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Dáil Éireann debate -
Tuesday, 13 Jul 1971

Vol. 255 No. 7

Finance Bill, 1971: Committee Stage (Resumed).

Amendment No. 12, by leave, withdrawn.
Section 20 agreed to.
Sections 21 to 23, inclusive, agreed to.
SECTION 24.
Amendment No. 13 not moved.
Section agreed to.
Section 25 and 26 agreed to.
SECTION 27.

I understand the Minister proposes to delete section 27.

On section 27, I understand the Chair has ruled that certain provisions in this section would be inappropriate to a Money Bill. The purpose of this section was to remove, with effect from 1st July, 1971, a requirement which was held to be discriminatory under the terms of the Anglo-Irish Free Trade Area Agreement that certain vodka of United Kingdom origin must be warehoused for at least three years before being delivered for home consumption. In view of the Chair's ruling, I propose to remove section 27 but I also propose to introduce legislation at the first suitable opportunity bringing the provisions which were contained in section 27 into operation with effect from tomorrow, the 14th July, and in the meantime I am asking the Revenue Commissioners to remove the restriction administratively on this understanding.

Section deleted.

Amendments Nos. 14 and 15 not moved.
SECTION 28.

Perhaps with amendment No. 16 we could take amendments Nos. 17, 18, 19 and 20 which form a composite proposal, if the House agrees.

I move amendment No. 16:

In page 17, subsection (1), lines 23 and 24, to delete "to any prohibition or restriction or".

In this case these amendments are deemed necessary to preserve the Money Bill character of the Finance Bill. The deletions are some matters which are incidental to the operation of the dual-channel customs system which have been included so as to make the section comprehensive. I am proposing now to take these particular portions out, but their removal will not, of course, affect the powers which the Revenue Commissioners have at present to deal with such matters. They are simply being taken out to make the Bill comply with the Chair's requirements as a Money Bill but the section, as amended, would still provide the necessary powers to enable us to introduce the dual-channel system of control. It would not, however, be possible both for physical reasons of adaptation of customs rooms and also because of the fact that the legislation is not enacted yet to introduce these changes in this tourist season but it would be hoped to do so as soon as possible.

Amendment agreed to.

I move amendment No. 17:

In page 17, subsection (2), line 25, to delete "or leaving".

Amendment agreed to.

I move amendment No. 18:

In page 17, subsection (2), line 26, after "him" to insert "for the purposes of subsection (1) of this section".

Amendment agreed to.

I move amendment No. 19:

In page 17, subsection (3), lines 36 to 38, to delete ", and any thing which is being taken into or out of the State contrary to any prohibition or restriction for the time being in force with respect thereto,".

Amendment agreed to.

I move amendment No. 20:

In page 17, lines 39 to 51, to delete subsection (4) and to substitute the following subsection:

"(4) References in this section to persons entering the State shall be construed as including references to persons coming from the airport (within the meaning of the Customs-free Airport Act, 1947) into any other part of the State."

Amendment agreed to.
Section 28, as amended, agreed to.
SECTION 29.

I move amendment No. 21:

In page 17, line 55, to delete "or made".

Section 29 reads:

In this Act and in every other enactment for the time being in force (whether passed or made before or after the passing of this Act), unless the contrary intention appears, "death duties" has, and in the case of enactments for the time being in force that were passed or made before the passing of this Act, shall be deemed always to have had the same meaning as in section 13 (3) of the Finance Act, 1894.

The amendment proposes the deletion of the words "or made" on page 17 in line 55. According to our reading of it an enactment is not made; it is just a drafting amendment.

I think I know what the Revenue Commissioners are trying to get at on this but, in fact, it is not correct. A statutory instrument is not an enactment and the word "made" is intended to cover statutory instruments as I see it. If they want to stick on enactments they cannot talk about enactments being made. There is another way to do it and that is to say: "In this Act and every other enactment for the time being in force and in all statutory instruments (whether passed or made before or after the passing of this Act), unless the contrary intention appears, `death duties' " and so on and so forth but it is not right as it is.

The word "passed" in the section is designed to cover Acts of the Oireachtas and as Deputy O'Donovan surmised to cover statutory instruments——

They are not enactments.

——which are not passed. It is the opinion of the parliamentary draftsman that the word "enactment" is wide enough to embrace both Acts and statutory instruments and the words "or made" are essential to cover statutory instruments.

From what I have said about them the Minister will have gathered that I think the Revenue Commissioners have an awful nerve. I put nothing past them for sheer nerve. It is typical of them that their statutory instruments are the same as legislation passed by this House. It is just not correct and there is no more to be said about it.

Except this, it is not the Revenue Commissioners but the parliamentary draftsman who forms this opinion.

I had a great deal to do with parliamentary draftsmen at various times. I understand how the parliamentary draftsman can be swayed for good purposes. The parliamentary draftsman is human the same as anybody else.

Questionable.

I get the Deputy's point but a parliamentary draftsman in this context is human the same as everybody else. I do not want the Oireachtas not to do its work properly but this is not correct. I do not care if the Minister got all the parliamentary draftsmen from all the parliaments in the world to say that this is right, it would not sway me in the slightest degree. Statutory instruments are made and not enacted; they are not enactments. I do not care two pence who says it. I do not care if the Supreme Court says it.

Chambers certainly does not say it anyway.

I am sure it does not.

Is the amendment withdrawn?

Certainly not. Why should we withdraw this amendment? Could I say this final word — would the Minister ever give us his own mind on it before the next Stage or in the Seanad?

I will look at it.

The Minister will find that I am right.

Question—"That the words proposed to be deleted stand"—put and declared carried.
Question proposed: "That section 29 stand part of the Bill."

Would the Minister indicate what is the reason for defining "death duties"?

In the various Finance Acts from about 1930 onwards the term "death duties" has been used as a general term to cover estate duty, legacy duty and succession duty. It has also been used in various statutory instruments, for example, in relation to the transfer of Government securities in payment of death duties that phrase has been used. The term was defined as having this meaning, that is meaning the things I have outlined, in section 13 (3) of the Finance Act, 1894, but only for the purposes of that section. Doubts have arisen as to whether it would necessarily be interpreted in the same sense apart from that section and to remove any such doubts it is proposed that the term "death duties" be defined for all statutory purposes as having the meaning assigned to it by section 13 (3) of the 1894 Act.

This in effect means that we are passing retrospective legislation.

It could be so interpreted. If there is a basis for the doubts which have been expressed, it could be so interpreted, that is true.

The only purpose of asking us to pass the section is that somebody now has a doubt as to the extent of the term "death duties" and we are asked to legislate backwards because of that doubt.

That is before it goes to the High Court. The State will be paying death duties. They will probably be entitled to do it shortly.

I do not want us to be passing this in blinkers. We are passing retrospective legislation in relation to taxation imposed on the people.

"Legally collected" are the words.

Technically, the Deputy may be correct, assuming certain things, but I think he would agree that the definition provided here is almost certainly the one that was always intended by the Oireachtas to be given to the phrase "death duties".

That is a different thing, of course.

I am briefed here on behalf of the taxpayers and the people and I refuse to accommodate people in the slightest. Let us be clear that this is retrospective legislation.

I must confess it is rather strange to me that this question has arisen, that it has not been defined heretofore but, in view of doubts having been raised, I think it essential that it should now be defined clearly, so that everybody should know where he stands and it is in the interests of the public and the taxpayer too that this should be clarified.

Certain taxpayers anyway. We had better hurry the Bill through now that it has been explained or somebody will find there has been a lot of money collected which might not have been paid and may start looking for it back before this is passed. I know that they would have a job getting into the High Court before the Bill is passed.

This would deprive them of cause of action.

That is it exactly.

Just for the record, may I say that we are not aware of any such case.

Even if you were——

If we were, I would not be introducing the provision.

It is a case of "ar eagla na h-eagla".

Question put and agreed to.
SECTION 30.
Question proposed: "That section 30 stand part of the Bill."

In section 30 it is proposed to alter the rates of estate duties and the effect of the alteration will be to bring about what seems to me to be a punitive increase on what may be termed, comparatively, as the larger estate. Under the rates of estate duty in operation at the moment, on estates up to £50,000 the rate per cent of duty is 30 per cent and from £60,000 to £75,000 the rate per cent of duty is 30 per cent and then from £75,000 to £100,000 the rate is 37 per cent and from £100,000 up the rate is 40 per cent. Those are the existing percentage rates for duty. Under the section now proposed there is a provision that from £50,000 to £55,000 shall be at 30 per cent; from £55,000 to £60,000 shall be at 33 per cent; from £75,000 to £100,000, at 41 per cent; from £100,000 to £150,000, at 45 per cent; £150,000 to £200,000, 50 per cent and £200,000 at 55 per cent.

I know that it is very easy to say that this is an effort to distribute wealth by imposing taxation on the larger estate and it is in that way that this kind of proposal has been put forward and defended in the past but I am bound to point out that we are now living in a highly inflationary situation and I am going to suggest that the estate which is valued now for estate duty and death duty purposes and market value, and so on, say, a farm in the midlands or in Meath or in County Dublin or in any part of Leinster, £60,000 valuation is not infrequently met and it by no means represents a person who is normally regarded as a person of wealth and means. A farm that is properly run and therefore well-stocked, with a house that is well-kept, under the provisions of this legislation will frequently reach a valuation for estate duty purposes of £60,000 and more and this section proposes to increase the rate of duty significantly from that figure up.

This is a taxing section and I believe the alteration in the rate of duty is unfair. Without any alteration in the scale of duty and the rate per cent of duty, in any event, the Revenue Commissioners would have been getting an increasing revenue by reason of inflation and this is taking advantage of inflation to the detriment of the people who have to pay. These are the persons who are accountable after the death and it will mean such a crippling load of taxation in certain cases that people will be forced to sell. At this time — and I am going to say this in relation to other sections — with the intimation being given to us on behalf of the Government that we are about to enter Europe in the next 12 or 18 months, it is essential that we should not in any way create a situation in which Irish families, young Irish farmers, people who inherit land, find themselves financially embarrassed and tempted by reason of that to sell out their holdings. I think this increase in death duties can have just that effect and I am opposed to the section.

I think that one has to view this section, if one is taking the line on it that Deputy O'Higgins was taking, in conjunction with section 38 which is increasing the abatements for widows and dependent children quite substantially and I think that viewing these two sections together, the picture that emerges is fairly clear, that is, we are increasing the liability for estate duty on estates——

I think, £20,000. What is the effect at £20,000 on a widow with two children?

An estate under £55,000 is not liable to any higher rate of duty under this proposal but there would be a greater abatement and the abatement is off the duty, which means that it is quite substantial. It is not just an abatement on the total value of the estate, but when the duty is assessed, then there is an abatement of the duty. I would suggest that, first of all, if one looks back, one finds that the existing rates have been operating since 1961. Prior to that, our maximum rate was 53 per cent at £250,000. In the meantime, the higher rates of duty are applying in Britain and Northern Ireland, and indeed they run up as high as 80 per cent, and the case was frequently made that if we were to abolish estate duty or reduce the rates very substantially, this could be of considerable benefit to our economy. I think that if one looks at what has happened since the duties were cut in 1961, where the maximum was reduced to 40 per cent, which is half the maximum rate in Britain, one finds that there was no great inflow, no noticeable effect at all, and there is something wrong with that theory which says that the abolition or substantial reduction of estate duty liability would result in the inflow of capital of considerable benefit to the economy.

That being so, we are faced with the situation where estate duty is substantially the only form of capital gains tax we have and in circumstances in which we propose to reduce its impact on widows, and particularly widows with children, it seems reasonable to me that we should increase its impact above what I might call its artificially low level fixed in 1961 on an experimental basis, that we should increase its impact there on higher valued estates.

Deputy O'Higgins made a particular case in respect of agricultural holdings becoming liable to duty. I would like to point out that provided the agricultural holdings are inherited and worked, and not sold, the liability for duty is substantially reduced in the case of agricultural holdings because of the artificial method of valuation, whereby the land is valued at 25 times its rateable valuation, less the capitalised value of any Land Commission annuity which may be outstanding on it and this results in a very substantially lower artificial valuation than its market value.

In addition, there are other provisions in the death duty code in favour of agricultural land. For instance, the duty may be paid by instalments at half-yearly intervals over a period of, I think, four years — I am speaking from recollection at the moment — so that I would like to make it clear that in so far as agricultural land is concerned, it is especially well treated under the death duty code and I do not think that any serious objection can be taken to the proposal in this section, having regard to the considerations I have outlined.

I am very surprised to hear the Minister telling the House that the system of valuation is 25 times the rateable valuation, less the outstanding annuity — I understood the Minister to say this — because I have had cases in County Dublin where certainly the valuation was not done on that basis, where the valuation was not made on that basis and where the case being made was that this was potential building land. The case was made for high valuations that it was potential building land when there were no services within miles of it and, to my knowledge as a member of the country council, where there would be no services probably for 20 years. It was still valued on the basis that it had a probable potential for building, so that the method of valuation the Minister has given the House is certainly not employed in all cases. I would like to reinforce what Deputy O'Higgins has said because I have known of cases where it was imperative to sell out in order to meet it. I have had cases I was able to do something about by explanation of the facts and long arguments about the facts, but it is certainly not the system of valuation universally used in the country.

On a point of clarification, would I be correct in thinking that the artificial system only applies when the figure arrived at artificially, added to the net personalty, does not exceed £2,000?

That is correct.

It really applies only to small farms.

We have cases of holdings that have been worth £100,000——

Impossible, with respect.

——which have not been liable to duty.

Under that system?

Note what the Deputy said — the net personalty. If you have any kind of a substantial overdraft you may have a nil personalty.

If you are a bad farmer and borrow to run your farm, when you die you are all right, but if you are a good farmer and it is clear, you are caught.

It only applies to farms of £10, £15, £20 or £25 valuation, I can assure the Minister.

Is it not a fact that in the case of estates of £100,000, which nowadays in farming land is not so high, the increase is 5 per cent? It goes from 40 to 45 per cent and above that, from 40 to 50 per cent?

This is on the scale of duty?

Yes — 50 to 55 per cent is £30,000, and when you get to £100,000, it is 40 per cent and then goes to 45 per cent under the new proposal, and then from 40 to 55 per cent.

Is the Deputy comparing it with the existing rate?

I am comparing it with what is proposed. When you take into account present-day inflation, it is quite a substantial sum. At present, in fact, because of the inflation, estate duty being maintained at existing rates means an increase in duty. Because of the drop in the value of money or because of inflation, whichever you like, existing estate duty is increased duty.

This could be said of any charge but in so far as it is true it applies only to cases where the inheritance is not by the widow or children of the deceased and where their position is being eased.

That is all right in theory but it is a different matter for people to find this sort of cash with which to pay the Revenue Commissioners. Of course, they can owe the money for some years but they will now have to pay 9 per cent per annum on any outstanding money. One might say that they could sell half the farm but a farm as a unit is one matter while half a farm is another matter. This duty is very severe. Having regard to the way in which the price of land has skyrocketed in recent years, an ordinary sized farm would fetch £100,000 in cash. I have suggested often that farmers should pay income tax but I do not think that a man owning a farm, the market value of which would be a £100,000, would be likely to make an income from that farm of £9,000 per annum. That sort of money is not made from agriculture. In such a case an imposition of 45 per cent would amount to £45,000. How is such money to be found? If, during the years, the man has gradually accumulated a certain amount of money he may be able to pay up by parting with all of the money saved but I have not the slightest doubt that, because of the inflated state of land value, this rate of duty will cause serious problems.

I would like to supplement what Deputy O'Donovan has said. If a person has reached a fairly advanced age at the time of death he may have made a settlement, but in any event it would be likely that his children would either have been provided for or would be in a position to look after themselves. However, in the case of a man dying at an early age this would not be so and surely it is contrary to the recognised policy of the Government in relation to farms that, within limits, they should be reasonably large units. Such a person's dependants would be placed in the position of having to sell part of the lands or else either having to sell stock which they could not replace or mortgage their holdings. It does not require much knowledge to realise how difficult it is to raise money on land and particularly on a truncated portion of a farm. Substantially, what has been said here by Deputies is true. One can think, at random, of farms within easy reach of Dublin that will never be used for building purposes, whether these lands be in County Dublin or in Counties Kildare or Wicklow. I wonder whether the Revenue Commissioners have considered the effects of this duty vis-à-vis the policy being pursued by the Department of Lands — to create units of relatively large acreage and not to divide or subdivide except where the acreage is substantial and unless there is a valid reason for so doing.

Because of the rate of this duty and taking into account the considerable changes in the value of land, the amount of money involved here is considerable especially when one recalls that since the 1965 Finance Act people who take out an insurance policy in anticipation of death duties find that this is aggregated with the remainder of the estate for duty purposes. That has resulted in a substantial change.

All I would say is that Deputies should remember that of the number of holdings of agricultural land coming before the Revenue Commissioners, duty is paid on only 4 per cent.

How much is collected from that particular type of holding?

I am not sure but clearly if we are dealing with only 4 per cent of the agricultural holdings coming before the Revenue Commissioners the case being made does not stand up in practice, because clearly in dealing with such a small percentage it may be taken that in the main duty is being paid on the more valuable holdings and they are a very small proportion of the number of agricultural holdings coming before the Revenue Commissioners.

The Minister is missing the point. So far as we are concerned the main problem is the necessity to find the money where that money is not available unless some of the property is sold. A case that I brought to the Minister's attention previously was that of two small farms, one of six acres and the other of 12 acres which, together with a small house, were willed by a lady to her married niece who had looked after her. The death duties on that property amounted to £200 and in order to raise that money this couple were forced to sell the farm of six acres. However, the Revenue Commissioners then reassessed the value of the remainder of the holding and collected almost the entire amount that was received for the six acre farm with the result that these people then found it necessary to sell part of the remaining farm for the purpose of paying death duties. There should be some other way of dealing with cases where the money is not available. At present even a reasonably sized farm is worth a lot of money although the money may not be worth very much.

The Minister talks only about very valuable holdings. A holding is valuable only if it is on the market. One could have a farm in County Dublin which, although being used for agricultural purposes and likely to be so used for the next 20 or 30 years or much longer, would have an artificial market value. There is always the feeling that at some time in the future such land would be developed when in fact the people concerned have no wish to sell.

That is the point.

It is then, as Deputy Tully has said, that the problem arises because the people cannot get the money from the banks and they are forced to sell some of the land. The Land Commission have no wish to subdivide because as it stands, it is barely an economic holding. In many cases it is a question of selling all of the land because the Land Commission will not agree to subdivision and this can create an awkward situation. I would say that a large proportion of the 4 per cent that the Minister mentioned is in areas such as County Dublin where the potential is taken into consideration—potential that probably will never be realised.

I would like to take a hypothetical case and ask the Minister how this section would apply to it while, at the same time, making my own observations as to how I think it might apply. Let us take a farm of 200 acres. It would not have to be oustandingly good land or land very near big development to be worth up to £300 an acre. That would make the farm worth £60,000 and would bring it within the area of valuations being made subject to the increases introduced under section 30.

Suppose that farm is not owned by somebody who is prepared to go very deeply into debt but by a prudent farmer who never borrowed beyond what he expected to be able to repay and suppose, as is very common in rural Ireland, he has two sons both of whom, perhaps, are married and working together with him on the farm. They may be doing a little contracting work on the side but they are primarily farmers. He would normally and, I think, wisely decide, rather than leaving the land to his widow who would perhaps not be in a position to work it, leave it jointly or by some arrangement to these two sons. They would not be eligible for the exemptions to which the Minister adverts, which apply only to widows who are not perhaps the best people to whom to hand over the management of a farm. These sons would find themselves faced with a very heavy burden of death duties.

I should like to reiterate what Deputy Clinton said. Agricultural land is valued on the market at a much higher level than its actual earning capacity would warrant. This is because of people buying agricultural land for speculative purposes or in order that they will have something absolutely solid in a world in which there is great uncertainty in relation to shares or other less solid items. Land value is inflated in this way beyond the return which it would be likely to give a farmer. If that were the sole criterion the value would be much lower. These two sons will not qualify for the exemptions and will have to pay 33 per cent of the value of that property in duty. This is an absolutely crushing burden on a farm business of this nature.

One thing which we are encouraging in Government policy at the moment is that people in a case like this should form themselves into a partnership in running a farm. We do not want farms to be broken up into such small units that they are not able to produce efficiently. We are anxious that they should be joined together into one unit which may be supporting two or three families but it is important that it should be one unit. In the hypothetical case to which I have referred this unit, involving two brothers, perhaps married men, would at the outset be crippled by this burden of paying 33 per cent in duties. This would be a 200 acre holding which we would hope would support two men and their families.

Nobody with any knowledge of farming would say that these people could avoid having to sell off part of the farm. In doing so they would probably reduce the farm so that it would no longer support the two families. These would be people who had been working for a considerable portion of their lives at farming, who perhaps knew no other business sufficiently well and were too advanced in life to become qualified at any other business. One of these two families would be forced to find employment elsewhere, employment for which they would not be qualified.

It is on cases like this that this section and the other sections in this Bill fall most heavily. I cannot say at this stage that I could propose any specific amendment but the Minister should reconsider the application of this section and other sections to the case of sons, maybe married men, succeeding to their father's holding.

Can the Minister say what is the estimated increase in estate duty that will arise from this?

The increase in yield?

It is expected to bring in £715,000 in a full year and £240,000 this year.

It is a fair yield from only 4 per cent.

I am sorry. The figure I have given is the total increased yield, not just on the agricultural side.

What percentage of that £715,000 and £240,000 would be borne by agriculture?

I am afraid I have not got that information.

Question put.
The Committee divided: Tá, 51; Níl, 40.

  • Aiken, Frank.
  • Allen, Lorcan.
  • Andrews, David.
  • Boylan, Terence.
  • Brady, Philip A.
  • Brennan, Joseph.
  • Briscoe, Ben.
  • Brosnan, Seán.
  • Browne, Patrick.
  • Browne, Seán.
  • Carter, Frank.
  • Fahey, Jackie.
  • Faulkner, Pádraig.
  • Fitzpatrick, Tom (Dublin Central)
  • Flanagan, Seán.
  • Gallagher, James.
  • Geoghegan, John.
  • Gibbons, James.
  • Gogan, Richard P.
  • Herbert, Michael.
  • Hilliard, Michael.
  • Hussey, Thomas.
  • Kenneally, William.
  • Kitt, Michael F.
  • Lalor, Patrick J.
  • Lemass, Noel T.
  • Carty, Michael.
  • Childers, Erskine.
  • Colley, George.
  • Collins, Gerard.
  • Connolly, Gerard C.
  • Cowen, Bernard.
  • Cronin, Jerry.
  • Cunningham, Liam.
  • Davern, Noel.
  • Delap, Patrick.
  • de Valera, Vivion.
  • Lenihan, Brian.
  • Lynch, Celia.
  • Lynch, John.
  • McEllistrim, Thomas.
  • Molloy, Robert.
  • Moore, Seán.
  • Noonan, Michael.
  • O'Connor, Timothy.
  • O'Kennedy, Michael.
  • O'Leary, John.
  • Power, Patrick.
  • Sherwin, Seán.
  • Smith, Patrick.
  • Timmons, Eugene.

Níl

  • Barry, Richard.
  • Begley, Michael.
  • Belton, Luke.
  • Belton, Paddy.
  • Bruton, John.
  • Burke, Joan.
  • Burton, Philip.
  • Clinton, Mark A.
  • Cluskey, Frank.
  • Conlan, John F.
  • Coogan, Fintan.
  • Cooney, Patrick M.
  • Corish, Brendan.
  • Cosgrave, Liam.
  • Cott, Gerard.
  • Crotty, Kieran.
  • Desmond, Barry.
  • Dockrell, Henry P.
  • Dunne, Thomas.
  • Finn, Martin.
  • Fitzpatrick, Tom (Cavan).
  • Flanagan, Oliver J.
  • Fox, Billy.
  • Jones, Denis F.
  • Kenny, Henry.
  • Lynch, Gerard.
  • McLaughlin, Joseph.
  • Malone, Patrick.
  • O'Connell, John F.
  • O'Donnell, Tom.
  • O'Donovan, John.
  • O'Higgins, Thomas F.
  • O'Leary, Michael.
  • O'Reilly, Paddy.
  • O'Sullivan, John L.
  • Pattison, Séamus.
  • Ryan, Richie.
  • Taylor, Francis.
  • Timmins, Godfrey.
  • Tully, James.
Tellers:— Tá: Deputies Andrews and S. Browne; Níl: Deputies Begley and O'Connell.
Question declared carried.
SECTION 31.

Amendments Nos. 24, 25, 26 and 27 are related amendments. Amendment No. 22, in the name of Deputy O'Higgins and others, and amendments Nos. 24, 25, 26 and 27 may be taken together.

I move amendment No. 22:

In page 18, line 13, to substitute "seven per cent" for "nine per cent".

This section provides for a punitive and penal rate of interest in relation to arrears of death duties. At the moment interest on duty owed is chargeable at 4 per cent and it is proposed to increase it to 9 per cent. I appreciate that the Minister may make a case for some increase in the rate of interest but I consider the increase to 9 per cent is an unduly high increase. Amendment No. 22 proposes to reduce the figure to 7 per cent.

Can the Minister state if it is proposed to alter the interest rates every year? I assume the reason 9 per cent was picked was because it was near the current bank rate. If the bank rate is reduced — I am sure the Government will decide to reduce it by 3 per cent as things are going so well—will it be necessary to introduce a special Bill to cover that arrangement? I assume the reason why the amounts would not be paid, or why the interest would accrue, is one of three reasons: first, the people concerned were contesting the rights of the State to get the money; secondly, that they had not got the money themselves and had to take the necessary steps to get it and, thirdly, that they were trying to dodge out of it. This appears to be a punitive measure because it will punish people who are not deliberately committing a crime.

I have dealt with the principle behind this in relation to other sections regarding income tax. The primary reason for this change is that the going rate for money which might otherwise be available for duty, or property which is invested and which would otherwise be used to pay duty, could well be yielding a rate of interest above 8 per cent.

On the other hand, they could have invested the money in Government stock.

They would not be doing badly if this is so. There is a built-in inducement in that sense to people not to pay the duty because the longer they leave it unpaid the more they can make money out of it.

That is the third proviso.

That is a very good reason for increasing the rate. I would not contemplate an alteration in the rate from year to year. In fact, the existing rate of 4 per cent was introduced in 1919 and over a long period the difference in the rate was not so substantial as to amount to an inducement not to pay the duty. The difference between the going rate and 4 per cent now is so substantial that there is a definite inducement not to pay duty, or not to pay it promptly.

I would draw attention to the fact that in the case of real property, duty is not payable for one year after death. I am introducing in another section a provision that in the case of personal property duty will not be payable for four months after death. Effectively, this reduces the rate of interest to 6 per cent if the interest is paid at the end of the first year on personalty because duty does not accrue during the free period of four months. We have an obligation to ensure that people who are liable for duty pay the duty promptly. Failure to increase the rate to 9 per cent would mean that there would be still an inducement not to pay, or not to pay promptly, and for that reason I must resist the amendments.

I think I am correct in believing that this section refers to arrears which are in process of being cleared by means of payment by instalment?

It is a saver for them.

I am correct in believing that it relates to instalments? In section 41 we are setting the interest rates for arrears which arise as a result of fraud by the people succeeding. In the scheme of interest rates here, there does not seem to be any discrimination in favour of those people who have come to an arrangement with the estate duty office whereby they will pay what is owed in instalments over a period of years. They are being honest and open about the matter and are giving the estate office an assurance that the money will be paid but they will face the same rate of interest for their arrears as people who are in arrears because of fraud. On moral as well as practical considerations there should be a discrimination in relation to the interest rates charged for people who are honestly trying to pay the amount due over a period of years and those who have got into arrears through fraud. Would the Minister elucidate the reason for the absence of a discrimination in this case?

In fact, there is a discrimination between the two cases. In so far as we are dealing here with duty which is in arrears, there is no discrimination—the same rate of interest is chargeable on all duty in arrears. However, in the case of a person who is honestly trying to pay off the duty, all he has to contend with is the payment of duty and interest. In the case of someone who has been guilty of fraud, he has to contend with the payment of duty and interest and, in addition, the other penalties imposed by common law and statute for fraud. There is substantial discrimination between the two cases.

What we are talking about is the person who puts every obstacle in the way of paying, although he knows he should have paid. He drags it out as long as he possibly can and eventually has to pay it and the interest. The question of a prosecution would not arise. The Minister should be well aware of those cases and so should the Revenue Commissioners, as distinct from the case of a person who feels that he should not have to pay it or people who find it difficult to raise the wind.

We are dealing in the main with people who just cannot get the money to pay and who have to resist paying because they do not want to have to sell their means of making a living. The Minister is adopting a sort of righteous attitude on behalf of the State. I should like to remind him that the State does not always act in this righteous way. If the Land Commission buy a farm they give the farmer land bonds——

Green Shield stamps.

——and the State's treasurer is the Bank of Ireland. The Bank of Ireland will not accept the bonds in lieu of debts owed by the same man. Therefore the bonds must not be as good as money. The State inflicts them on people whether they like it or not. Therefore the State is not so terribly honest in its dealings with people in other circumstances and this attitude of righteousness and honesty in all its dealings does not apply.

I think it is fair to say that this section is compounding the difficulty of persons in the cases to which I referred in discussing the last section, people who are trying their best to keep a farm business intact. Up to now probably the only way they could do this, while paying off the death duties they owed as a result of the succession, was by reaching some agreement that they would pay the death duties over a period by means of instalments. From their point of view this is a much more natural way of paying because it can be budgetted for. It relates to income. Income does not come in all at once. It comes in over a period. If you are paying by instalment you are paying relatively painlessly.

Up to now the rate of interest on arrears paid by instalment was rather low and it was relatively easy for these people to keep their property intact while still paying off instalments of death duties. We are now increasing the rate to 9 per cent and we are making it increasingly difficult for people to avail of this way of keeping their farms intact. They now find that the burden is very heavy if they pay immediately and, if they try to keep the property intact by agreeing to pay the death duties by instalment, the burden is equally heavy because of the increase in the rate proposed in this section.

This is a very sensible amendment indeed. It recognises what the Minister has said, that up to now possibly the interest rate has been too low and people were able to avoid feeling the full burden of death duties, which those who paid immediately were feeling, by putting it on the long finger and paying by means of instalment. If we settled on an interest rate of 7 per cent we could get over that problem because 7 per cent is very near the rate of inflation over a period. If the rate were 7 per cent there would not really be any advantage in putting it on the long finger rather than paying immediately, if you can pay it immediately. Therefore I would appeal to the Minister to adopt the sensible compromise proposal put forward in the amendment. The Minister should not see this figure of 9 per cent as something cast-iron, something to which he must adhere or else lose face. This amendment meets the case made by the Minister without being an unduly harsh penalty.

On that last point made by Deputy Bruton I would remind him that the Government are borrowing money at rates which exceed 8 per cent.

That is the Government's fault.

I will not argue that at the moment but that is the fact of the situation.

We are dealing with people who are not in the same position as the Government.

Does that mean that the Government will make the unfortunate legatees pay for a situation brought about by inflation?

I am not aware, and I do not think that most people in this country would be aware, of the accuracy of describing legatees of farms worth £100,000 or £200,000— and this is what we have been hearing about—as unfortunate. I do not think they are unfortunate. They may have difficulty in paying their death duties but they are not unfortunate.

Does this apply only to £100,000 estates? Is that what the Minister is saying?

No, I did not say that, nor am I saying it. What I am saying is that the people we are talking about may have some difficulties in paying estate duties and meeting the interest rate, but they are far better off than most people and they can overcome their difficulties. The practical problem with which we are faced is to create a rate of interest which will not act as an inducement to people not to pay death duties. I do not think that can be achieved at a lower rate than 9 per cent.

The Minister is entirely wrong in quarreling with the description of legatees of farms as being unfortunate when they have to meet such a heavy burden of death duties as is being imposed on them. His approach seems to display a lack of appreciation of the difference between rural legatees and city legatees. If a city person gets a legacy in cash or in shares——

Or a business. Does not the same argument arise?

——generally speaking it is more likely to be in the nature of a windfall or something which he did not expect. He might have a profession or he might be working in some other business and get a legacy of some property which he did not expect to get. The pattern in rural Ireland is that practically all farms are inherited by people who have worked half their lives on the farm and who know nothing else except farming, people who have invested their own sweat in farming and who have been working alongside their fathers.

When they get possession of a farm they are not getting something which they did not expect. They are not getting any marvellous gift. Their standard of living does not rise in the least because they have inherited the farm. All that happens is that there is a transfer of ownership. They are not in any sense lucky people who have suddenly struck gold because their father died and they are now charged with the ownership of the farm. Their standard of living and their earning potential are no better than they were and, on top of this, they have to face the very heavy burden of death duties. The Minister has not properly answered the case made that many farmers who are running their farms properly and running an efficient enterprise may be forced to sell off portion of their farms to the extent that the farm ceases to be an economic unit.

Amendment put and declared lost.

I move amendment No. 23:

In page 18, line 15, to delete "four" and substitute "twelve".

I hope my reading of the section is correct. As proposed, the section provides that after the expiration of four months in relation to personalty interest would be charged on duty outstanding. It that the effect of subsection (1) (a) (ii)?

Yes. Interest arises on duty in respect of personalty after four months from the date of death.

This is a classic example of Dáil Éireann being asked to legislate in blinkers. The plain fact is that one could not get clearance from the Estate Duty Office for from six to 12 months. It is not the fault of the people in the Estate Duty Office. It is not because they are not doing their work. The fault is that there are not enough people employed in the Estate Duty Office and there is a vast accumulation of arrears. I am informed by solicitor after solicitor that they are nearly driven daft trying to get affidavits cleared and trying to get estates cleared for duty. To provide in those circumstances that, after four months delay from the date of death, interest at the rate of 9 per cent should be charged on the account of a person is, in my view, grossly unfair. I suggest that the Minister should be realistic and allow at least 12 months from the date of death. That may not be sufficient remembering the state of affairs in the office, but it would at least cater better for the existing situation. Four months is much too short; 12 months is, in my view, a realistic suggestion.

(Cavan): Might I ask the Minister if this applies to deaths that have taken place before the passing of this Act?

(Cavan): It applies only to death occurring after the passing of the Act?

The cases in which instalments are being paid are exempt.

In the case of people dying before the passing of the Act?

In the case of people dying before. Cases in which duty was payable and has not been paid, and no instalment arrangement has been made, will come under this section.

(Cavan): For the 9 per cent?

Yes, for the 9 per cent.

The Explanatory Memorandum says the new 9 per cent rate will not come into operation until the expiration of four months from the date of the passing of the Act.

That is right.

The first part deals with the instalment and then it goes on to say the new rate will not come into operation until four months after the date of the passing of the Act.

That is correct.

Irrespective of when the person dies.

If somebody dies just before the passing of the Act——

It will come into operation four months after?

They will get four months after.

(Cavan): Suppose a person died two or three years ago and there was no estate except a farm and the next-of-kin did not take out a grant, as very often happens, will he be charged 9 per cent now instead of 4 per cent?

In such cases they will become liable to 9 per cent.

Is that not grossly unfair?

(Cavan): This is retrospective legislation.

In such cases where duty is payable it would attract interest at 9 per cent.

(Cavan): Four months after the passing of the Act.

No, from the date of death.

Nine per cent from the date of death unless duty is paid four months after the passing of the Act.

That is correct.

So one could have four years' interest at 9 per cent.

That is grossly unfair.

It should apply only to deaths occurring after the passing of the Act.

If people are, as has been suggested here, two, three, or more, years in arrears of duty should we favour them as against others by continuing this built-in inducement whereby they do not have to pay the duty and, by waiting long enough and investing the money for the duty, they could almost make the actual cost of the duty over a period of years? We would be favouring these people very substantially as against subsequent cases if we were to do what the Deputy suggests.

What Deputy O'Higgins says is true. There is a protracted delay in getting out grants of administration. This, as he says, is not because of any failure on the part of the officials to do their work but because the office is completely overloaded. There are cases such as Deputy Fitzpatrick mentioned. It is estimated that no case will come out in 12 months, unless it is a very simple case, and in some cases there are delays of two years. Surely it is unfair to enact this kind of legislation without at the same time taking adequate steps to deal with the congestion that exists in the Estate Duty Office. While the section appears clear enough the Explanatory Memorandum would appear to indicate a different interpretation. I know that it is the section which will be effective and operative, but there is room for doubt.

Would the Minister consider it equitable that existing cases should pay the lower rate of interest up to the date of the passing of the Act, and then apply the four months from the passing of the Act, as the Minister proposes? That would seem to me to meet all the requirements. It would leave nobody any worse off: in other words, to keep the old rate of interest for reckoning up to the date of the passing of the Act.

The only people that would adversely affect would be the type of persons mentioned by Deputy Fitzpatrick. It is pretty common in rural Ireland for titles to be neglected for a great number of years because people do not need their titles for any particular purpose. But there comes a time when they need to put their titles in order and that may mean grants four, five or six years late. The necessity for the grant may arise five months after the passing of the Act and these people would all be caught for 9 per cent interest from the date of death. To that extent the suggestion would not meet all the difficulties.

Could I say that what has been suggested by Deputy de Valera is, in fact, what is proposed to happen under this Bill although I am afraid I did not make it clear when I was speaking. Let us suppose there is a case in which there are arrears for two years past, what would happen would be that interest at the rate of 4 per cent would be charged for the two year period and up to four months after the passing of the Bill and thereafter interest at 9 per cent.

That is not what the section says.

If the Minister looks at subsection (2)——

I think that is what is intended.

It says 9 per cent and no duty for the first four months.

(Cavan): The Minister is relying on subsection (2) (b) I take it?

There is no duty for four months after death at all; it does not apply. It is not a question of 4 per cent for four months; it is a question of nothing for four months as I read it.

No, that is in the case of death in which there are no arrears. Any case occurring after the passing of the Bill it would be a four months period of no interest and then 9 per cent.

Even the person in arrears should get the benefit of the four months at some point the same as the person whose death occurs currently?

He is getting it at 4 per cent.

For four months after the passing of the Bill.

One very important aspect of this which has not been adverted to is that this four months free of duty, or in the case of arrears four months at 4 per cent, is a new concession which is being introduced in this Bill. Heretofore the duty was payable on personalty immediately from the date of death. This four months is a new concession.

Is it not true that the person described who for one reason or another had no necessity to take out the grant of representation and did not do it, but who was not really somebody trying to avoid this, does not get the benefit of this four months free at all at any point if one follows the Minister's reasoning?

That is correct.

The Minister has adopted the attitude of real honesty and fair play throughout. If he carries that through he should apply it the way suggested here by Deputy O'Higgins because of the difficulty in the Estate Duty Office where people just cannot get the stuff through because of the inadequacy of staff.

If I were to accept Deputy Clinton's contention somebody who was in arrears for, say, two years would get four months free of interest but in another case which occurred at the same time and on which the duty was paid, say, one year after death, the people would have paid 4 per cent on that period; they would have got no four months free. Why should we favour people who left it even longer still? This four months is a new concession which arises from the date of the passing of the Bill. If we start making this concession retrospective, which is, in effect, what Deputy Clinton is suggesting, we will not be treating people equally.

The Minister objects to making the section retrospective and, in effect, he is saying that would not be right. Let us look at this broadly. All right the Minister is giving a concession. On the one hand he is imposing penal taxation but with the other hand he is doing it retrospectively. He is doing it in relation to estates that are left by people who died before the passing of the Bill. People who died three, four, five or six years ago and whose next-of-kin, whoever that may be, were presumed to know the law were well aware of the fact that at any stage in which they decided to take out letters of administration to the estate their liability would be limited to 4 per cent. The Minister now, in effect, says: "No, from this sum you are going to be liable to arrears at 9 per cent." That is going to affect them at a time when, under the law, they could be only charged 4 per cent. That is retrospective legislation and we have always condemned it in this House. Indeed, in an earlier section in relation to income tax the Minister made a point of emphasising that the change in the income tax law would only apply after his Budget Statement. Why should we tax people by doubling the rate of interest in respect of a period when under the law they were entitled to expect arrears only at 4 per cent? If the Minister wants this change in the law he should do it fairly and honestly by providing that this section shall only operate in relation to deaths occurring after the passing of the Bill. If he does it in that way, the concession of four months will disappear. I am perfectly prepared to say, advocating the point of view which I am advocating, that I cannot have it both ways. The four months free will disappear but at least people, who up till now have, perhaps, been dilatory because they knew the law and knew that it could only cost them 4 per cent, will only have to pay what the law said they ought to pay. If the Minister wishes to proceed to charge 9 per cent and give a four months period of grace let him do it after the passing of this Bill. It seems to me the clean and straight way of doing it otherwise the Minister is trying to suggest that he is doing something wonderful for the poor people who take out a grant after five or six years by telling them that had they taken it out in time they would have got four months grace but since the four months have gone they will have to pay at 9 per cent for four or five years back.

The injustice is further compounded by the fact that very often in some of these old debts the rate of the incidence of duty commenced at £500 and it was possible consequently to have duty on an estate of £1,000 for ten or 12 years back attracting interest at 9 per cent over all that time.

Deputy O'Higgins is mistaken when he refers to this as retrospective in so far as it relates to arrears cases because what we are proposing to do is to apply this only to current arrears. In those cases from the passing of the Bill there will be a four month period during which people could pay the duty and still pay interest at only 4 per cent.

I appreciate what the Minister has in mind but that is not what is being done by this section.

I thought we were ad idem on what was being done. If that is what the argument is about we can deal with that in a moment. May I take it if that were being done this would satisfy Deputy O'Higgins?

I would not be satisfied. In my view it is wrong to apply it to deaths before the passing of the Bill.

I want to suggest that the description of this as being retrospective would be true only if we were providing that we could go back and reopen old cases and charge the new rate of duty on duty already paid but that is not what we are providing at all. We are providing that for a rate of interest on duty which is in arrears and unless we make the duty on those arrears the same as the duty that we propose to charge on new cases we are doing an injustice to new cases and favouring especially those cases which are in arrears, but we are giving a period of four months from the passing of the Bill during which the money may be paid and if it is paid on the last day they will still only be charged at 4 per cent. It seems to me that this is the only fair and equitable way one can deal with this problem.

I should like to deal with the point raised earlier by Deputy O'Higgins and Deputy Cosgrave about delays in the office. I would point out that, in fact, where the cases are delayed in the office interest ceases to run. I have here the terms of the directive or rule on which interest is charged at the moment and this would continue to operate. It has operated since 1919 and is, I am informed, strictly adhered to in practice. Perhaps I may read it out.

Is it covered by legislation?

It is not covered by legislation. This is an office ruling by the Revenue Commissioners?

Yes, which has operated since 1919.

It is contrary to what we are providing for in this section.

What it provides is this:

The period from which interest is to be calculated is to commence from the day after the death or the day after the termination of the day on which the duty becomes payable. The period is to end on the day on which the account or affidavit is delivered and the day on which the account or affidavit is delivered is to be the day on which it reaches this office. This rule applies even though the account may require to be returned for further information or for amendment so long as the alterations in it do not involve payment of a substantial amount of duty above what was involved in the first instance and there is no unreasonable delay in completing the account and returning it.

The rule also applies in similar circumstances to an account which is in the hands of the Valuation Office. In no case must interest be charged for a period during which the account is working in the office or is in the hands of the Valuation Office even where there has been a substantial increase in duty or unreasonable delay on the part of the parties.

So that, if there is delay—and I do not want to involve myself in an argument on that—of the kind referred to by Deputies, it will not operate to the detriment of the person in the sense of interest accruing while the delay is going on.

I accept what the Minister says being a rule of thumb or a rule of practice or a concession but, the Minister will understand, it is not the law of the land and we have to be concerned here that—it may be the improbable set of circumstances; it may be the extreme set of circumstances— there is in no part of our finance legislation any provision which would justify or give any basis to the convention and the rule of practice which the Minister has read out. Under this law incorporated in what we are proposing here, until the discharge of the duty, interest may be charged if it is outside the four-month period back to the date of death.

I do not think it is right that we should be invited to pass what may be draconian legislation on the assurance that it is really not going to be enforced. That, in fact, is one of the troubles in much of our finance legislation that too much discretion and too much power are, in fact, being given to bureaucracy and to those who cannot be made amenable here. It is for that reason extremely important that every single sentence and word necessary to protect the citizen should be written down in our legislation and I must say I react against this suggestion that it is all right, that we should pass this section; if there is any difficulty the office will see that things will be done all right. That just does not make sense, in my respectful submission, in a legislative assembly.

The Minister in what he read out said that part of this ruling is that even if the affidavit has to be sent back for verification and amendment this will not incur an increase in duty unless there is a substantial increase in the amount of duty payable as a result. Who decides what is substantial? Again, apparently, the decision is to be left to the discretion of somebody, somewhere, in some office. What may be substantial in one case may be regarded as not substantial in another. But we should not leave the whole question of what is now a penal rate of interest to be decided purely at the discretion of nameless officials, people who are carrying out their duty in this important Department of State who are not amenable or responsible to this House.

I am going to make this suggestion deliberately and I suggest that the Minister consider this between now and Report Stage—if we want to deal effectively with the problem created by the delay in the Estate Duty Office, let us put that into legislation, that interest on arrears shall cease to operate on the date that the affidavit and account are presented to the appropriate Estate Duty Office. Let us put that in our legislation. Do not let us have a situation in which it must depend on the whim or fancy of the people who are dealing with the account.

(Cavan): This section proposes to increase the rate of duty payable on estate duty from 4 per cent to 9 per cent. That will apply in all cases where the death occurs after the passing of this Bill but it will not come into operation for four months after the death. That is clear enough. But in the case where death has occurred before the passing of the Bill then, provided that the duty is paid within four months after the passing of the Act, it will be payable at the old rate of 4 per cent. I think that is clear.

I say that this amendment which we are dealing with now and which proposes to extend that period of four months to 12 months is a very reasonable amendment because a number of things have to happen: this Bill has to be passed and when it is passed the people of the country have to get to know about it. We are going to pass it now, presumably, in the dying days of July, in a holiday period, when solicitors' offices are working understaffed, when people will be going on holidays and maybe when instructions come in in the absence of a principal in small offices nothing will be done until the principal comes back. Then there will be a rush of work for a month or two after he comes back and it will be utterly impossible to get instructions, to get the necessary information, to file an affidavit and to have all that done within four months, especially when you allow the people time to realise what is involved and to realise how they will be affected.

Therefore, I say that in those circumstances and in order to give the people time to get to know about this and, indeed, in order to give professional people time to let it sink in and to get to know about it and to allow them to advise their clients, 12 months is very reasonable.

Arising out of what the Minister said—that due to some rule that is prevailing in the office, where there are delays in the office time stops running for the purpose of duty—that may be so but when time starts to run again and when it is outside the four months you may not pay duty for the six months delay in the office but when you do start paying duty you will pay it at 9 per cent. That is the important thing under this Bill as it stands, because, although there may be a rule in the office at the present time suspending duty while the Estate Duty Office are getting around to deal with the backlog of work that is there, I put it to the Minister that if this Bill passes as it is now, he and his officials will be bound by statute to charge duty at the rate of 9 per cent after the expiration of four months. They may be able to say: "You will pay no duty at all for the time we could not get around to dealing with this" but when duty does come into operation, it will come into operation retrospectively, back to the date of death, if more than four months have elapsed from the passing of this Act. I am convinced that that is the case.

I do not quite follow the Deputy's last point.

(Cavan): I was dealing with the statement in which the Minister said that interest will not be payable during delay and the Minister read out some rule in the office——

May I interrupt for the moment? The Deputy is talking about a case occurring after the passing of the Act?

In any such case, in which interest becomes payable, it will be at the rate of 9 per cent.

(Cavan): I am dealing with the pre-Act situation—with the situation in which the death happened before the passing of the Act. If a man died three years ago—and this could be the hard luck case—if he left money in the bank or left investments, a grant will be taken out, but if he was in poor circumstances, or at least if all his assets consisted of a farm of land which attracted duty, a grant may not be taken out because there is no necessity to do so. In that case, of a man dying two years before the passing of the Act—supposing a schedule is lodged in the Estate Duty Office within three months of the passing of the Act and the Estate Duty Office people cannot get round to dealing with it for another six months, that is nine months—it is three months out of date. The Estate Duty Office will very kindly charge no duty at all from the date on which the schedule was lodged there until the date they assess it several months after. That period will be free of duty, I agree with what the Minister says, in pursuance of this rule, but when duty does become payable, it will become payable at 9 per cent under this Act, notwithstanding that the delay in the office was not the fault of the applicant. Does the Minister get the point I am making?

I think I do.

(Cavan): I do not mind whether he agrees or not, but does he get the point?

With the one distinction, if I may, that the schedule was lodged at a date later than four months after the passing of the Act.

There is another aspect. As I understand, the Minister's regulation, or internal regulation as a matter of procedure, if it is of universal application, it to some extent lessens the criticism that applies here, but there is another aspect of this that has been brought to my notice. It is that in Britain the revenue authorities publish at regular intervals—I do not know whether it is annually but it is certainly at regular intervals—a code of practice or set of precedence that applies similar to the rule, and of course dealing with many other matters governing the application of revenue legislation. Here, I understand, there is no similar publication or a set of precedents and while a number of precedents of one kind or another are operated and known by practitioners, accountants and others, to exist and are regularly applied in a variety of cases, there is no set issue of either precedents or regulations which any particular applicant or his adviser, or advisers, as the case may be, can apply for and have available to him. I think that is an aspect of the matter that might be considered. As it is at the moment, there are only the statutes and the index to the statutes, and whatever authorities are dealing with it have to search the Acts and the decided cases and in a great many cases refer to English precedents, but in the British revenue an arrangement operates whereby a set of precedents or a code of rules or practices which apply is published at regular intervals.

I understood the Minister to say early in the discussion of this subsection that the interest-free period in relation to real property was 12 months. The explanatory memorandum sets out that it also provides an interest-free period of four months from the date of death for estate duty on personal property, and it appears therefore, reading the explanatory memorandum, that this period of four months should apply only to personal property. There is no reference in subsection (2) (a) of this section to personal property specifically as distinct from real property, nor is there any reference in apparent distinction in the Principal Act. The Principal Act is the Finance Act of 1896, section 18 (1) of which sets out that simple interest at the rate of 3 per cent per annum without deduction of income tax shall be payable on all estate duty from the date of death of deceased or where the duty is payable by instalments or becomes due at any date later than six months after the death from the date on which the first instalment of duty becomes due. There is no reference there to personal as distinct from real property. Could the Minister explain how the distinction apparently adverted to in the explanatory memorandum arises?

I think I see the Deputy with some statutes—has he the 1894 Act?

Section 6 (8) of the 1894 Act deals with the point he has been making. In the meantime, while he is having a look at it, perhaps I might deal with some of the other points mentioned. In regard to the point raised by Deputy Cosgrave, I understand that what is published in Britain is what is known as "Extra-Statutory Concessions" as distinct from the kind of thing I have mentioned, which is not a concession and not so regarded, but is merely doing justice to the taxpayer.

Deputy O'Higgins made a point about that. He felt that if this was to be done, it should be incorporated in the law. I will have a look at that, but I must say that if it is to be done, it will not be just a simple statement to the effect that interest ceases to be payable on lodgment of an affidavit or a schedule of assets. I think some of the Deputies opposite who are practising law will appreciate why it cannot be that simple. I would, however, point out that if one wants to stand on the law, or the proposed law as set out in this Bill, the answer to the problems raised is simply to pay to the Revenue Commissioners, on or before the expiration of four months, in the case of personal property, a sum of money which one estimates to be the amount of the liability for duty.

What interest will he get on an overpayment?

I am coming to that— or the same kind of money to be paid in the case of real property before the expiration of 12 months and no interest will accrue. There is provision for repayment with interest.

Section 8, subsection (12) of the 1894 Act provides that where estate duty is repayable because it is found that the commissioners have over-valued property, interest on the amount refundable shall be refunded by the commissioners——

At what rate?

——at 3 per cent. Section 10, subsection (3) of the 1894 Act provides that if a court finds on appeal that too much duty has been paid, it can order interest at 3 per cent to be paid on the amount refundable. In both of these cases 9 per cent is being substituted for 3 per cent in subsection (3), so that we are trying to do justice in this regard although some of the Deputies opposite seem to think otherwise. I would say also that the context in which I have referred to this rule that is operated by the Revenue Commissioners was because it was said that delays in the Estate Duty Office would operate to the detriment of the taxpayer and that with the interest rate being increased the person concerned would not be able to control the imposition. However, I think Deputies should be satisfied that either on the basis of the rule that has operated since 1919 or on the basis strictly within the terms of the Bill as I have outlined, a person who is involved in the payment of death duties can, in fact, avoid interest.

Might I comment on the Minister's suggestion that the person accounting can pay the duty in advance? That is not realistic. The Minister is equating this with the procedure in the early part of the section when we were dealing with a different type of tax, namely, income tax. This suggestion is not realistic because the funds with which to pay in advance would have to be borrowed by reason of the fact that the funds in the estate are locked up pending probate and, consequently, the person accountable would have to get bridging finance at the current rate of commercial interest. Therefore, it is no offer to say that the duty can be paid in advance.

With regard to the Revenue Commissioners repaying, I would direct the Minister's attention to section 8, subsection (12) of the 1894 Act which says that if too much has been paid, the excess will only carry interest if too much has been paid as a result of an over-valuation by the commissioners but that if the person accounting decides, for some mad reason, to arrange bridging finance and pays too much, he will not get any interest on the excess when it is being repaid to him.

The Minister said it would be unfair to have the date of death as the critical date in relation to these changes in interest in the sense that the estates of persons dying before the passing of this measure would be in a more advantageous category than the estates of those dying subsequently in a situation in which the executor would deliberately slow up the proceedings and that in a situation in which, in the case of the earlier death, interest on the duty would be at only 4 per cent while estates which are attended to expeditiously, and in that way benefit the Exchequer, may have to pay 9 per cent if the administration continues for longer than four months, as it will invariably. I would suggest to the Minister that it is unrealistic to say that people delay deliberately for the purpose of making money on an estate. As I have said already the estate is not available to the executor to invest at rates that are commercially advantageous. At the time of the death of the owner it may be the case that the money is invested in something that is valuable commercially but I would point out to the Minister that if it is producing an income, that income is liable to income tax and if the rate of income tax is added to the old rate of 4 per cent it is not profitable for an executor to delay the administration of the estate. Therefore, the Minister's argument does not hold. I could see reason for it when he advanced it in relation to delay in the payment of income tax where a person was abusing the appellant procedure but it does not follow in regard to the death duty section.

Again, in relation to the question of hardship to which I referred already, what should be the critical date is relevant in the case of deaths which occurred quite a considerable time ago, prior to 1961, when the threshold for duty was only £500. I think I am correct in saying that if a person died in 1950 and had an estate worth £2,000 such estate would attract duty because it was within the duty level existing at the date of death. If the duty is not paid within a period of four months after the passing of this Act, duty on that small estate for the previous ten or 12 years will have interest payable on it at 9 per cent. Surely, this is a hardship and the Minister cannot say in such a case that there was a sophisticated fiddle to try and use the estate to make money.

Is the Deputy saying that it would become liable to interest at 9 per cent for a period of ten or 12 years?

Yes, on my reading of subsection (2) which says that interest accruing due shall:

in any other case,

that is in a case other than instalments,

continue, for a period of four months after such passing, to be payable at the rate of 4 per cent per annum.

In other words it is only for four months that it is payable at the rate of 4 per cent.

(Cavan): That is the point I was making.

Then, the Act is ambiguous. Does it mean 4 per cent from the date of death up to four months from the passing of the Act and thereafter at 9 per cent?

(Cavan): That would want to be made clear.

I would suggest respectfully that is not the way the section is drafted.

If the Deputy considers the commas, it may be clearer. Leave out the qualifying clause for the moment. It shall continue to be paid at the rate of 4 per cent and then the qualifying clause,

for a period of four months after such passing

is qualifying or extending "continue". However, I shall have a look at the wording to see whether it can be made clearer but, at any rate, that is what is intended.

Even if that is the intention and the liability for the 9 per cent arises only at the expiration of four months, nevertheless, in the particular hypothetical case I am dealing with, the application for an assessment and grant of representation might not be made for a period of two or three years subsequent to the passing of this Act. Consequently, there would be 4 per cent interest on this small estate up to a date four months after the passing of the Act and from that date to whatever date on which the assessment is made, it would be 9 per cent. This would be a grave hardship. It has an element of retrospective punishment about it because small estates have been taken out of the net altogether; and, fortuitously, if the person died at the right date, so to speak, there would not be any duty or interest to be paid, whereas if he died at the wrong date the estate could be liable to a heavy rate of interest. The estate that would be so liable would be one which it was not intended to catch and one that would be least able to bear it. All these arguments strengthen the case for having the critical date as the date of death. The amount of fiddling that can be done is, I think, minimal and certainly does not justify the hardship that will be caused. I am speaking from experience and any Deputy who practices in rural Ireland will know that many years can elapse before people come in to seek grants of representation.

With reference to Deputy Cosgrave's point, my experience of Revenue is that the Department is much more faceless here than it is in England. That may not be the fault of the personnel of this Department but those of us who are in public life come across cases of representatives who could not be deemed by any stretch of the imagination to be familiar even with common law never mind the Revenue laws. Such a person finds it very hard to get the necessary information regarding concessions of one kind or another. I am not saving that the commissioners or the personnel of this Department want to hide anything but I do say deliberately that I think it is a faceless Department and that the administration is not facing up to the facts of life in the same way as the comparable Department in Britain is. I agree that the laws under the various Finance Acts are very difficult but they are made much more difficult by the fact that people find it so very hard to get information even regarding concessions.

I am not too clear, in dealing with section 31, as to what the Minister deems to be personal as opposed to real estate. I may be wrong but I would take it that what he means by personal estate is the amount of liquid cash a person has either in a bank or in some liquid form. I would take it also that the real property would consist of stocks, shares, chattels, lands or buildings. I should like to be clear as to what is personal as opposed to real property.

(Cavan): Would the Minister like to comment on my remarks on the holiday period and people getting time to familiarise themselves with the new law and that in those circumstances four months is not reasonable?

No. I would again remind the House that this is a new concession. Heretofore and to this very day there has been no concession at all in relation to personal property. Duty is payable and interest arises on duty from the first day duty becomes payable and there is no concession. When we are giving a concession of four months while a case can be made as was made by Deputy Fitzpatrick for extending it there are quite a number of reasons, including Revenue ones, that is, from the point of view of receipt of money by Revenue, why I cannot agree to this being extended. I would remind the House that it is a new concession.

On the question raised by Deputy Carter as to what is personalty and what is realty I cannot here purport to give a definitive or an exhaustive definition of it but I think, roughly speaking, I could say that anything that is not real property is personal property and that real property substantially consists of land or house property held in fee simple. This is not exhaustive but very substantially I think that is the difference.

(Cavan): Would the Minister like to say something to clarify the point raised very clearly by Deputy Cooney and which I was making, too, that is, that it is open under the Bill, as now drafted, to argue that if death occurs before the Act and that duty is not paid or a schedule not lodged until six months after the passing of the Act that then duty will be payable at 9 per cent from the date of death. That is open to argument I think on the section as it stands.

I did say in regard to that that I do not think on a strict interpretation of it it is open to that but I have indicated what the intention is and that I will have it looked at to see if any doubt that exists can be removed.

I should like to return to the point I was making earlier but before I do so I think we should accept that this is a new concession and that up to now there was no interest free period in respect of personal property. However, given that we are giving a concession, surely we should apply the same standard in relation to personal property as we are applying in relation to real property. In other words, if you are to give an interest free period surely the logical and sensible thing would be to give the same interest free period, namely 12 months, in relation to personal property as is given in relation to real property?

The concession in relation to real property is primarily designed to assist farmers.

Yes. The Minister in dealing earlier with his grounds for stating that real property was affected by this 12 month interest free period referred me to subsection (8) of section 6 of the Finance Act, 1894. I do not claim to be very good at reading the small print of any Act particularly where there is so much going on around me but as far as I can see that subsection refers solely to the case where the estate duty on that real property is being repaid by means of instalments and that in that case the first instalment would not be due to be paid until 12 months after the death and interest would not start to be payable until the first instalment had been paid. Therefore, it can be claimed that there is a 12 month interest free period in relation to real property in this situation. How do we arrive at the situation that there is a 12 month interest free period in respect of real property the estate duty for which is not being paid by means of instalment? Suppose it is proposed to pay the estate duty on real property by means of a lump sum, say, 15 months after the death. What is the statutory authority for stating that in that case those arrears will be interest free for the first 12 months?

I should like to put another issue to the Minister. Often-times as far as our Estate Duty Office is concerned the reason for the delay in lodging an affidavit is that there is British, Scottish and Irish estate and sometimes processing of that through the British Estate Duty Office may take some time as the Minister is no doubt aware. The procedure is to lodge the affidavit, first of all, in London, to have the duty assessed there and then to lodge the affidavit in Dublin. Will a concession be available to a person who suffers delay at the hands of the British Estate Duty Office or could he find himself paying an interest rate of 9 per cent here in respect of delay which is beyond his control?

In the British Estate Duty Office?

Yes. The processing of the schedule for the British or Scottish Estate Duty Office might take considerable time and hold up the lodging of the affidavit in Dublin.

We do not and cannot allow any concession to that.

Can the Minister see that such would be a delay beyond the control of an Irish executor and, nevertheless, could be a very real one? Surely it would be a simple matter to obtain verification of the date of lodgment of the estate duty affidavit in Britain. If allowance is given here under our international agreement to estate duty paid in Britain so as to avoid double taxation, surely this concession should extend to estate duty?

In the case where the delay in the British office is, say, three months or something like that he is not prejudiced here because he is allowed the duty assessed as payable in the British Office as a deduction here and it will not affect his liability here but suppose there is a long delay in the British Office which runs out the period, the only answer I can suggest is that he should lodge his affidavit here first.

I suggest that is not the usual practice. The practice is to get the affidavit passed in Britain so that you do not have a situation where you have conflicts between the return of an estate here or in Britain or in any other part of the world. It is much tidier to get any of the foreign assets assessed and duty paid on them before presentation of the affidavit here. The Minister now suggests that lodgments should be made and duty paid in Ireland. How then is the avoidance of double taxation to be implemented, an avoidance which the State here by international treaty is recognising as being legitimate and just?

As I indicated earlier, if it emerges that an overpayment of duty has been made because of an over-valuation or assessment by the commissioners there is provision for repayment with interest at 9 per cent. I do not know if that is any consolation to the Deputy.

It is not. I think Deputy Bruton had a point.

I am anxious to establish exactly to what this section applies. It appeared from the reply given to me by the Minister and from my reading of subsection (8), section 6 of the Finance Act, 1894 that this four months interest free period may apply to estate duty on real property other than that which has been paid by means of an arrangement of instalments.

Perhaps, the Minister would recommit the section on Report Stage because of the considerable amount of doubt about what exactly it means?

I shall have a look at it between this and Report Stage. I do not wish to hold up the House to produce the exact authority for the point. The point raised by Deputy Bruton is, I think, a valid point.

Amendment, by leave, withdrawn.
Amendment No. 24 not moved.

Amendment No. 24 relates to the position in regard to timber and estate duty which becomes due as the timber is sold off. I do not know anything about the timber business but I wonder if the peculiarities of this business are such that this interest rate on arrears which arises in relation to profits from timber may be harsh or easy. I think when we have segregated the timber business in regard to this matter we should bear in mind, in deciding what the appropriate interest rate is, whether or not the timber business is such that this money can be easily recouped for the payment of duty immediately on the timber being sold. I do not know: there may be no reason for any distinction there.

I think we have disposed of this already.

Amendment No. 24 has been discussed with No. 22.

I was not aware of that.

Amendments Nos. 25, 26 and 27 not moved.
Question proposed: "That section 31 stand part of the Bill."

Yes, on the Minister agreeing to look at it again. We have discussed interest rates and so on. I think the Minister might consider whether the reference to 6 per cent of market value of land or chattels in section 21 (5) of the Finance Act, 1965 should not also be altered to 9 per cent?

I shall consider that.

Question put and agreed to.
SECTION 32.
Question proposed: "That section 32 stand part of the Bill."

Would the Minister explain the section? It puzzles me.

Yes, it is rather complicated. Under section 8 (3) of the 1894 Act the liability of an executor for estate duty on the personal property of which the deceased was competent to dispose is restricted to the amount of assets he has received as executor. The property which comes into the hands of the executor as executor does not comprise as wide a range of property as that which actually vests in him on the death of the deceased. For example free foreign personalty or Irish realty, including freehold registered lands of which he is competent to dispose, do not vest in the executor qua executor. If, therefore, a person domiciled here makes a revocable settlement of personal property and appoints a foreign trustee, there is no way of recovering the duty on such property except by an action against the Irish executor. If the Irish personalty which comes into the hands of the executor is trifling in value, the duty on the settled property is, in effect, lost even though the deceased might have died possessed of considerable Irish land and foreign personal estate.

We have come across some cases of this kind. Section 8 (4) of the Finance Act, 1894, which makes trustees, beneficiaries and any other persons in whom the property is at any time vested, accountable for estate duty, applies only where the executor is not accountable. This means that where the executor is accountable no other person is accountable. As I have indicated cases can arise in which although the executor is accountable the amount of property coming into his hands as executor is not sufficient by any means to pay the duty. The deletion from section 8 (4) of the Finance Act, 1894, of the words "and his executor is not accountable for the Estate Duty in respect of such property" will have the effect that in addition to the executor, the trustees, beneficiaries and surviving joint tenants et cetera will all be accountable for estate duty in respect of property of which the deceased was competent to dispose.

I thank the Minister for his explanation. Would the Minister indicate that in circumstances where, by reason of this amendment, there is an addition to the persons who may be accountable of the trustee or beneficiary, is the accountability limited to the extent of the property coming into hands and, if so, where?

It is limited.

Is the limitation in the parent Act?

I think it is in section 8 (4) of the 1894 Act.

Is it of general application?

I am speaking now not ex cathedra but I think it is a general principle of liability for estate duty by trustees, beneficiaries and so on.

That is so. However, I was merely concerned with this new accountability provided by this amendment. Is it possible to rely on the limitation in relation to assets coming into hands which existed before this proposed extension of the number of people accountable?

Section 8 (4) of the Finance Act, 1894 reads as follows:

Where property passes on the death of the deceased, and his executor is not accountable for the Estate duty in respect of such property, every person to whom any property so passes for any beneficial interest in possession, and also, to the extent of the property actually received or disposed of by him, every trustee, guardian, committee, or other person in whom any interest in the property so passing or the management thereof is at any time vested, and every person in whom the same is vested in possession by alienation or other derivative title shall be accountable for the Estate duty on the property.

Does that cover the point raised by the Deputy?

Yes. The second point on the section is just a desire to comment on the fact that in these circumstances subsection (2) appears to be in the best traditions of this kind of legislation because it applies only in cases of people dying after the passing of this Bill. That might be borne in mind by the Minister when he is considering section 31.

This is not a revenue-raising section.

I do not wish to go back to section 31 but the view I take is that what is proposed in that section is the only equitable solution, leaving aside any question of revenue.

I do not quite follow the explanation given by the Minister and perhaps he would clarify a point for me. The words being removed are negative words, in that the executor is not accountable. Has the position since 1894 changed in that property which might have been caught by section 8 (4) of the 1894 Act in the hands of a person other than the executor will now pass into the hands of the executor?

Then, why is there any need to remove negative words? The section states: "When property passes on the death of the deceased, and his executor is not accountable for the Estate duty in respect of such property"; the section further states that the people who receive it are accountable. Why is there any need to remove it unless a type of property has since come into existence for which the executor would be accountable now but was not accountable at that time?

Section 8 (4) of the 1894 Act reads:

Where property passes on the death of the deceased, and his executor is not accountable for the Estate duty in respect of such property, every person to whom any property so passes...

It would now read:

Where property passes on the death of the deceased, every person to whom any property so passes for any beneficial interest ... shall be liable.

In practice, what is the difference between the section as amended and unamended?

Unamended, it says that where the executor is liable, no one else is liable. That is as the law stands at the moment. What we want to provide is that anybody to whom the property passes is liable.

And to the extent it passes.

Is that not as it reads at the moment?

Where property passes on the death of the deceased, as the executor is not accountable, that person is liable.

As I have explained, in cases where the executor is liable, he is liable only to the extent of the property coming into his hands as executor. We have cases in which the amount of the property coming into his hands as executor is not sufficient to pay the duty which properly arises on the property passing on death. However, the person who is accountable may be a foreign trustee who cannot be made liable and, in fact, this kind of situation has been engineered deliberately in order to avoid duty.

How will this amendment make the executor liable?

It would not make the executor liable but it would make anyone to whom the property passes liable.

Is he not already liable under the section, as drafted?

No, because the executor is liable and, therefore, no one else is liable.

The section states "his executor is not accountable" and it mentions "every other person".

Where the executor is accountable no one else is accountable.

Can the Minister state if it excludes executors from now on?

It brings in the other two categories with the executor?

All such persons now become liable to account for the duty to the extent that the property comes into their hands, whereas at the moment only the executor is liable to the extent of the property coming into his hands as executor. If he is liable, no one else is liable. I do not know if this is clear?

That is fair enough.

Question put and agreed to.
SECTION 33.
Question proposed: "That section 33 stand part of the Bill."

I wonder could the Minister explain to me what would happen now if an item of artistic national, scientific or historical interest was sold to some foreign art buyer within six years of the death? What is the procedure at the moment? Why is this section necessary? Is it not already provided that such a sale would be caught?

I think the essential point in this is that, in the event of the sale of such an object, the proceeds of sale become liable to duty but the duty is at the rate applicable to the rest of the estate, in other words, ignoring the value of this particular object of art. Perhaps if I give an example——

The proceeds might normally bring the overall rate on the estate up to a higher level?

It could, in fact, be manoeuvred in such a way as to pay a very much lower rate of duty than would normally be payable.

This is a very minor point but there is a reference here to a similar national institution, an institution similar to the National Gallery or the National Museum of Science and Art. Has there been any difficulty in deciding what is a similar institution? This seems to leave a certain amount of discretion in deciding what is similar and what is dissimilar.

This point has not arisen.

It is apparently in the discretion of the estate duty Commissioners to decide whether a particular institution to which the object of art is sold is similar or dissimilar. They have complete discretion and they are not bound by any statute in regard to the decision.

It is the Minister, I think, who decides it in fact.

Subsection (3) section 28 of the 1931 Act.

Subsection (3) provides:

In the event of a sale of any objects to which this section applies, death duties shall not become chargeable if the sale is to the National Gallery of Ireland, the National Museum of Science and Art, or any other similar national institution, any university, county council or municipal corporation in Saorstát Éireann, or the Friends of the National Collections of Ireland.

Subsection (4) provides:

This section applies to the follow-in objects, that is to say—

— and it lists them—

— or other things not yielding income as on a claim being made to the Minister for Finance under this section, appear to him to be of national, scientific, historic or artistic interest.

The objects within the limits laid down in the subsection are within the discretion of the Minister for Finance but the bodies concerned are specified in subsection (3).

They are not all specified. There is provision that there could be other similar national institutions to which the object could be given. What worries me a little is that the designation of a similar national institution appears to be left at the discretion of some body. A situation could possibly arise where inconsistent decisions could be taken if there is this discretion.

Provision had to be made to cover bodies which might not have existed at the time of the passing of the Act. In the event of any dispute on a matter like this, it would be a matter for the courts to decide as to whether the particular body came within the definition of that subsection.

Might I suggest to the Minister that the period of six years provided is too long and that there could be genuine changes in family circumstances which would necessitate a sale over a period of six years? If this were to be used as an avoidance vehicle a shorter period would catch any person who wanted to use that clause — say a period of three years. One could penalise a family who for genuine bona fide reasons had to sell. Three years would be adequate.

In the case of a genuine sale which the Deputy visualises, the proper rate of duty becomes payable and, the transaction being a genuine one, I do not think the people concerned would object, but the case where it is being used as an avoidance measure is the one we want to get at. I am rather afraid that on some of the information we have about some cases of this kind, although six years may seem a long time, to make it much shorter might still make it worth people's while to indulge in this manoeuvre in order to avoid the duty. In the case raised by the Deputy, the genuine case, I do not think any hardship arises because in such cases people will pay the correct rate of duty. They are not trying to avoid it.

Will they not have had exemption at the time of the passing of the Schedule?

They will have.

A sale within six years will remove that exemption.

That is true but in that case they will get the proceeds of sale and, assuming that they are not trying to avoid payment of duty on the proceeds of the sale, this will not be something to which they will object.

If they were selling for a genuine, personal, domestic reason, or possibly family financial reasons, they might object very much.

I do not think they should because they already have the exemption.

Who advises the Minister in making a decision on whether a particular object is of national or scientific interest?

(Cavan): The former Minister for Finance.

It must be difficult for him at times to make this decision.

In any such case the Minister would take advice depending on the object. This would determine the body from whom he would take advice.

Does the Minister have to take such advice often?

I have not had to take it yet.

Question put and agreed to.
SECTION 34.

Amendment No. 29 is related to amendment No. 28 and, perhaps, they could be taken together.

I move amendment No. 28:

In page 19, line 37, after the word "property" to insert "other than an interest for life".

This matter may appear somewhat technical but it is of significance and concern to a number of people. Section 34 seeks to amend section 28 of the Finance Act, 1961. Section 28 of that Act was a relief measure which was brought in at that time to neutralise the effect of a decision given by the courts in the Revenue Commissioners and Donoghue, where a farm had been given by the deceased to his son more than three years prior to his death and it was held to be dutiable under section 2 of the Finance Act, 1894, by reason of a covenant in the deed of gift securing the deceased's right to continue to reside on the farm during the remainder of his lifetime. It was because of the retention of that right to reside on the farm during his lifetime that it was held in Donoghue's case that, although the three years had passed, the entire farm was dutiable and passed on the donor's death. Accordingly, in 1961 section 28 was passed which provided in subsection (1):

Property taken under a gift, whether by way of settlement or otherwise, made by any person dying after the passing of this Act shall not be included in the property deemed to pass on his death under the provisions of paragraph (c) or paragraph (e) of subsection (1) of section 2 of the Finance Act, 1894, by reason only of the fact that an interest in the property for life or any other period determinable by reference to death was reserved to the donor or that bona fide possession and enjoyment of the property had not been assumed by the donee immediately on the gift and thence-forward retained to the entire exclusion of the donor or of any benefit to him by contract or otherwise.

The section goes on to provide, in effect, that all that shall be deemed to pass at a death is the slice, or the valuation of the interest reserved. That was introduced in 1961. It was introduced to ensure that when a father, settling his farm on his son, reserving the right of residence and continuing to live there for a number of years after his retirement from farming, died all that would be dutiable would be the value of his life interest. It is proposed now that section 28 be amended. This, of course, is a tax avoidance section because section 28 of the 1961 Act was used for various purposes; I will not say anything about that. It is probably felt that some amendment of section 28 is desirable and opportune, but it is the wording of this amendment that troubles me:

Provided that this subsection shall not apply in any case where at the time of the making of the gift there was reserved to the donor or at any time thereafter there was granted or demised to him an interest in the property for a period other than a period determinable by reference to death ...

That is perfectly all right. That means that in that particular case subsection (1) will apply only if what is reserved or given to the donor is a life interest or an interest determinable on his death. In other words, any other interest which the donor reserves or which is granted to him would not come within section 28 (1) but a life interest or an interest determinable on death would. I have no objection to that. But the proviso goes on to say:

... or he became entitled to or acquired any interest in or benefit from the property or any right or privilege over or in relation to the property, and he had not divested himself of any such interest, benefit, right or privilege more than five years before his death.

What does that mean? Up to the word "or" it appears perfectly clear that all interest reserved and created determinable on death would continue to be within the protection given by section 21 (8) of the 1961 Act. It seems to me that what is proposed after the word "or" entirely destroys section 28. The Revenue Commissioners could under this proposal now take the very facts of the Revenue Commissioners and Donoghue, the very case which gave rise to the enactment of section 28 and they could deal with that in this way: the donor in Donoghue's case became entitled to or acquired an interest in the land, to wit a life interest, and he has not divested himself of that interest more than five years before the death; what appears after “or” appears so wide as to cover a life interest or an interest determinable on death. If we pass this proviso in this sense, then the words after “or” could be used to make dutiable any interest reserved by a donor or acquired by him, even if it were a life interest, if he had not divested himself of that more than five years before his death. If this is construed in that way it entirely destroys section 21 (8). These remarks apply also to section 28 (3). It destroys the effect of both of these subsections. I do not believe that could have been intended and, if it was intended, it is an extraordinary way of legislating.

It would be much better to come in here and propose the repeal of section 28 of the 1961 Act and recreate the position that was created by the decision in Donoghue's case. It is for that reason that I propose this amendment: after "or" to provide "he became entitled to or acquired any interest in or benefit from the property or any right or privilege over or in relation to the property other than an interest for life". I mean other than an interest determinable on death. If that were accepted it would seem to me that the following words "and he had not divested himself of any such interest" could be deleted. Obviously, what is intended here is "or he became entitled to or acquired any interest in or benefit from the property or any right or privilege over or in relation to the property other than a life interest". That is what is intended and if we put in words conveying that sense, then this proviso makes sense. It preserves the retention of a life interest but makes everything else outside section 28. I propose to insert similar words in the second proviso which has reference to section 28 (3) of the 1961 Act.

It is not intended to nullify completely the effect of section 28 of the 1961 Act. Consequently I accept the principle in these amendments. I have however some difficulty about the wording because the expression used in the amendments is "other than an interest for life". The expression "determinable by reference to death" is already defined in estate duty law but "an interest for life" is nowhere defined and would therefore be given its ordinary meaning. It is necessary that the wider meaning in the expression, "determinable by reference to death", should be imported to cover interests in property which terminate at a point of time either before or after death and for that reason, if the Deputy would agree to withdraw his amendment, I would propose to bring in on the next Stage an amendment to the same effect but using the phrase, "determinable by reference to death".

I am much obliged to the Minister.

On a point of clarification with regard to the amended section of the 1961 Finance Act, does the exemption contained in that cover the case where the donor reserves the power of revocation exercisable by deed only, in other words the right which he would attain would die with him?

In such case the donor would be deemed competent to dispose.

All the time?

He would not have the exemption.

On the point which the Minister has agreed to consider, the Minister appreciates that a good deal of this part of the legislation is similar to, and indeed probably to a great extent copied from, a British precedent in this regard. In Britain there are a series of definitions incorporated in the Act which clarify this and make it possible to interpret and understand the terms used. When the Minister is reconsidering the drafting of this question he might consider including definitions in it. This would probably avoid some of the problems which have arisen in this context.

Amendment, by leave, withdrawn.
Amendment No. 29 not moved.
Question proposed: "That section 34 stand part of the Bill."

I should like some general information in relation to the type of abuse of section 28 of the 1961 Act which this section is intended to curb. Deputy O'Higgins made a useful distinction in dividing this proposed amendment into two sections. I should like to know the significance of the fact that an interest in the property is referred to in both subclauses so to speak. In the second clause reference is made to "an interest in or benefit from the property or any right or privilege over or in relation to the property". That appears to cover everything. What is the reason and need for having in the first part of the first clause a reference also to an interest in the property? It would appear to be superfluous to have two clauses covering an interest twice.

Taking the Deputy's second point first, is he referring to the reference to "there was granted or demised to him an interest in the property"?

And then subsequently the reference to "or he became entitled to or acquired any interest in or benefit from the property"? Are these the two references which the Deputy has in mind?

It seems to me that the first case deals with the granting or demising to him of property and in the second case he became entitled or acquired an interest or benefit from the property in another way.

If it is granted to him or demised to him presumably he acquires it? There does not appear to be any difference.

I can only surmise that it is as a result of various decisions over the years as to the meaning of these various words and how far they extend. The second phrasing to which the Deputy is referring must not in all cases cover the first one which is the granting or demising.

Surely if he became entitled, as is stated in the second clause, that covers everything?

That might be so to a layman but not necessarily so to a lawyer.

Particularly when it goes to the High Court.

That is right.

The Minister cannot explain the legal necessity for this extra clause?

Except that the second one does not include every possible case which could arise on the first one.

It appears to me that it could be put into one clause anyway.

I should like to be able to do that if I could but I do not think one may take that it is there unnecessarily.

Would the Minister explain the general type of abuse which this section is designed to curb?

It is designed to defeat an avoidance device which is known as "grant and leaseback" and it is in two parts. The first part deals with a gift of property which is subsequently leased back by the donee to the donor so that in essence there is no real gift and the second part deals with property released from settlement by a life tenant to the remainder man which the remainder man subsequently leases back to the life tenant. I could go into some detail as to how this arose in the past and under what provisions but I do not know if the Deputy wants me to go into it in that detail.

Question put and agreed to.
SECTION 35.

I move amendment No. 30:

In page 20, subsection (1) (f), line 56, after "pass" to insert "or are deemed to pass".

The object of this amendment is to remedy a drafting defect in section 35. This section is designed to strengthen the provisions of section 20 of the Finance Act, 1965 which was enacted to prevent the widespread avoidance of estate duty through the medium of hybrid family companies. Section 35 of the Bill introduces new definitions of company control by the deceased relative and control. Certain consequential amendments of Section 20 of the 1965 Act become necessary because of the new definitions. Paragraph (f) of subsection (1) of section 35 of this Bill substitutes a new subsection (6) for the existing subsection (6) of section 20. The original subsection (6) dealt with the valuation of shares in a trading company passing or deemed to pass on a death. The new subsection (6) deals with valuation of shares in a trading company which pass on a death but does not specifically refer to shares which are deemed to pass. The proposed amendment will rectify this omission.

Amendment agreed to.

I move amendment No. 31:

In page 21, line 35, after the word "that" to insert "(a)" and between lines 43 and 44 to insert the following paragraph:

"and

(b) such a payment or transfer of property out of the resources of the company shall not be deemed a benefit save to the extent to which the payment or value of property transferred does not exceed the amount of income accumulated in the company".

I do not know what the Minister thinks of the suggestion in this amendment. The purpose is to ensure in an at arm's length loan if there is, in fact, a repayment of the loan out of the sale of the company's assets or something of that kind, a genuine sale of assets, there will not be a double taxation or anything of that kind. I do not know if the Minister considers that something along these lines should be brought in. It arises from the proviso at the end of the section.

The first thing I should say is that this proviso is intended to protect transactions which are, in fact, at arm's length. I do not know if the Deputy thinks that, in fact, it does not protect them but there is an objection to the principle of limiting the subsection to benefits paid out of the income of the company only or out of the accumulation of such income because benefits can, in fact, be paid out of capital. If, for example, an investment company—and the majority of avoidance schemes operate through the medium of unlimited holding companies—were to sell an investment and realise a gain, such gain could be used to redeem debenture vested in the deceased. If such gains were put to reserves with accumulated income it would be virtually impossible at any given time to apportion such reserves between accumulated income and realisation of capital.

Another thing that could be done would be that the assets of the holding company could include shares in another private company. If this second company were to issue bonus shares or otherwise reorganise its capital or to liquidate so that the holding company acquired a capital gain, such gain could be used to provide capital to pay off the alleged loan to the deceased. But, as I said, the existing proviso is designed to ensure that repayments on foot of all bona fide commercial transactions at arm's length with the company are outside the scope of this subsection.

Amendment, by leave, withdrawn.
Question proposed: "That section 35, as amended, stand part of the Bill."

This, as the Minister is aware, is a complex section. One criticism of the section of the Finance Act of 1965 as it was amended last year by the 1970 Act and as it is proposed to amend it now, is its lack of precision. I raised this point earlier. As I understand the application of section 2 (1) (b) of the Finance Act, 1894 and section 7 (7) of the Finance Act 1894 to a company, particular care must be taken to define the terms employed sufficiently precisely to enable the accountable party to compute accurately the estate duty payable. The idea behind the original redrafting of section 20 (4) of the Finance Act, 1965 was to simplify the complex terms of the corresponding British statutes. Experience, however, has shown that the lack of definition has produced uncertainty and it is suggested that the addition of a paragraph or sub-paragraph defining the terms employed in section 20 of the Finance Act, 1965 would not add greatly to its length but if a definition were included it would enable the terms of the section to be understood and it would be better to introduce a new section or subsection rather than to amend it piecemeal.

I mention that at this stage because it may be necessary to introduce an amendment on Report but the Minister might like to consider this himself and see whether it is possible to introduce an amendment that would define it more precisely and that would meet the criticism I made a few moments ago on the other section, that part of the problem in this portion of the legislation is that it has been copied to a great extent from similar British statutes but in the British statutes certain terms are defined and there is a set of definitions which enable them to be understood on the basis of those definitions. In the case of the legislation here no similar definitions have been included and it is difficult to be precise and, indeed, the mere fact that it has been amended twice within the space of five or six years—it was changed in 1965, amended last year and is now being amended again—is clear evidence that the whole matter requires to be looked at again and, if necessary, a new clause introduced and, possibly, definitions included.

What Deputy Cosgrave has said is perfectly true. I am looking at page 20, section 35 (1) —the new definition of when a person shall be deemed to have control of a company. If my checking is right, subsection (1) comes from the UK Finance Act, 1940. It is section 55 (3) of that Act. Sub-clause (aa) (ii) comes from the UK Finance Act, 1954— section 31, and (aa) (iii) comes from the UK Finance Act, 1954—section 29 (3). These are three subsections which have been taken from recent British legislation, which are brought in as amendments of the original section 20, but they do not contain the strict definitions which the UK Acts do contain.

There is no definition of what "power" is and that is defined very clearly in English legislation. These subsections use "power" and "power exercisable by the person at his direction". Does that mean a power related to shares—the power of veto or whatever it may be? Does it mean the power of appointment and so on? There are other phrases used in these such as "share"—I do not know whether it is defined—and "debenture", and a lot of terms like this are used because the section is borrowed from an English section. I think care should be taken to define the terms being used so that the taxpayer at least will have some clarity in relation to the effect of the section itself.

I want to make a general observation, first of all, with regard to the question of sections in this and previous Finance Bills being copied from British legislation. To a great extent, this is true, but I would like it to be understood why this is so. What, in fact, happens is that certain loopholes are discovered in Britain and they are operated by people who are trying to avoid liability for duty or whatever, and the British revenue authorities then bring in legislation to close these loopholes, whereupon they are drawn to the attention of people here who start to operate them here.

I am not objecting.

I am merely putting on record why, in fact, this happens. Then we follow it up, and, in fact, in this particular case, we have not, as I think Deputy O'Higins has demonstrated, just copied the British. In fact, I understand that the comparable British legislation started in 1940.

That is what I said —section 55 (3).

It was amended in 1944, 1946, 1950, 1952, 1954, 1958, 1960 and 1965, and I understand that in a certain appeal case in 1952, Viscount Simmons said that the British legislation of 1952 was "of unrivalled complexity and difficulty and couched in language so tortuous and obscure that I am tempted to reject the provision as meaningless".

Will the Minister withdraw the section?

The journal "The Accountant" has described the British company sections as "of a complexity scarcely equalled by any other part of British statute law". When we started in 1965, our idea was, and, indeed, remains, to try to keep our provisions as straightforward as possible without leaving too many loopholes for avoidance. It may be that the absence of the definitions to which Deputies have referred is leading to some confusion, but I do not think that is proved by reason of the fact, as I have indicated, that there have been so many amendments of British legislation. I think the definitions may not be the answer to the problem. I will undertake to look at this, although I should say that it seems to be unlikely that I would be able to bring in an amendment or amendments containing satisfactory definitions which would not just be new loopholes between now and Report Stage. I will have a look at it, but if it seems that such would be advantageous, I might find that it would be impossible for me to do it on Report Stage, but it could be considered on the next Finance Bill that comes before the House. I am not saying that that is the position but it may well be so when I have examined it.

Could I make a further point on that which I made before in discussing finance measures? There are undoubtedly certain aspects of finance legislation which obviously must be introduced shortly after the Budget—direct changes in taxation, changes in respect of income tax, beer or spirit duty, tobacco taxes and that sort of thing—but every year that most of us can remember—certainly in all recent years—the Finance Bill has been considered here at the very end of the session. A lot of this Part of the Bill—a great deal—of it is not politically contentious. I suppose that in present circumstances I would hesitate to suggest that it might be appropriate for a Committee of the Dáil, but be that as it may, it certainly is the type of legislation that should be considered in the autumn or at some period of the year when pressure in relation to the concluding of business is not as acute as it is at the moment. The Minister might well consider, subject to whatever he may introduce on Report Stage, that certain aspects of the finance legislation might be introduced in a separate measure in the autumn when it would be possible to deal with the revision of the law and improvements in it, or matters which are, as I say, not strictly urgent in the sense that a number of these changes could apply at any particular period. Undoubtedly, this is the sort of complex matter that it is very difficult to deal with in the end of a session situation, and also difficult to deal with very often because the matters could be more readily dealt with in a Special Committee such as that which dealt with legislation relating to company law reform, the Companies Act, income tax revision and fisheries consolidation—committees of that sort where it would be possible to get quick answers from both sides and direct advice on the actual matters being considered.

Question put and agreed to.
Section 36 agreed to.
SECTION 37.
Question proposed: "That section 37 stand part of the Bill."

This is a taxation section and it is not a very nice form or taxation, in my view. It is increasing the spread of duty without changing the rate. Section 27 (4) of the Finance Act of 1965 provided a sliding scale in respect of duty being attached to property by reason of the donor having transferred the property in his lifetime and not living for more than five years after the transfer. A sliding scale was provided there whereby the duty would be 15 per cent if the death took place in the third year, 30 per cent in the fourth year and 60 per cent in the fifth year, so that in the event of a donor dying within three years, four years or five years, there was a varying liability to duty and the nearer he lived to the period of exemption, the less duty there would have to be paid. That sliding scale was welcomed here and it was considered a reasonable way of making an approach to a change in the law. The purpose of section 39 is to abolish that. As I read it, the effect of this section is that now there is to be a liability for full duty if the death occurs within the five-year period. I cannot see any justification for this and I should like to hear the Minister's defence.

This is primarily an effort to protect the yield from estate duty because originally the gift period was one year. This was then extended by the Finance Act of 1910 to three years and section 27 of the Finance Act of 1965 extended the three-year period to five years. Speaking from recollection the reductions for the third, fourth and fifth years, which have been referred to by Deputy O'Higgins, were introduced by way of amendment in the course of the debate. However, the pattern is clear, that is, that it has been necessary during the years to extend the period in order to prevent a considerable drop in yield from estate duty. That is borne out if one looks at what has happened in the UK where the period has now been extended to seven years with percentage reductions for gifts made in the fifth, sixth and seventh year. One sees the same pattern emerging all the time. It is exactly for the same reason that each of these extensions has taken place. There is no other either more or less sinister reason.

On reading the explanatory memorandum to this Bill, my immediate reaction was that section 37 was in many ways the worst section in the entire Bill. It may be difficult for me to make the particular point I wish to make at this stage but it is my opinion that the removal of a sliding scale in relation to the rate of duty, having regard to the distance in time of the making of the gift from the time of death, is bad. It is good to retain this sliding scale because it means that if a person knows he has not a very long time to live there will be a benefit in giving over the property at that time rather than waiting for another year because he knows that even if he does survive for a further three or four years, at least if he transfers it now there will be benefit in relation to the payment of duty. We must remember that this duty is not a gifts tax. It is a tax in relation to death. Therefore, it is consistent that since it is in relation to death there should be a lesser rate of duty having regard to the distance from the death and the relevance to the death of the time at which the gift is made. If the gift is made immediately before death it is likely that it is made in anticipation of death and therefore the duty should be heavy. On the other hand, if it is made some time before death, it was not made in contemplation of death and is not, in the same sense, applicable to tax on death. Therefore, there should be the sliding scale. If it is necessary to raise extra revenue I would not mind if the period was extended to six years as long as the sliding scale is retained.

It appears from the explanation given by the Minister that what happened here was that one of the Minister's predecessors introduced a Bill and somebody succeeded in pointing out to him that there was something unfair in it and consequently a section was introduced which gave a concession. The Minister is now starting from scratch again and he has to be persuaded, as was his predecessor, that this sliding scale should be included. If this is the reason the Minister is making a mistake in altering it. I agree that it could possibly be stretched if necessary to a longer period but it is unfair that the sliding scale should be removed simply because the Minister is of the opinion that his predecessor was wrong in agreeing to the amendment which was put in during the course of the debate.

I suspect that my predecessor, whoever he was at the time——

The Taoiseach.

——agreed to this so as to make the extension more acceptable to the House.

Would the Minister not agree that he should take the same course?

I would be prepared to consider extending it and having a sliding scale.

Even that would be better than nothing.

Does the Minister intend doing that?

I will have a look at it and if it seems reasonable I shall introduce an amendment on Report Stage.

Question put and agreed to.
SECTION 38.
Question proposed: "That section 38 stand part of the Bill."

I wonder whether it is appropriate, in relation to agricultural property, to be giving a concession in regard to the transfer of property to a widow. If a farmer making a will has a choice between his wife and a son who, in any case, will eventually be the person to succeed to the property then from the point of view of having the best management for the farm he would be wise to transfer the property to the son rather than to the wife.

That is a rather selfish approach.

I can assure the Deputy that I have no personal interest in this. It would appear to me in relation to agricultural land to be appropriate not to discourage the transfer of ownership to the son who is the person who will have the effective job of managing the farm.

I appreciate the point being made by the Deputy but far outweighing the point is the necessity to do what we can to assist a widow in circumstances of a death and particularly a widow with dependent children. I would remind the Deputy, too, that we are dealing with cases other than agricultural land when we are dealing with estate duty and the additional exemptions we are proposing are worthwhile and important. The net effect of this proposal is to exempt from duty an estate of the extent of £15,300 where the widow is the only beneficiary and where there are no dependent children. If there is one dependent child the exemption limit would be £18,750. It goes up in that way. If there are five dependent children it is £30,450, if there are ten dependent children £40,600. I feel that this is worthwhile and I certainly would not alter it for the sake of the point being made by Deputy Bruton.

Question put and agreed to.
SECTION 39.
Question proposed: "That section 39 stand part of the Bill."
Progress reported; Committee to sit again.
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