragraph expressions defined for the purposes of paragraphs 6 to 10 above have the same meanings as in those paragraphs '.—[Dr. Gilbert.]

    Amendment proposed to the proposed the amendment (h)in line 10. leave out '10' and insert '1'—[ sir G Howe]

    Division No. 137.]


    [10.40 p.m.

    Adley, RobertCostain, A. P.Griffiths, Eldon
    Aitken, JonathanCraig, Rt Hon W. (Belfast E)Grist, Ian
    Alison, MichaelCritchley, JulianGrylls, Michael
    Arnold, TomCrowder, F. P.Hall, Sir John
    Atkins, Rt Hon H. (Spelthorne)Davies, Rt Hon J. (Knutsford)Hall-Davis, A. G. F.
    Awdry, DanielDean, Paul (N Somerset)Hampson, Dr Keith
    Baker, KennethDodsworth, GeoffreyHannam, John
    Banks, RobertDouglas-Hamilton, Lord JamesHarrison, Col Sir Harwood (Eye)
    Beith, A. J.du Cann, Rt Hon EdwardHarvie Anderson, Rt Hon Miss
    Bell, RonaldDurant, TonyHastings, Stephen
    Bennett, Sir Frederic (Torbay)Eden, Rt Hon Sir JohnHavers, Sir Michael
    Bennett, Dr Reginald (Fareham)Edwards, Nicholas (Pembroke)Hawkins, Paul
    Berry, Hon AnthonyElliott, Sir WilliamHayhoe, Barney
    Biffen, JohnEmery, PeterHeseltine, Michael
    Biggs-Davison, JohnEyre ReginaldHicks, Robert
    Blaker, PeterFairbairn, NicholasHiggins, Terence L.
    Boscawen, Hon. RobertFairgrieve, RussellHolland, Philip
    Bowden, A. (Brighton, Kemptown)Farr, JohnHordern, Peter
    Boyson, Dr. Rhodes (Brent)Fell, AnthonyHowe, Rt Hn Sir Geoffrey
    Bradford, Rev RobertFinsberg, GeoffreyHowell, David (Guildford)
    Braine, Sir BernardFisher, Sir NigelHowells, Geraint (Cardigan)
    Brittan, LeonFletcher, Alex (Edinburgh N)Hunt, John
    Brotherton, MichaelFletcher-Cooke, CharlesHurd, Douglas
    Brown, Sir Edward (Bath)Fookes, Miss JanetHutchison, Michael Clark
    Bryan, Sir PaulFowler, Norman (Sutton C'f'd)Irving, Charles (Cheltenham)
    Buchanan-Smith, AlickFox, MarcusJames, David
    Buck, AntonyFraser, Rt Hon H. (Stafford & St)Jenkin, Rt Hon P. (Wanst'd & W'df'd)
    Budgen, NickFreud, ClementJessel, Toby
    Bulmer, EsmondFry, PeterJohnson Smith, G. (E. Grinstead)
    Burden, F. A.Galbraith. Hon. T. G. D.Jones, Arthur (Daventry)
    Butler, Adam (Bosworth)Gardiner, George (Reigate)Jopling, Michael
    Carlisle, MarkGardner, Edward (S Fylde)Joseph, Rt Hon Sir Keith
    Carson, JohnGilmour, Sir John (East Fife)Kaberry, Sir Donald
    Chalker, Mrs LyndaGlyn, Dr AlanKershaw, Anthony
    Channon, PaulGoodhart,. PhilipKilfedder, James
    Clark, Alan (Plymouth, Sutton)Goodhew, VictorKimball, Marcus
    Clark, William (Croydon S)Goodlad, AlastairKing, Evelyn (South Dorset)
    Clarke, Kenneth (Rushcliffe)Gorst, JohnKing, Tom (Bridgwater)
    Clegg, WalterGow, Ian (Eastbourne)Knight, Mrs Jill
    Cockcroft, JohnGower, Sir Raymond (Barry)Knox, David
    Cooke, Robert (Bristol W)Grant, Anthony (Harrow C)Lamont, Norman


    Gray, HamishLane, David
    Cormack PatrickGrieve, PercyLangford-Holt, Sir John

    Question put That the amendment to the proposed amendment to the proposed amendment be made:—

    The House divided:Ayes 249,Noes 293

    Latham, Michael (Melton)Nelson, AnthonySinclair, Sir George
    Lawrence,IvanNeubert, MichaelSkeet, T. H. H.
    Lawson, NigelNewton, TonySmith, Cyril (Rochdale)
    Lester. Jim (Beeston)Nott, JohnSmith, Dudley (Warwick)
    Lewis, Kenneth (Rutland)Onslow, CranleySpeed, Keith
    Lloyd, IanOppenheim, Mrs SallySpence, John
    Loveridge, JohnPage, John (Harrow West)Spicer, Michael (S Worcester)
    Luce, RichardPage, Rt Hon R. Graham (Crosby)Sproat, Iain
    McCrindle, RobertPardoe, JohnStainton, Keith
    McCusker, H.Parkinson, CecilStanbrook, Ivor
    Macfarlane, NeilPenhaligon, DavidStanley, John
    MacGregor, JohnPercival. IanSteel, David (Roxburgh)
    Macmillan, Rt Hon M. (Farnham)Peyton, Rt Hon JohnSteel, Anthony (Wavertree)
    McNair-Wilson, M. (Newbury)Pink, R. BonnerStewart, Ian (Hitchin)
    McNair-Wilson, P. (New Forest)Powell, Rt Hon J. EnochStokes, John
    Marshall, Michael (Arundel)Pym, Rt Hon FrancisStradling Thomas, J.
    Marten, NeilRaison, TimothyTapsell, Peter
    Mates, MichaelRathbone, TimTaylor, Teddy (Cathcart)
    Mather, CarolRawlinson, Rt Hon Sir PeterTebbit, Norman
    Maude, AngusRees, Peter (Dover & Deal)Temple-Morris, Peter
    Maudling, Rt Hon ReginaldRees-Davies, W. R.Thatcher, Rt Hon Margaret
    Mawby, RayRenton, Rt Hon Sir D. (Hunts)Townsend, Cyril D.
    Maxwell-Hyslop, RobinRenton, Tim (Mid-Sussex)Trotter, Neville
    Mayhew, PatrickRidley, Hon NicholasTugendhat, Christopher
    Meyer, Sir AnthonyRidsdale, Julianvan Straubenzee, W. R.
    Miller, Hal (Bromsgrove)Rifkind, MalcolmVaughan, Dr. Gerard
    Mills, PeterRoberts, Michael (Cardiff NW)Viggers, Peter
    Miscampbell, NormanRoberts, Wyn (Conway)Wainwright, Richard (Colne V)
    Mitchell, David (Basingstoke)Ross, Stephen (Isle of Wight)Wakeham John
    Moate, RogerRoss, William (Londonderry)Walker, Rt Hon P. (Worcester)
    Moiyneaux, JamesRossi, Hugh (Hornsey)Walters, Dennis
    Monro, HectorRost, Peter (SE Derbyshire)Weatherill, Bernard
    Montgomery, FergusRoyle, Sir AnthonyWells, John
    Moore, John (Croydon C)Sainsbury, TimWhitelaw, Rt Hon William
    More, Jasper (Ludlow)St. John-Stevas, NormanWiggin, Jerry
    Morgan, GeraintShaw, Giles (Pudsey)Winterton, Nicholas
    Morgan-Giles, Rear-AdmiralShelton, William (Streatham)Wood, Rt Hon Richard
    Morris, Michael (Northampton S)Shepherd, ColinYoung, Sir G. (Ealing, Acton)
    Morrison, Charles (Devizes)Shersby, MichaelTELLERS FOR THE AYES:
    Morrison, Hon Peter (Chester)Silvester, FredMr.W. Benyon and
    Neave, AireySims, RogerMr. Spencer Le Marchant.


    Abse, LeoCocks, Michael (Bristol S)Evans, John (Newton)
    Allaun, FrankCohen, StanleyEwing, Harry (Stirling)
    Anderson, DonaldColeman, DonaldEwing, Mrs Winifred (Moray)
    Archer, PeterColquhoun, Mrs MaureenFaulds, Andrew
    Ashley, JackConcannon, J. D.Fernyhough, Rt Hon E.
    Ashton, JoeConlan, BernardFlannery, Martin
    Atkins, Ronald (Preston N)Cook, Robin F. (Edin C)Fletcher, Raymond (Ilkeston)
    Atkinson, NormanCorbett, RobinFletcher Ted (Darlington)
    Bagier, Gordon A. T.Cox, Thomas (Tooting)Foot, Rt Hon Michael
    Bain, Mrs MargaretCraigen, J. M. (Maryhill)Ford, Ben
    Barnett, Guy (Greenwich)Crawford, DouglasForrester, John
    Barnett, Rt Hon Joel (Heywood)Cronin, JohnFowler, Gerald (The Wrekin)
    Bates, AllCrosland, Rt Hon AnthonyFraser, John (Lambeth, N'w'd)
    Bean, R. E.Cryer, BobFreeson, Reginald
    Benn, Rt Hon Anthony WedgwoodCunningham, G. (Islington S)Garrett, John (Norwich S)
    Bennett, Andrew (Stockport N)Cunningham, Dr J. (Whiteh)Garrett, W. E. (Wallsend)
    Bidwell, SydneyDalyell, TarnGeorge, Bruce
    Bishop, E. S.Davidson, ArthurGilbert, Dr John
    Blenkinsop, ArthurDavies, Bryan (Enfield N)Ginsburg, David
    Boardman, H.Davies, Denzil (Llanelli)Golding, John
    Booth, AlbertDavies, Ifor (Gower)Gould, Bryan
    Bottomley, Rt Hon ArthurDavis, Clinton (Hackney C)Gourlay, Harry
    Boyden, James (Bish Auck)Deakins, EricGraham, Ted
    Bradley, TomDean, Joseph (Leeds West)Grant, George (Morpeth)
    Bray, Dr JeremyDelargy, HughHamilton, James (Bothwell)
    Brown, Hugh D. (Provan)Dell, Rt Hon EdmundHamilton, W. W. (Central Fife)
    Brown, Robert C. (Newcastle W)Dempsey, JamesHardy, Peter
    Brown, Ronald (Hackney S)Doig, PeterHarper, Joseph
    Buchan, NormanDormand, J. D.Harrison, Walter (Wakefield)
    Buchanan, RichardDouglas-Mann, BruceHatton, Frank
    Butler, Mrs Joyce (Wood Green)Duffy, A. E. P.Hayman, Mrs Helena
    Callaghan, Jim (Middleton & P)Dunn, James A.Healey, Rt Hon Denis
    Campbell, IanDunnett, JackHeffer, Eric S.
    Canavan, DennisDunwoody, Mrs GwynethHenderson, Douglas
    Cant, R. B.Eadie, AlexHooley, Frank
    Carmichael, NeilEdge, GeoffHoram, John
    Carter, RayEllis, John (Brigg & Scun)Howell, Denis (B'ham, Sm H)
    Carter-Jones, LewisEllis, Tom (Wrexham)Hoyle, Doug (Nelson)
    Cartwright, JohnEnglish, MichaelHuckfield, Les
    Castle, Rt Hon BarbaraEnnals, DavidHughes, Rt Hon C. (Anglesey)
    Clemitson, IvorEvans, Gwynfor (Carmarthen)Hughes, Mark (Durham)

    Hughes, Robert (Aberdeen N)Millan, BruceSmall, William
    Hughes, Roy (Newport)Miller, Dr M. S. (E Kilbride)Smith, John (N Lanarkshire)
    Hunter, AdamMiller, Mrs Millie (Ilford N)Snape, Peter
    Irving, Rt Hon S. (Dartford)Mitchell, R. C. (Soton, Itchen)Spearing, Nigel
    Jackson, Colin (Brighouse)Molloy WilliamSpriggs, Leslie
    Jackson, Miss Margaret (Lincoln)Moonman. EricStallard, A. W.
    Jay, Rt Hon DouglasMorris, Alfred (Wythenshawe)Stewart, Donald (Western Isles)
    Jeger, Mrs LenaMorris, Charles R. (Openshaw)Stewart, Rt Hon M. (Fulham)
    Jenkins, Hugh (Putney)Morris, Rt Hon J. (Aberavon)Stoddart, David
    Jenkins, Rt Hon Roy (Stechford)Mulley, Rt Hon FrederickStott, Roger
    John, BrynmorMurray, Rt Hon Ronald KingStrang, Gavin
    Johnson, James (Hull West)Newens, StanleyStrauss, Rt Hon G. R.
    Johnson, Walter (Derby S)Noble, MikeSummerskill, Hon Dr Shirley
    Jones, Alec (Rhondda)Oakes, GordonTaylor, Mrs Ann (Bolton W)
    Jones, Barry (east Flint)Ogden, EricThomas, Dafydd (Merioneth)
    Jones, Dan (Burnley)O'Halloran, MichaelThomas, Mike (Newcastle E)
    Judd, FrankO'Malley, Rt Hon BrianThomas, Ron (Bristol NW)
    Kaufman, GeraldOrbach, MauriceThompson, George
    Kelley, RichardOvenden, JohnThorne, Stan (Preston South)
    Kerr, RussellPadley, WalterTierney, Sydney
    Kilroy-Silk, RobertPark, GeorgeTinn, James
    Kinnock, NeilParker, JohnTomlinson, John
    Lamble, DavidParry, RobertTorney, Tom
    Lamborn, HarryPendry, TomUrwin, T. W.
    Lamond, JamesPerry, ErnestVarley, Rt Hon Eric G.
    Latham, Arthur (Paddington)Phipps, Dr ColinWainwright, Edwin (Dearne V)
    Leadbitter, TedPrentice, Rt Hon RegWalden, Brian (B'ham, L'dyw'd)
    Lee, JohnPrescott, JohnWalker, Harold (Doncaster)
    Lewis, Arthur (Newham N)Price, C. (Lewisham W)Walker, Terry (Kingswood)
    Lewis, Ron (Carlisle)Price, William (Rugby)Ward, Michael
    Lipton, MarcusRadice, GilesWatkins, David
    Litterick, TomReid, GeorgeWatkinson, John
    Loyden, EddieRichardson, Miss JoWatt, Hamish
    Luard, EvanRoberts, Albert (Normanton)Weetch, Ken
    Lyon, Alexander (York)Roberts, Gwilym (Cannock)Weitzman, David
    Lyons, Edward (Bradford W)Robertson, John (Paisley)Wellbeloved, James
    Mabon, Dr J. DicksonRoderick, CaerwynWelsh, Andrew
    McCartney, HughRodgers, George (Chorley)White, Frank R. (Bury)
    MacCormick, IainRodgers, William (Stockton)White, James (Pollok)
    McElhone, FrankRooker, J. W.Whitehead, Phillip
    MacFarquhar, RoderickRoper, JohnWhitlock, William
    McGuire, Michael (Ince)Rose, Paul B.Wigley, Dafydd
    Mackenzie, GregorRoss, Rt Hon W. (Kilmarnock)Willey, Rt Hon Frederick
    Mackintosh, John P.Rowlands, TedWilliams, Alan (Swansea W)
    Maclennan, RobertRyman, JohnWilliams, Alan Lee (Hornch'ch)
    McMillan, Tom (Glasgow C)Sandelson, NevilleWilliams, Rt Hon Shirley (Hertford)
    McNamara, KevinSedgemore, BrianWilliams, W. T. (Warrington)
    Madden, MaxSelby, HarryWilson, Alexander (Hamilton)
    Magee, BryanShaw, Arnold (Ilford South)Wilson, Gordon (Dundee E)
    Mahon, SimonSheldon, Robert (Ashton-u-Lyne)Wilson, William (Coventry SE)
    Marks, KennethShore, Rt Hon PeterWise, Mrs Audrey
    Marquand, DavidShort, Rt Hon E. (Newcastle C)Woodall, Alec
    Marshall, Dr Edmund (Goole)Short, Mrs Renée (Wolv NE)Wrigglesworth, Ian
    Marshall, Jim (Leicester S)Silkin, Rt Hon John (Deptford)Young, David (Bolton E)
    Mason, Rt Hon RoySilkin, Rt Hon S. C. (Dulwich)
    Meacher, MichaelSillars, JamesTELLERS FOR THE NOES:
    Mellish, Rt Hon RobertSilverman, JuliusMiss Betty Boothroyd and
    Mikardo, IanSkinner, DennisMr. Laurie Pavitt.

    Question accordingly negatived

    Amendment agreed to

    Amendments made : No. 199, in page 86, line 44, at end insert:

    ' (4) Where the conditions stated in paragraphs (a) and (b) of sub-paragraph (1) above are satisfied at any time when there is only one beneficiary, they shall not be treated as ceasing to be satisfied on his death or on his attaining the specified age, if they would again be satisfied on the birth of another person.'

    No. 200, in page 87, leave out lines 4 to 12.

    No. 204, in page 88, leave out lines 6 and 7 and insert:

    '(1)Where settled property is held on trusts which, either indefinitely or until the end of a period (whether defined by a date or in some other way) do not permit any of the settled property to be applied otherwise than for the benefit of '.

    No. 206, in page 88, leave out lines 16 to 18 and insert:

    'then, subject to sub-paragraph (2) below, this paragraph applies to that settled property or, as the case may be, applies to it during that period.
    (2) Where any such class is defined by reference to employment by or office with a particular body this paragraph applies to the settled property only if the class comprises all or most of the persons employed by or holding office with that body '.

    No. 207, in page 88, line 44, leave out sub-paragraphs (4) to (6) and insert:

    ' (5) Where this paragraph applies to any settled property, tax which would otherwise be chargeable at a relevant anniversary under paragraph (12)(1) above shall be deferred until either a capital distribution is made or this paragraph ceases to apply to the settled property and when any deferred tax becomes chargeable it shall be charged—
  • (a)at the rate at which it would be chargeable if the relevant anniversary fell on the date on which the tax becomes chargeable ; and
  • (b)on an amount determined in accordance with the following provisions of this paragraph.
  • (6) Where any deferred tax becomes chargeable when this paragraph ceases to apply to the settled property it shall be chargeable on an amount equal to the current value of the settled property.
    (7) Where any of the deferred tax becomes chargeable when a capital distribution is made—
  • (a)it shall he chargeable on an amount determined under sub-paragraph (8) below ; and
  • (b)the amount of the tax shall reduce the amount on which tax is chargeable on that capital distribution (and if it exceeds that amount the excess shall reduce the amount on which tax is chargeable on the next capital distribution, and so on).
  • (8) So far as any tax which would otherwise be chargeable on a relevant anniversary becomes chargeable when a capital distribution is made it shall be charged on an amount (in this sub-paragraph referred to as the first amount) equal to the proper proportion of the current value of the property out of which the capital distribution is made : and where the capital distribution is made after the next relevant anniversary and, accordingly more than one deferred tax becomes chargeable
  • (a)the second deferred tax shall be charged on the first amount less the amount of the first deferred tax ; and
  • (b)the third deferred tax (if any) shall be charged on the amount found under paragraph (a) above less the amount of the second deferred tax ;
  • and so on.
    (9) For the purposes of this paragraph—
  • (a)the current value of any property is its value at the time any tax deferred under this paragraph becomes chargeable ; and
  • (b)the proper proportion of the current value of any property out of which a capital distribution is made is the proportion which the amount on which tax is chargeable on the capital distribution bears to that current value ;
  • and in this paragraph "close company" and "participator" have the same meanings as in section 37 of this Act, "relevant anniversary" has the same meaning as in paragraph 12 above and "year" has the same meaning as in paragraph 2 of Schedule 6 to this Act'.

    No. 208, in page 89, line 31, at end insert:

    'Protective trusts

    17A.—(1) This paragraph applies to settled property held on trusts to the like effect as those specified in section 33(1) of the Trustee Act 1925 ; and in this paragraph "the principal beneficiary "and" the trust period" have the same meanings as in that section.

    (2) Where this paragraph applies to any settled property—

  • (a)tax shall not be charged under paragraph 4(2) above on the coming to an end during the trust period of the principal beneficiary's interest in the property ; and
  • (b)a distribution payment made out of the settled property for the benefit of the principal beneficiary shall not be a capital distribution.
  • (3) Sub-paragraphs (5) to (9) of paragraph 17 above shall apply where this paragraph applies to any settled property as if the references to that paragraph were references to this paragraph and references to that paragraph ceasing to apply to the settled property included references to the coming to an end of the trust period.'.—[ Dr. Gilbert.]

    ' Trusts for benefit of mentally disabled persons

    17B.—(1) This paragraph applies to settled property held on trusts under which, during the life of a mentally disabled person, no interest in possession in the settled property subsists and which secure that any of the settled property which is applied during his life is applied only or mainly for his benefit.

    (2) Where this paragraph applies to any settled property, then—

  • (a)if the mentally disabled person is the settlor, neither the making of the settlement nor any addition made by him to the settled property shall be a chargeable transfer; and
  • (b)a distribution payment made out of the settled property for the benefit of the mentally disabled person shall not be a capital distribution.
  • (3) Sub-paragraphs (5) to (9) of paragraph 17 above shall apply where this paragraph applies to any settled property as if the references to that paragraph were references to this paragraph and references to that paragraph ceasing to apply to the settled property included references to the death of the mentally disabled person.

    (4) In this paragraph "mentally disabled person" means a person who by reason of mental disorder within the meaning of the Mental Health Act 1959 is incapable of administering his property or managing his affairs '.

    This additional paragraph, 17B, provides relief for discretionary trusts set up for the benefit of mentally handicapped persons. In substance the effect of this provision is similar to that of the Government amendment on protective trusts—the new paragraph 17A.

    This separate relief for trusts for the mentally disabled provides that while the mentally disabled person is still alive the trust fund will be relieved from the normal discretionary regime. This is subject to two conditions. The first is that the funds must be applicable only or mainly for his benefit. The second is that capital distributions to other individuals will be chargeable in the normal way.

    I think that it is self-explanatory and that is as far as I wish to go at this stage, unless the House wishes to hear further from me.

    I wish to intervene only briefly, because the Chief Secretary said in Committee, perhaps inadvertently, that none of the so-called thalidomide trusts would be subject to tax. He gave as his reason that they were charitable settlements. As I understand the position, it is true that the main settlement set up by Distillers is a charitable settlement but, as the right hon. Gentleman recollects, and no doubt this is the basis of Amendment No. 208, if not of Amendment No. 209, there have been one or two other settlements set up by individual thalidomide children with the consent and approval of the court. Indeed, these are paralleled in other cases where they are set up on a discretionary basis for these children. They are not necessarily mentally handicapped, although they may be physically handicapped, but they are very often under the age of 18.

    My hon. Friend the Member for Rushcliffe (Mr. Clarke) and I have tabled Amendment No. 552, which is marshalled with Amendments Nos. 208 and 209 and I should like with suitable immodesty, to think that it is better than the Government amendments. I hope, therefore, that the Chief Secretary will look a little more closely at it, because I am sure we both have the same objective in mind. If 1 may have the right hon. Gentleman's attention—

    Order. The difficulty is that the hon. and learned Member is making his speech to an amendment which has not been selected by Mr. Speaker.

    I am grateful to you, Mr. Deputy Speaker. I see that in my enthusiasm for my amendment I pencilled it in and assumed that it had received your indirect benevolence.I understand the Chief Secretary's difficulty, but, with his habitual resource, and without any prompting by his officials, no doubt he will give his undivided attention not only to Amendments Nos. 208 and 209 but to Amendment No. 552. As we are both focussed on the same objective, I trust that he has given his usual diligent attention to all the amendments on this point. I hope that he will canvass their respective merits, if only to convince the House and myself that his amendments are superior in scope and function to Amendment No. 552.

    The main burden of the hon. and learned Gentleman's remarks was directed to the question of thalidomide trusts. I understand that the damages paid to the thalidomide victims will be fit. The hon. and learned Gentleman is right. The original trusts are charitable, and there will be subsequent trusts that will be protective. Our new relief will ensure that the interest for children will not be adversely affected.

    I think that the hon. and learned Gentleman is subject to a little confusion on more than one point on this group of amendments. It is not my right hon. Friend the Chief Secretary who is answering the debate, nor was it my right hon. Friend who spoke on this subject in Committee upstairs. I referred to thalidomide trusts and gave an assurance about them, because I thought they would be covered by the regime for charitable trusts. It was only when we discovered that that was not the case that we introduced Amendment No. 208 to set up new paragraph 17A to the schedule, which covers the point the hon. and learned Gentleman has in mind.

    We are dealing in this group with the amendments to amendment No. 209 which add blind persons to the category of mentally disabled persons. It is extremely difficult to draw the line when one starts to consider persons with disability. The amendments seek to give relief to trusts which are for the benefit of blind as well as mentally disabled persons. There is a good case for saying that blindness is a well-defined disability which deserves the benefits which are given to protective trusts and disabled persons by Amendments Nos. 208 and 209. Will the Financial Secretary say why he rejects the amendments to include blind persons under the beneficial Amendment No. 209?

    11.0 p.m.

    With the leave of the House, Mr. Deputy Speaker. I did not refer to the amendments because the hon. and learned Member for Dover and Deal (Mr. Rees) did not refer to Amendment No. 209 and I was trying to help the Opposition to make progress.

    The right hon. Member for Crosby (Mr. Page) is right in saying that there is no problem in identifying the blind, and various income tax reliefs are given to them in fiscal legislation. There is a difference between those who are mentally handicapped and those who are physically handicapped. Although we all have the greatest sympathy with the physically handicapped in the difficulties they encounter, there is not the same need to set up a special type of discretionary trust the help them handle their affairs as there is for the mentally handicapped. I think I carry the House with me on that.

    I am grateful to the right hon. Gentleman for not seeking to make this an emotional matter. Treasury Ministers sometimes have the difficult job of saying that they think that the relief should go to the mentally disabled. The physically handicapped are in a different category. If a discretionary trust comes into existence for their benefit it is not impossible to create a protective life interest for those individuals which will attract the reliefs available under Amendment No. 208.

    Amendment agreed to.

    Amendment made: No. 211, in page 90. line 26, leave out ' 26th ' and insert ' 27th '.—[ Mr. Joel Barnett.]