This Bill contains two of the four new taxes which are being introduced allegedly in lieu of death duties but, as was pointed out at some length by Deputy de Valera, the two taxes contained in this Bill, gift tax and inheritance tax, are in effect a replacement for death duties simply under another name. If proof of that fact is required one has only to look at the concluding sections of this Bill which make provision for the filing of an inland revenue affidavit with the Revenue Commissioners after death and the provisions are basically much the same as the provisions under the existing death duty code.
I met a solicitor recently who had not read this Bill but who had, like many other people, believed what he read in the newspapers of the various statements made by the Minister for Finance to Fine Gael branches in Rathmines to the effect that death duties had been abolished as and from 1st April. He believed it and he said to me: "Is it not great now that we will not have to be bothered with schedules of assets and all the rest of it? Death duties are gone. All we need do is go to the Probate Registry with our necessary documents for that and take out a grant of administration or a grant of probate." I asked him if he had seen the Bill and he said he had not. I said: "All those provisions are there" at which he was very much taken aback and he said: "Then it seems to me that death duties have not, in fact, been done away with" to which I replied that in my view they had not.
Essentially the situation we would have on the passage of this Bill would be that death duties would be retained with much higher exemptions than exist now, particularly in so far as spouses and children are concerned, with, in some cases, lower exemptions than existing ones in respect of other people but with a considerably raised threshold, particularly for wives and children.
There are a number of anomalies in relation to this. One is that in table A which is the table giving a threshold of £150,000 it is not, as is the case in the present code, a wife and children who get relief. Rather significantly, it is a spouse who gets relief. I am not to be taken necessarily as complaining about this but it could be very beneficial to a husband who, if he were to survive a wealthy wife, would get no relief under the present provision—the £4,000 figure. Those who do not get the value of this threshold are grandchildren unless they are the minor children of a deceased child. I do not know why this distinction has been made. It appears to be very arbitrary. The existing provision in favour of a surviving wife, rather than a husband, seemed logical and fair enough, but that is changed in a very big way because a surviving husband gets relief now of up to £150,000. Another significant difference is that whereas before, the reliefs operated on the entire estate up to a certain figure, they now operate in respect of each gift.
As was pointed out in reference to the Committee Stage of the Finance Bill there is the extraordinary situation which I consider undesirable, that is, that a widow and four children, irrespective of the age of children— they could be 50 years old and each very wealthy in his own right—are entitled to an inheritance of £150,000 each without capital taxation of any kind being payable. This is put before the public as progressive legislation, as something that will make matters easier for those who are less well off while making them more difficult for the rich. I wonder how, by any stretch of the imagination, that kind of situation could be regarded as being in accordance with the particular provision of this Bill. How can it be said that the rich will be worse off if the net effect for them is that a man can leave £750,000 between his widow and four adult and, perhaps, rich children and that none of them will have to pay a penny in taxation on that money, while on the other hand tax is payable in respect of a small farm worth, say, £12,000, which is left to a nephew by an uncle who was not married. I cannot see any equity in that situation. If anything it is far more inequitable than the present death duty code, where that sort of situation would not have arisen.
So far as the inheritance tax is concerned I wonder whether this Bill is designed to help the very rich who are fortunate enough to have children of their own. In effect, these are the people who are helped. Is it the view of the present Government that a man worth £750,000 should be allowed to pass all of that vast fortune to members of his family without attracting any taxation? One can only assume that is their view since this is the provision of the Bill. It is a very wrong approach. It is a totally lopsided, false and unjust approach to taxation.
I am not surprised that while there was tremendous opposition from some people in Fine Gael to practically all of the four Bills of this so-called package, there was a strange welcome in the middle of that opposition from some of those members for the provision we are discussing here because for some very wealthy people this is a godsend, provided they have sufficient among whom to distribute their wealth.
While there is tremendous generosity to a surviving husband, wife or child, this generosity breaks down very quickly, because people who are not part of the immediate family will find that in many cases they may be paying tax where they would not have paid it before, that they will be paying duty under the term "inheritance tax" where they would not have paid it before. During the past few years there has been a very valid case to be made for a considerable raising of the threshold of liability for duty. If there were such a raising of thresholds in regard to the old death duty system, there would be much the same result as there is in this Bill under the name of inheritance tax which, in some way, the Minister tries to convince us is replacing death duties. What is being done here by way of relief for surviving spouses and children could have been done as easily by amending the existing death duty code, but the Minister chose not to do that because he had made a promise which he realised he could not fulfil. However, he tried to con the people into believing that he could fulfil that promise by making very radical changes in the old death duty code but instead of retaining the terms, estate, legacy and succession duties, he put them together and called them inheritance tax. The difference in terminology should not fool anybody. I would have no objection as to what he called the tax but it did not stop at simply making changes which appear before us now as inheritance tax. It also entailed the introduction of three other taxes on top of it. At least one of them, before it has been passed at all, has proved very harmful. One of the others, while it is all right in theory, is drawn in such a way that it is grossly unfair. It taxes the man of honest endeavour who has spent his lifetime building up a farm or a business in the very same way as it taxes the short term speculator who may have made an enormous gain in a period of only a few months.
If you balance the two packages, the old death duties system and these four new taxes, from the point of view of the national economy I do not think there is any doubt as to which is the more satisfactory. We have only to look around us today to see the harm these new taxes have done to the economy before they have been passed. If there were individual cases of hardship, as probably there were because of inflation in recent years, under the old death duties system could it not have been amended radically as we said we would do before the last election? In effect, that is what the Minister is doing but, because he is changing the name, he is using that excuse to bring in three other taxes which it was not necessary to bring in.
This is a very long Bill. It is longer and more detailed even than the Finance Bill which we have just finished. This Bill runs to 51 pages. If anyone thought the Finance Bill was complicated, technical and difficult he should read this one. This one is about four times more complicated and difficult. Most of the points I want to make are more suited to the Committee Stage and I will not go into many of them now in any detail. To give an indication of some of the problems we will run into on Committee Stage which, incidentally, will be for more lengthy than the Committee Stage of the Finance Bill, I should like to draw the Minister's attention to the provisions of section 26 which is headed "Enlargement of Interests". This section is all one sentence. I will not quote any of it because it runs to 12 or 14 lines and you either read it all or you do not read any of it. I will summarise its effect reasonably by saying that the intention of the section is that if somebody has a limited interest in property, which normally would be a life interest, and if that person comes into possession of the remainder interest which is contingent on the cessor of his own life interest, a method is used for the valuation of the remainder which falls into possession by the person acquiring it either by way of gift or by way of inheritance.
The easiest way with a complicated Bill like this is to give an example. The example I will give is as follows. If a deceased person leaves a house worth £30,000 to his wife for her life, with remainder to a nephew absolutely, and the nephew is well to do and decides he does not really want the house after her death and in the circumstances he releases his remainder interest in the fee simple to her, if she is aged 55 years which, I suppose, is a reasonable age to pick, you go to Table A of Part II of the First Schedule to value her life interest.
You find that the value of an interest in a capital of £1 for a female life aged 55 is .7206 of a £. In this transaction, the effect of that is that the life interest in the house worth £30,000 is £21,618. The taxable value in the words of the section of the estate in remainder is the difference between that and the present capital value. Accordingly it is £8,382. In order to find the gift tax payable on the release by the nephew of his interest in remainder, you are required by the section to deduct from the value of the remainder interest, namely, £8,382, the value of the life interest or limited interest, namely, £21,618. Therefore, the section requires you to subtract £21,618 from £8,382 and pay tax on that. That is not on. That cannot be done. I can only assume that, in the drafting of this section, examples were not before the draftsman or he could not have drafted it in a way which requires the taxpayer to do something which is impossible. I can only assume that the net result of all that is that because the sum will not work out mathematically the person in question is told she does not owe any tax.
If that type of section were passed I could see it going to the High Court or the Supreme Court to try to work out what exactly is its meaning, what is its effect, and so on. I picked that example out almost at random. There are many other examples of serious anomalies and difficulties which are likely to arise under this Bill. One which strikes me on reading the Bill is that it is not at all clear to me and I cannot find any provision in the Bill which would make it clear, that, for example, a grant payable by the IDA to an industrialist is not a gift within the meaning of a "gift" as defined here. There is no consideration for that. There may be some part somewhere which will cover that kind of situation. Those are the type of things that spring to mind on a reading of various parts of this Bill. The number of anomalies in it is very large, and not least in the various Tables set out in Part I and Part II of the Second Schedule.
When I was speaking on the Finance Bill I mentioned that there seemed to be an anomaly that if a testator left property not to his child but to the spouse of his child, that spouse would be classified as a stranger in blood under Table IV and become liable for tax from £5,000 upwards, whereas if the bequest or devise was to the child himself or herself, there would be a threshold of £150,000. Looking further at the Schedule where the rules for the computation of tax are set out, it is not easy to understand all of them, but I find that the case I mentioned on a previous occasion is partially covered by Rule 8 of the Rules for Computation of Tax in Part I of the Second Schedule. Provided the child of the testator was dead at the time of the testator's death, a bequest or devise to the surviving spouse of the child of the testator would be classified as a gift direct to the testator's child and, accordingly, would come under Table I with a threshold of £150,000. Before any testator could safely make a disposition in favour of his son-in-law or daughter-in-law his own child would have to be dead. That is otherwise under present law. I know of several cases where prudent testators, for very good reason, left property not to their child but to the spouse of the child because there was good reason for not leaving it to the child himself or herself.
Those people are now being put in an impossible position. It is not as bad as I thought it was at first sight, but nonetheless it is an unfair situation that a testator is being deprived of his right to leave property to the spouse of his or her child rather than to the child himself or herself. It is not necessary to go into detail as to why that would frequently be a more suitable and prudent disposition than a simple devise or bequest to a child. However, if the child is ill, in particular if a child is suffering from a disease such as alcoholism or mental illness, a prudent testator will not leave property to such a person if that person's wife or husband is not suffering from any disease or illness and is in a position to look after the property which the child might not be. That is one example of the kind of anomaly that appears to arise. On the face of it one cannot see any good reason why these kind of anomalies should arise. We will be going into this matter in considerable detail on Committee Stage and the Minister will have to justify these rather arbitrary changes in what has been the settled order of things for some time. The present position in relation to a lot of these matters was not arrived at arbitrarily; it was arrived at as a result of years of experience and finding that this was the best and fairest way of doing things. Suddenly, a lot of these desirable developments were swept away and changed overnight.
Simply because death duties are being retained under another name is no reason why a lot of rules which had been built up over the years for the benefit of situations of the kind I have referred to should be swept away also. There are various other reliefs that exist at present with regard to death duties which do not appear to be granted here. The Minister may well make a case that because the thresholds are considerably higher than they are under the existing system the need for these rules in relief of the taxpayer no longer exists. I am afraid there will be many hard cases under this legislation if it is passed in the form in which it stands at present.
One of the general causes of complaint in relation to this Bill in so far as the gift and inheritance taxes are concerned is that while acknowledgment is made in it of the need for special relief for agricultural land there seems to be no provision for any form of relief in relation to a business or industry of any kind. The failure to allow some kind of reasonable relief for industrial property or business property is going to cause great hardship. Agricultural land is picked out, even though the definition of it is very confined, for special relief and I am glad to see that. However, there are other people in similar categories, apart from industrialists and business people, who might feel, legitimately, that they are entitled to the same kind of relief or exemption.
Is it not very difficult to justify exempting agricultural land and not exempting fishing boats? Is it not very difficult to give exemption to agricultural land and not give any kind of relief to hotels? Why is there the anomaly that special provision is made in the Wealth Tax Bill in respect of hotels but that there is no provision under either of the taxes in this Bill? These are some of the innumerable anomalies which appear to exist and which will have to be teased out and thrashed out at great length and in great detail on Committee Stage.
I have no objection, and I do not think my party have any objection, to the inheritance tax as such provided it is made clear that it is death duties re-enacted under another name with higher exemption limits or higher thresholds, as long as the people understand that that could have been done easily under the existing code, retaining the existing code, and raising the exemption limits. The Minister for Finance is not fulfilling his obligations or his promises by allegedly putting into abeyance, not abolishing, the death duties about which there was so much fuss two years ago and re-enacting the same form of code under another name with higher exemption limits and with three other forms of capital taxation which this country did not know before and saying that the whole package of capital taxation is a substitute for the old death duties. It is not a substitute. The old death duties are not gone. The fact that the name has been changed and that the limits are raised does not make them any different. If the price that we have to pay for the same thing with a new name is a whole series of other taxes which even before their enactment have done great damage to our economy then that price is too high.
