I was dealing with amendment No. 32 to section 21 in Deputy Sweetman's name, which deals with a person with a life interest who buys out the interest of the remainder man in the trust and terminates the trust. I think I had pointed out that if the person has a free estate under which he buys out the trust, the fact that he reduces the value of the free estate by the amount which he pays for the trust is disregarded, and his full estate is taken into account for duty purposes. If he has to borrow money, even though he might have liquid assets of his own—and even if he has not liquid assets of his own—the same applies. The full value would be assessed for estate duty purposes. Deputy Sweetman's amendment would defeat this, and it would facilitate the device of avoidance.
Finance Bill, 1965: Committee Stage (Resumed)
I do not understand. If the person pays in the reversion out of cash he has himself, and pays that cash over to the reversioner, that cash is gone from his free estate, and it is not liable to duty, even if he were to die the day after that happened. What is the difference between the man who has the cash himself and the man who borrows money for the same purpose? Where the life interest was enlarged or used up, there is no duty. I agree that it is fair that there should be a duty on an enlargement, but in the case of a man who pays out his own money, and the man who borrows the money to pay it out, there should be more concern for the man who borrows the money because he is not in the same readily fluid position.
The same applies in either case.
In either case?
The net result is the same. It is an attempt to reduce the value of the trust fund.
It does not make sense. If you have a fund that is worth £50,000 and the value of the reversioner's interest has been ascertained at £10,000 and the tenant for life buys that piece of property—let us say, a shop in Grafton Street—for £10,000, it then belongs to him absolutely, and the £10,000 belongs absolutely to the reversioner. If the reversioner dies, Revenue get duty on that £10,000. If the person has free estate to the extent of £10,000 and pays the free estate over, that free estate will not be there, and therefore there cannot be any duty on it. That seems clear enough, and fair enough.
If instead of paying out his own money, the person borrows £10,000, then what the Minister is suggesting is that he is going to be charged duty on £60,000, not £50,000, because he will be charged duty on the £50,000, and not allowed to take a reduction for what he has paid over.
If the purchaser goes through that process and buys out the remainder man's interest, he is deemed to have given a gift of that amount to the remainder man, and therefore the gift, plus the value of the estate, will be charged. That is reasonable.
I am assuming that it is the full money's worth actuarially calculated.
There is no difference in that case either. He would get a reduction in his free estate for whatever overdraft he has incurred.
So long as he gets it in his free estate, I am happy. I can quite understand the Minister's line of country that he will not get it in relation to settled funds. I was worrying about the man who would not be able to get a deduction from his free estate. If he gets it in relation to any money that he has genuinely borrowed for the purpose of buying out the remainder man on an actuarial basis, I am perfectly happy. That is the position.
Does subsection (5) mean this is not aggregable—or not to be aggregated, for the benefit of Deputy Booth.
It does not deal with aggregation at all.
What does subsection (5) mean, then?
Subsection (10) of section 7 of the 1894 Act is the provision that says duty cannot be assessed twice.
It does not say that. It refers specifically to aggregation.
It refers to both charge and aggregation.
Property passing on death shall not be aggregated more than once.
I am afraid we know more about the Bill than the Minister does.
The subsection says that section 7 (10) shall not apply, so it shall be aggregated.
Shall be treated as distinct.
The purpose, apparently, is to preclude any argument that the sum of money used for buying a trust is the same sum, so the idea in subsection (5) is to exclude the possibility of section 7 (10) of the 1894 Act——
Subsection (10) is an exempting provision.
Shall not be aggregated more than once. This does not affect the Deputy's amendment.
We have finished with the amendment. We are on the section.
I know that. If I am permitted to come to it on Report Stage, I shall deal with it in more detail.
We shall see whether subsection (5) should be erased then.
I move amendment No. 33:
To add a new subsection as follows:—
"() A death benefit or death benefits so deemed to have been provided by the deceased shall not be aggregated with other property of the deceased for the purposes of determining the rate of estate duty."
This section and the following section are, in our view, the most objectionable in the Bill. This section is aimed at taxing death benefits accruing pursuant to superannuation schemes and both Deputy Sweetman and I have indicated our objection to the section. I therefore find myself in a somewhat difficult position in moving an amendment to a section I feel should not be there, but I must move the amendment declaring my view, at the same time, in relation to the section as a whole.
If the section is passed the position will be, as I understand the law, that death benefits, which until now have been regarded as exempt from death duty because they have not been provided by the deceased, accruing pursuant to a superannuation scheme, shall be deemed to have been provided by the deceased and therefore the benefits passing or resulting from death become taxable. Many superannuation schemes are provided by employers, firms and companies, to which no contribution is made by the employee.
Up to the moment, benefits from such schemes would not be liable for duty because they were not a provision by the deceased. I assume the object of this section is to end that exemption and provide that benefits resulting from such schemes will in future be liable to death duties. If that is so and if the section is to stand as part of the law, the object of this amendment is to alleviate the blow somewhat by providing that a death benefit which is deemed to have been provided by the deceased shall not be aggregated with other property of the deceased for the purposes of determining the rate of estate duty. In other words, we propose that a death benefit in those circumstances should stand by itself and be liable merely to such duty as its own value attracts.
As I understand the position in respect of the law on the death of a beneficiary in a superannuation scheme, it is entirely different from what it is in Britain. I speak subject to correction, because I find it hard enough to keep up with our own law much less British law, but as far as I know, death benefits accruing from superannuation schemes in Britain are covered by the case of J. Bibby and Sons, Ltd., Pensions Trust Deed, Davies and the Inland Revenue Commissioners. It was heard by Harman in the Chancery Division on the 9th and 10th of July 1952. The decision of the Bench was that in Britain such benefits were not liable to estate duty. The report I have of that case, which I obtained from the Incorporated Law Society Library, does not indicate that the case was appealed and as far as I have been able to trace it has not. The position there was that such a benefit would not be liable to duty. The position here is different. I think the pension benefit is liable to duty here, perhaps, but that there have been some ex gratia extensions which have arisen perhaps under the provisions of section 22. There is no doubt, however, that the position up to this has been that death benefits for a pension scheme were to be treated as an estate in themselves and that the death benefits of a pension scheme were not to be aggregated with the remainder of the estate of a deceased person. To that extent, the problems that are at issue in section 22 are allied to the problems at issue in section 23, but section 22 is even worse than section 23 because this is a normal, ordinary superannuation scheme which is part and parcel, and an essential part and parcel, of every company having good industrial relations.
The fact is, as the Minister is no doubt aware, or as he can easily make himself aware, that a superannuation scheme when introduced, has to be submitted for certain purposes to the Revenue Commissioners and adopted by them, not primarily for death duty purposes—that only arises when somebody dies—but in relation to its income tax angles. Here we have the extraordinary situation that a pension scheme with the superannuation benefits that are included, having been submitted to the Revenue Commissioners and having been considered and accepted by them under one section of the tax code, is then thrown overboard by them in relation to another section of the tax code. That seems utterly illogical and indefensible.
In his closing speech on the Second Stage of the Bill the Minister quoted certain extracts from what I had said on an earlier Bill. I was speaking then in relation to the Finance Bill, 1955 where I specifically provided that all the benefits that might arise under section 23, for example, benefits where policies were made, would be treated as one separate estate and that they would not be aggregated with the free estate or other settled estate of the deceased, but that they would be aggregated as one estate on their own. The purpose of that was quite clear, that by doing so a general benefit was protected and what one might term freak avoidance, stopped. It is precisely that very measure adopted then which the Minister is now, in these two sections, overruling.
It is essential that one would consider to some extent those two sections together because they undoubtedly have an interlocking effect. I cannot see how, in any circumstances, the Minister can preach, as he does, that he wants to have good industrial relations and at the same time hit a provision of a superannuation scheme because it is accepted—and I think that the Minister himself accepted it when he was sitting a little further down the Bench—that a good superannuation scheme is an essential part of good industrial relations. The effect here will be that the amount that will be paid will bear substantial duty. I do not know what it would take to provide say £12 a week for a widow but we may say £10,000. I do not think the Minister will quarrel very much with that.
She would be a very young widow.
It depends whether you are going to buy it on an annuity basis or have anything for the children afterwards. If you are going to buy a pure life annuity for the life of the widow it will be ended entirely on her death with nothing for the children even though they may be dying under 21 years of age and then, of course, the calculation you would make would be entirely different. But I think a sum of £10,000 in present circumstances is not out of the way. In relation to the law as it is, that benefit would at present be bearing duty at 4 per cent and you pay £400. Let us assume that the person concerned also had a house and furniture, nothing else. It does not require to be a very big house in these days to be valued at £5,000 or very much furniture to be valued at £1,000. The effect of the Minister's amendment is that whereas before the family concerned would have paid £400 in one case and £60 in the other —I am not giving even a penny in the bank—making a total of £460, the Minister's amendment will make that family pay £1,600.
Does the Minister think that is a reasonable way of treating what is a very small, middleclass case in the light of present monetary values? I think there is no justification for the extra £1,140 being charged on the person in that bracket. That is precisely what this does. It brings the effect of a death benefit in a superannuation case back into the maelstrom of general free estate and, accordingly, has the effect of substantially increasing the duty.
Last night the Minister waxed very eloquent about the big man, the man with over £100,000 but when you get a man with property in excess of that value this section does not hit him at all, either in this section or the next, because there will be 40 per cent in any event and the aggregation bringing in any superannuation benefit or any benefit of a policy under the Management and Property Act is not anything that will hurt. It seems grossly unfair that this should deliberately hit the margin that there is of people in the middle class and that the really big man about whom the Minister spoke last night will not be touched at all by this section.
I should like to deal with this under two headings. First, I am concerned with the retrospective implications of section 22 as regards existing pension schemes which, as Deputy Sweetman said, have already been submitted to and approved by the Revenue Commissioners. In that regard I hope the Minister will consider redrafting or amending the section but certainly reconsidering it between now and the Report Stage just as we did with other amendments which were tabled and withdrawn in reference to the phrase "whether before or after the passing of this Act".
We have got some progress now in that the Minister has agreed that this Bill shall be based on the precedent of the Finance Act, 1910, which was careful to avoid retrospection in any way. So, my first concern is that in no circumstances should existing pension schemes be affected. These schemes were negotiated between employers and either pension companies or insurance companies handling pension business. The draft schemes were submitted to the Revenue Commissioners and were approved and on foot of that final approval a legal and binding contract has been completed between the employer and the pension trustees concerned. To that extent it would be absolutely intolerable if a legal binding contract were to be upset by the Revenue Commissioners under any circumstances but particularly so where the contract had virtually been approved in detail by the Revenue Commissioners who are subsequently responsible for the amendment of the whole scheme.
In general principle, however, I am also concerned with the proposal to tax these death duty benefits because what we must remember is that the person who will suffer is the survivor and not the person on whose death the benefits will become payable. What makes it worse is that in most cases the survivors of a member of a pension scheme are entitled only to a pension on annual basis but for estate duty purposes the estate duty is calculated by capitalising the pension. So that the person who is receiving the benefit is not receiving a capital sum but has to raise the money somehow to pay this duty which is calculated on a capital basis.
We have all received a letter from one pension company which has gone into this matter in considerable detail and which quotes the case where the capitalised value of a pension would be approximately £8,000. This, if treated as an estate upon its own, would have resulted in a duty of £240 being payable, which is heavy enough for a widow to have to pay when she is not getting a capital sum.
Furthermore, it is not unreasonable to expect that the total value of the private estate of the deceased would be not less than a further £8,000, shall we say £5,000 for the house, £1,000 for the furniture and there is probably a car and various other assets which make £8,000 a very reasonable figure. If those two sums—£8,000 death benefit and £8,000 private estate—are taken separately the total duty at 3 per cent on each of the estates would be £480 which, to my mind, is heavy enough, by far too heavy, but if this provision goes through and the two estates are aggregated this brings the total estate up to £16,000, which attracts an estate duty of 10 per cent, making the total duty £1,600. That, to my mind, is an intolerable suggestion.
I cannot believe that the Minister has had the opportunity of going into this matter as thoroughly as he would like and I would ask him to make some offer at this stage that he will reconsider this whole suggestion. If he does that I will be much happier because I feel that the longer he looks at this the more he will see that it is basically unreasonable. If he forces it through at this stage, I for one will be more than unhappy, to put it midly. So, I would make that request to him. As he has met this House in connection with other matters already, I, for one, and, I am sure, others, would appreciate it if he would meet us on this case also and give us some indication that he will reconsider this section before the Report Stage.
I would just like to endorse the argument which Deputy Booth has put forward. It is a most mild and reasonable argument and I hope the Minister will see his way to reconsider this section.
I do not think that we are going to balance the budget to any great extent by extorting a few pounds from a widow and orphans and I would not like for a moment to be thought to be in favour of doing so or to be associated with this section in its present form. So, I hope the Minister will see his way to reconsider this, as he has been requested now by all sides of the House.
We ought first to try to see what we are discussing and make sure that we are all clear on the point.
That is an elementary precaution.
There might be a risk that in dealing with section 22 and the various types of superannuation schemes involved, we might, as I often do, lose the main trend that should be followed. There are contributory superannuation schemes and non-contributory superannuation schemes. A superannuation scheme is usually designed to provide for a pension at the end of a person's employment or, on his earlier death, a lump sum for his widow and dependants. At the present moment the law provides that the lump sum in a contributory scheme is subject to estate duty. On the other hand, a person can contrive to provide for his widow a lump sum on his death to which he did not legally contribute, in other words, if he was a company director, probably an important man or the most important man in the company, he can so arrange his affairs that on his death the value of his own estate could be reduced but by reason of payments the company were making for death benefit for that director's widow and children — and it often happens that in such cases the provision is very handsome—escape liability to duty because it was not purchased or provided by the deceased.
What does the Minister mean by "very handsome"?
It could be a very large sum. I am not taking a specific example now. The death benefit that would arise on his death if he had not been providing it himself or if he had contrived to provide it in such a way that he could not be presumed to have provided it is not chargeable.
You do not have to contrive. Either you are contributing or not.
I will deal with Deputy Booth's point.
I thought, from listening to the Minister, that he put it in the inverse way.
It is possible that a person can so depress his own estate which would be liable on his death for death duty by this device as to deny the Exchequer a sum that would otherwise be due.
Resolution No. 18 mentality again.
I want to say to Deputy Booth that, in fact, the agreements reached between the proposers or organisers of a superannuation scheme in advance of the implementation of the scheme do not have regard to death duties in the ordinary sense. The purpose of the advance agreement is to ensure to the satisfaction of both sides and the Revenue Commissioners that (1) whatever contributions are payable will have due relief for income tax purposes and (2) that there will not be, in the course of the operation of the scheme, payments of excessive lump sums. But, as such, it has no relevance to death duties.
There are other types of schemes under which death benefits arise and in which a person has no right of enforcement. These are not covered either. I can see the force of Deputy Sweetman's case. I know it can arise in a genuine case. What I propose in the section is that £5,000 of this would be free anyway.
That is there already. That is just to keep it in line with the ordinary estate duty exemption.
That £5,000 is free but, coming on to the next sum——
Another £5,000.
——what I am going to suggest is that, having regard to the points made by both sides, I will consider introducing an amendment increasing that other £5,000 to a reasonable degree in order to take out these deserving and genuine cases. I undertake to bring that in on Report Stage. Will that satisfy Deputies who have expressed apprehension?
I should like to ask the Minister to look at the whole structure of the section. What pensions are captured by this section and what are not? I should like him to tell us where we stand in regard to what pensions are captured. He said contributory. From the point of view of estate duty and of actual payments, we do not know what the relative incidence of these pensions is, and I think we should have a very clear idea of what pensions are captured by the section and what are not. We can come back to these points later, but I add my voice now to that of Deputy Booth. I should like the Minister to leave the way open for him to consider the section and its implications as a whole. We have not had very many opportunities of examining it in detail. In particular, I should like to be very clear as to what pensions are captured; it is there already; they are contributory. Equally, it is important to know what pensions are not. The Minister has instanced cases of evasion.
I was talking of death benefits rather than evasions.
The important thing is the implications of the section with regard to the social structure. What type of person will it affect? What type of person will it not affect? The case of a company director that the Minister referred to is, of course, a practical consideration and one will have sympathy with the Minister and the Revenue Commissioners if there is anything like evasion or the doing of something that should not be done. However, the trouble about a section like this is that it may do more than is intended or it may not do as much as it appears to do on the face of it. I should like the Minister to clear up these points and keep the way open for himself to give some larger reconsideration to the whole section.
What the Minister has said about exempting a greater total value than £5,000 may be a matter to be considered in relation to a defence of the section. At the moment we are concerned with a proposal that, whatever death benefit falls now to be charged for estate duty where otherwise it would not be charged, that benefit should not be aggregated with the rest of the property passing on death. That proposal, if it is accepted, would merely extend to these death benefits covered by section 22 what up to this has been the accepted principle in relation to benefits of this kind under section 4 of the 1894 Act in respect of the provision made under insurance policies and so on. We will be discussing that in relation to section 23 but, up to this, it has been accepted that where provision is made at the instance of a person, who will never benefit himself and who can have no interest in it himself, that provision which passes on his death, while it is liable to estate duty, is not aggregated with the rest of his property. I do not know what the full legal position is. I endeavoured to ascertain it, but I certainly do not know it. I am sure Deputy Sweetman knows a great deal more. But I understand the position to be at the moment that, where a pension is provided or secured in an employment as a result of a contributory scheme or as part of the contract of service, that already is liable to estate duty because it is regarded as a pension or provision provided by the deceased.
It is also aggregated.
Yes.
I do not think a contributory pension aggregates at all. I think the effect of my 1955 Act was that it did not. All the benefits to different dependants are aggregated, but they are all treated as one dependent estate, so to speak.
In any event, the point I want to make in relation to such contributory pension schemes is that this section is obviously necessary because they are already caught for estate duty. This section, therefore, is designed to deal with the type of superannuation or pension scheme or death benefit which is not provided by the deceased in the sense that he has contributed to it but is provided by his employer, or someone else, as an added amenity in relation to his employment or something of that kind.
Only certain employers.
I doubt if civil servants contribute to a superannuation scheme. I am reminded by Deputy Byrne that bank clerks do not and death benefits arising in those circumstances at the moment would not be liable under the law to estate duty. Obviously this section will have the effect of making such benefits chargeable for estate duty. I know the Minister says that it is not, of course, that kind of person he intends to catch; he intends to catch the man who, during his life, subtracts from his means a certain amount of money which, when he dies, reappears in the form of a beneficial interest accruing on his death. It is the very monied man who can take from what he does not require during his life and make certain provisions and subsequently a pension or some benefit appears for his dependants. That would be an understandable approach if that appeared to be the only effect of the section. But it is not the only effect of the section. The section, as it appears here before us, is a section which clearly will tax bank clerks, junior civil servants——
No.
——and other people of that kind. I do not know whether civil servants contribute towards pension schemes.
What about the Deputies' pension scheme?
I kept well away from that. We contribute certainly. That will be the effect of it. If that is to happen, it certainly would appear to me to be elementary justice that that benefit itself, if it is to be taxed now for the first time, should bear its own taxation and should not be aggregated with other property. The Minister, while he talks about considering providing an increase on the £5,000 limit, is not answering the case made to prevent aggregation. While I appreciate the Minister's indication of an intention to look at that provision of the section again, I cannot, merely because he says that, withdraw the amendment in relation to aggregation, which is a different thing. If these benefits are to be taxed, it appears to us to be only reasonable that they should not be aggregated.
I do not know whether it is the bad training I got when over in the Minister's seat there, but in relation to these two sections, let me look for a moment, regardless of what the sections provide, at what I think is fair in the circumstances. As long as we have a scheme for death duties, it seems to me reasonably fair, where there is a death benefit under a superannuation scheme, contributory or non-contributory, or where there is a policy provided under the Married Women's Property Act for the benefit of a wife and dependants, there should be a limited provision there in relation to death duties that would prevent in that way too much amassing of personal fortune and passing it on.
The scales in relation to death duties in general are deliberately designed on a graduated basis for the purpose of ensuring that in the smaller estates there will not be hardship and, if the estate gets larger, that there will be appropriate slices taken off for the general good. The law, as I feel it should be, is that the benefits in this category should be isolated in that category and treated in that isolated category in the manner appropriate to death duties for the general law of the land. That will mean that in the case where the superannuation scheme benefit does not exceed £5,000—the Minister was quick to correct me in the case I gave of a £10,000 benefit— smaller benefits up to £5,000 each are treated in isolation. On the benefits that section 22 and section 23 will affect, there is no death duty payable. If that amount goes up to £10,000, there is duty payable at four per cent. If it goes up to the top, the curious fact is that the very rich man—the man the Minister was talking about last night—would not be affected by what we are doing here, because he would be already at the maximum.
These two sections appear to me to infringe that principle. They appear to me to have been imported into this Bill because of the situation that arises in England, where they might be operative and where death duties rise up to 80 per cent in the case of very big estates. In such cases I can see every necessity for some restrictive measure of this sort, particularly in respect of a non-trading company. But here there is nothing like that. The maximum here was set by the Minister's predecessor, Dr. Ryan. The minimum is at the £5,000 level. The margin in between is really not worth bothering about to the extent that anybody is going to get away with murder, because they are not. But I do think doing it in this way the Minister will unduly hit the ordinary, run-of-the-mill case in which we are all concerned and which we see day in and day out.
If the Minister provides that benefits passing on death pay duty, pay that duty as an estate in itself, and that policies under the Married Women's Property Act are treated in the same way—that they pay that duty as an estate in itself—provided that all the benefits are amalgamated and you cannot therefore avoid duty by making separate policies, one for the wife and one for each child, and in that way depress the value that comes under the superannuation or the Married Women's Property Act, then the Minister is going to get a fair cut; and, at the same time, it is going to avoid the undue hardship that undoubtedly these cases would mean.
There is no doubt whatever, without going into the question of retrospection, that the enactment of these two sections will mean that a great many people in the small class will have to turn around and rethink out their whole basis for their dependants if they are taken suddenly. The worst thing of all about section 22 and the manner in which the Minister is doing it now is that it is going to hit the young widow who has young children much harder than the person who dies in harness maybe a year or two before he is going to retire. That man, the man who dies just before he is going to retire, probably has got his children brought up and, we hope, provided for and settled in life. The value of the pension to his wife, presuming they are of an age, is smaller than it is to the young widow who has a great many years before her but is caught at the most vulnerable point of time as far as she is concerned because she has young children on her hands and the breadwinner is gone. The type of people we are considering here in our inflated values of today are not rich people.
The provisions the Minister is introducing are provisions which are applicable to the very rich in England, running up to the 80 per cent duty. I could understand a case being made for that. I am afraid that all the provisions which are being introduced in this Bill are being brought in for the purpose of doing in another way what Resolution 18 was suggested to do. I believe that the approach to this has been: "We want to make sure that we get 100 per cent certainty against avoidance and as long as we get that, we do not care whom we hit on the way". That is a wrong approach. I still believe that what happened in relation to Resolution 18 was that it was put up to the Minister: "This is the only way in which you can get 100 per cent certainty against avoidance", and on that it was put through. The sections have been framed with the same mentality.
You cannot get 100 per cent certainty against avoidance without hurting probably 50 to 60 per cent of the cases nobody wants to hurt. It is much better that one odd person should get through with the difference between, say, the tax on a life policy of £50,000 and what he would have to pay if it were aggregated — the difference between 30 per cent and 40 per cent—ten per cent on £50,000, which is £5,000. It is much better that one person should get away with that than that 99 should be hit unfairly. The whole of this part of the Bill has been deliberately framed, I suggest to the Minister, with the intention that the job to be done was to provide 100 per cent prohibition on avoidance, regardless of whom it hit in the event. That is bad. With our maximum rate of 40 per cent. it is not worthwhile proceeding on that basis and it would be far, far better that one odd person should get through the net and for the general run of people to be reasonably and fairly deducted, and no more than reasonably and fairly deducted.
My concern is with subsection (4) in relation to small farmers and smallholders. I do not know if it is the Minister's intention to raise the figure from £5,000 to £10,000. If it is, it would serve a very useful purpose. I believe it will be necessary to have the figure nearer to that level, particularly for small farmers. In my county a farm of 30 acres will make £5,000 today and with the necessary stock—a farm of that size should carry 15 cows—and with the other appurtenances, this would bring it up to another £5,000. A well worked farm of that size will still only produce £4,000, or at the maximum, £5,000 a year.
The Deputy will appreciate that amendment No. 33 is before the House.
I am trying to relate this to what has to be paid out of this figure. Assuming that he would have to pay on £4,000, a young farmer who got his holding from his father on his death will be faced with the payment of £400 death duties. Over five years he would have to pay £2 a week out of his earnings to the Revenue to clear up that £400. It is on that type of person that this section leans hardest of all. He may be a person who is already overburdened in other directions. I would ask the Minister to give all the advantages that should accrue here to this type of person. If nothing else, there is a case in the fact that the £5,000 in 1961 must now be nearer at least to £7,000 or £8,000 on present-day values. I should like to have an assurance from the Minister that this figure will be raised to £10,000. I doubt if it would be worth the candle otherwise in regard to what would be collected and there would be endless trouble trying to collect it. I am asking the Minister to do this in my capacity as Chairman of the Kerry County Committee of Agriculture, on behalf particularly of our small farmers, and to give them every consideration and avoid endless trouble.
The Minister, when speaking last, gave an explanation of what he intended to do and I am afraid I am even more confused now than before he spoke. Perhaps the Minister would give an explanation which is a little simpler.
I should like, first of all, to answer a couple of points which were made and perhaps I will be indirectly answering Deputy Norton in a way he will understand. I appreciate that I may not be terribly explicit but it is a new line of country to me and while I can understand some of it, not all of it, I may be able to explain the some I understand. I agree in general with what Deputy Sweetman said, that we should so frame our tax laws as to ensure that we catch the people we would like to catch. The trouble is that these people can so arrange their affairs that they can get around almost any piece of legislation we introduce here. In that respect I should like to refer the House to, unfortunately, a British judgment by Viscount Simon, Lord Chancellor, in May, 1942. I have not got the reference to the case but his remarks are of interest in this context. He is quoted as saying:
My Lords, of recent years much ingenuity has been expended in certain quarters in attempting to devise methods of disposition of income by which those who were prepared to adopt them might enjoy the benefits of residence in this country while receiving the equivalent of such income, without sharing in the appropriate burden of British taxation. Judicial dicta may be cited which point out that, however elaborate and artificial such methods may be, those who adopt them are "entitled" to do so. There is, of course, no doubt that they are within their legal rights, but that is no reason why their efforts or those of the professional gentlemen who assist them in the matter, should be regarded as a commendable exercise of ingenuity or as a discharge of the duties of good citizenship. On the contrary, one result of such methods, if they succeed, is, of course, to increase pro tanto the load of taxation on the shoulders of the great body of good citizens who do not desire, or do not know how, to adopt these manoeuvres.
What I am after is one such device and perhaps here I might be of some assistance to Deputy Norton. I think he understands that death benefit accruing out of property not purchased or provided by the deceased is not, under the law, liable to death duties. As I said before, I think it is agreed that contributory schemes are in general caught. A man who owns a company is entitled to receive, say, £x a year. He says to the company: "Do not give me £x a year but give me £x-£y a year and put the £y away into a fund that will be worth a lot of money on my death and give that to my wife or my children or my brother or my sister", and so on. He has succeeded in siphoning off that amount of money from his estate which otherwise would form part of his assessable estate on his death. That is the kind of case we are looking to catch and these are usually the cases in which a considerable amount of duty is involved.
Would he not be taxed on another estate on that? Would he not be taxed separately on that?
No; it is not deemed to have been purchased or provided by him and therefore it would not be taxed at all.
I would be prepared to go this far with the Minister that it should be taxed but as a separate estate — taxed in isolation, as I described it.
On the other hand, there could be what appear to be genuine schemes in which the death benefits could involve very considerable sums. It would be difficult, I think, to justify relieving them completely, or not adding them to the person's estate for tax purposes. So, in between these two, it is very difficult to frame legislation that would be effective for the purpose intended. I got a letter, to which Deputy Booth referred, marked "Personal". I assumed it was addressed to me and to me only.
No.
I set about having a polite reply prepared. That could have been done. I saw the personal letter to me in the newspapers and everybody else got a letter marked "Personal" along the same lines. The company on whose behalf it was written are very expert people. I will not say whether they are the type of people to whom Viscount Simon referred. However, they are very expert in the tax field, anyway. I am not denying the validity of the type of point they were making and which Deputy Sweetman made in his own way. I think Deputy O'Connor was slightly off the line, so to speak, as far as this section is concerned. I think he thought we were talking in more general terms about death duties. But if, added to the £5,000, there were the £5,000 we have here, then, to make that free of liability, it would mean a sum of £10,000 which would be completely free. It is not perhaps a terribly high sum in present terms of money, especially in the case of a young widow.
The moment the Minister does that, he will be in a position easily assailable to raise the exemption for all free estates up to £10,000. I should be delighted to come after him for that.
With regard to the increased sum beyond the £5,000 provided free here, I think we would be making very ample provision in genuine cases. Realising how difficult it is to restrict the operation of the section to the type of case we all agree ought to be taxed and also to have regard to not permitting benefits, no matter how high they are, under what we might call genuine schemes, to escape as well, I think it is necessary to keep the form of the section as it stands subject to giving an even better higher limit as far as the value of the death benefit is concerned.
Do I understand the Minister to say that he will reconsider the amount of £5,000 with a view to raising it further?
Yes. Even as it stands, I doubt if any superannuation scheme providing for death benefits, of which Deputy Norton or I are conscious, would be affected.
By this?
That it would be caught again: the ordinary superannuation scheme would not be caught at all.
Does the Minister mean that it is caught already?
The ordinary person for whom superannuation is provided —£5,000 plus £5,000, which is £10,000.
You mean in relation to value?
When the Minister talks about wealthy company directors who try to avoid their liability for death duties, I may say I do not regard people with £10,000 or £15,000 as the type of persons we ought to try to capture. It is socially very desirable that husbands should be encouraged to provide for their widows and children. The emphasis which we ought to place should be further to encourage and not to handicap them in any way. The fact that a few people may try to avoid it is a poor argument for trying excessively to deal with these small estates. The Minister really ought to raise his idea of what is a reasonable amount of money. I think he has not adjusted to the 1965 prices.
That is why I suggest I be given a chance to do that between now and the next Stage.
I should like the Minister to clarify the position for us. Section 22 does one thing expressly and another thing follows from it. Subsection (2) provides expressly that death benefits will be liable to death duty. It provides expressly that a death benefit shall, for all purposes of death duties, be deemed to be an interest provided by the deceased and to pass by reason of a disposition made by him. Frankly, I am prepared to accept that but I am not prepared to accept what it does by implication. As I understand the situation, unless there is in some section another subsection expressly excluding aggregation then aggregation is operative.
It is, yes.
I urge the Minister to accept the view I put forward a few minutes ago. Let the benefits be subject, but treated in isolation. Then you will get fair justice for all, a little bit one way, a little bit the other way. When talking in terms of very large sums being made available, once we go into the very large sums, then they are not benefiting because of the fact that we have a top limit of rate. If we had not that top limit of rate, if we ran up to the 80 per cent, then it would matter. But in these circumstances here it does not really matter. It would be far better, and far more logical, to make them all liable, make them all run as an estate in themselves, and if they are under £5,000, they will automatically be free. If they are over that, they will have to bear a little bit and if they get right up to the big money the Minister is anxious to get after, they will be caught for much more.
I am concerned mainly with who are affected by the provisions here and who are not. Deputy Sweetman has dealt with the widow and certain other cases. I think Deputy T.F. O'Higgins is wrong in some of his assumptions. I feel this section needs further consideration as to what pensions are captured and what are not. I would ask the Minister, for that reason, to clarify that matter and also keep himself open to consider perhaps broader amendments, if necessary, on Report Stage.
I take it, while discussing this amendment, I may also speak on the section. Subsection (2) states:
A death benefit shall, for all purposes of death duties, be deemed to be an interest provided by the deceased and to pass by reason of a disposition made by him.
On the face of that an interpretation is being put by Deputy O'Higgins in which he seems to assume it will capture all death benefits wheresoever and by whomosever they are. I think it will be found that that will not be so. This requires a little more examination as to who will be affected and who will not. I am with the Minister in regard to the type of case he wants to capture. I am sure we are all with him in that. Deputy Sweetman has not put a tooth in it. We are all apprehensive about the type of case Deputy Sweetman mentioned and I would ask the Minister specifically about uniformity of the incidence of the use of this taxation.
The Minister says the people who are using a device like that should be caught and I do not believe anybody will disagree with him on that. Deputy Sweetman says that in trying to get 100 per cent certainty against evasion, you cover a number of cases that were not intended to be covered. The answer to that is that it will not be enforced in certain directions. The Minister is going in that direction with the raising of the levies. I do not believe we have had enough time to examine this. I think Deputy O'Higgins is definitely under a misapprehension when he thinks this captures everything. We should all have another opportunity of having a look at it. I ask the Minister, at this stage, to leave himself open and we can reconsider the matter on Report Stage.
In order to save myself from this unwarranted attack by Deputy de Valera, would the Minister indicate to me what death benefits, if this section passes, now escape the net of the estate duty? I assert none escapes.
As the section stands, death benefits that would not exceed £5,000 payable to a widow or children.
Any death benefit in excess of £5,000 will be caught for estate duty?
Ex gratia payments are also not caught. Deputy de Valera asked me what is in and what is out at the moment. The contributory superannuation scheme is in at the moment but it is not aggregable with the free estate. This section would in effect make the contributory scheme benefits aggregable with the rest of the estate for death duty purposes but there are other superannuation schemes which are non-contributory and it has been claimed that the benefits payable on the death of a member of such a scheme, unless of course paid to the person's representative, are not liable to estate duty since they were not purchased by the deceased.
The Minister is using my precise words.
The second scheme is one which is framed in such a form that the identity of the person who is to benefit on the death of the employee rests on a selection made by the trustees of the scheme. It is argued there that the benefits are not liable to estate duty since the discretion is vested in the trustees and no person is entitled to demand payment.
That is the Bibby case.
There could be a lot more. There is a third case which benefits by way of insurance or some other benefit which a company pays on the death of a person. Prior to death the man has not paid anything nor has he any right to provide payment or take anything out of the fund so provided. That category is also outside the present taxable sphere.
Will all these be captured by this section?
That is the intention.
I still think Deputy T.F. O'Higgins is not right. I will have another opportunity of raising this matter, if only once, on Report Stage. There is another large class not caught by this, as I understand it.
What is that large class? I will buy it.
I will come to that later. My point is that I want this looked at again. I want this thing kept open. The Minister has answered Deputy O'Higgins in stating certain categories such as the non-contributory type of case. They will now be caught. The section seems to catch all, on the appearances of it. There are exceptions. I have no objection to the exceptions if the same kind of uniformity is in for all other classes. I would like to examine the classes to see what classes or groups, for whatever reason, are not caught by this section. I do not wish to go into this matter any further at the moment. I would again press the Minister to keep himself open on this matter of the other classes of persons who have not an enforceable right to a superannuation scheme.
In actual fact, who would they be in this State?
Tell us who your people are—all those underground people?
Face it straight.
The Minister has intimated that he will have another look at this section. We welcome that response from him.
So far, I am on a limited scale of another sort.
I am certain when the Minister looks at it he will find that that limited scale is even more difficult to define.
In so far as the Minister appears to be thinking on the lines of perhaps doubling the exemption allowance in subsection (4) to £5,000, I want to suggest that that will not meet the case. The type of person spoken of by Deputy Sweetman is the young widow who is the hardest hit by this provision. Her pension rights in some of the superannuation schemes at present in force can have a very high capitalised value of £12,000 or £15,000 or more. My experience is that salaried persons do not often realise how very valuable their pension rights are in the annuity sense. There is one asset above all others which in any probate matter is valued to the full by the Estate Duty Office, that is, a superannuation or pension right. There is no scope for bargaining and no negotiation arises at all. All they have to do is look at the annuity tables. It is assessed to duty to the fullest possible extent. If the Minister is thinking in terms of an exemption allowance in subsection (4) of £10,000 in respect of the young widow, that will merely cover a benefit of about £12 a week.
Plus £5,000, if there were no free estate.
That brings us back to the question Deputy Dillon was speaking about here this morning. I am glad to see the Deputy is back in the House. Whom are we trying to get at in the matter of death duties? Do we want to tax an estate in the £20,000, £25,000 or £30,000 category, in the context of today's inflationary values? The young widow left with six or ten small children and an annuity income of some sort of, say, £1,000 a year is not a proper subject for death duties at all. We heard much maligning from the Minister here last week. Last Thursday's Official Report is not yet available unfortunately. The Minister then referred to the social value of death duties as preventing accumulation of vast wealth. There is something about it in our Constitution— inheritance of vast sums of accumulated wealth.
As Deputy Dillon pointed out this morning when death duties were first devised in the last century, these were the cases it was sought to grab into the net. Nowadays the situation is that the persons hardest hit are persons of very moderate means indeed. I think this section as at present drafted and section 23 are downright iniquitous and no amount of cheese-paring or messing about will meet my objection to it in its present form. I sympathise with the Minister entirely, in so far as he is trying to get at the managing director who joins a superannuation scheme, injects vast sums into it in order to have his estate drawing vast sums and obtaining the benefits and relief not intended for such cases. The Minister can go ahead with that type of situation to the fullest extent and we on this side will support him but, in so far as in this Bill he is grabbing into the estate duty net more and more small people of moderate means, we are entitled to object to the utmost.
I should like to voice an opinion on this. I as a layman would protest against the whole manner in which this section 22 was brought before the House, and I can include section 23. No layman would, and many lawyers would not, have seen the pitfalls that were in this. The Minister says he himself is responsible for it. I find that hard to believe. It is shown in the marginal note to section 23 as:
Cesser of proviso to section 4 of Finance Act, 1894, except with respect to certain property.
The explanation given for that in the explanatory memorandum is:
Section 23 is designed to ensure that property which was provided by the deceased and which, under existing law, is regarded as property in which he never had an interest and is therefore non-aggregable,
The explanation gives us no idea of what is in section 23. It would be great for testing drunken drivers. It continues:
will in future be aggregated with the rest of the property passing on his death for the purpose of determining the rate of Estate Duty payable.
We are discussing amendment No. 33 to section 22.
At the same time, it embraces this. Section 22 is in regard to superannuation. Section 23 is in regard to insurance policies. They are mainly benefits that would come to a widow that heretofore, or even today, were not taxed for death duty but will be now. I find it hard to know who thought this out. I cannot imagine the Minister did it himself or that even the Government did. Surely the Fianna Fáil Party did not because many of them I have met are not in favour of it. I do not know why this is going through the House at all. If democracy were at work in this House, this whole section would be taken away. This is a terrible imposition. The Government have been asking people to save and to make provision for their retirement and a man is expected to contribute to a pension scheme. Now, here late in the day we come in and attack them. It is shameful the way this was brought in as a trap for Deputies. It is shameful the way the explanatory memorandum covers it up. I would suggest to the Minister that the best way out of this—it makes no difference to the raising of money—is to take out section 22, and section 23 as well.
Deputy T.F. O'Higgins said he was against the whole section but that all he could do was put down amendments. The Minister then pointed out he was taxing gifts. If a man worked and earned money and passed that money on as a gift why should the people who received the gift be taxed on it? That is a dreadful philosophy. Did it ever strike the Minister that the people who would be benefiting from this would be working in anticipation of the expectation they will have and they might have worked hard for a whole lifetime and this was not a gift that was handed to them.
There is no human feeling in this. I am glad to be in this House and to see that there are members, prominent members of the Fianna Fáil Party, who have spoken against section 18 and section 22 of this Bill. I think it is not a case of the Minister looking at it again and being mild about it. Demand is here in this House from all sides that the Minister should remove that section.
I think Deputy T. Lynch has overstated the case slightly.
I should like to explain to Deputy T. Lynch that democracy does work but, at the same time, I was not consulted by the Minister before he introduced this Finance Bill. Neither were the rest of us. We can hardly expect that that omission will not occur in exactly the same manner the next time.
I think we should look at the Bill as it was presented to us. I was disappointed at the way the Minister has been speaking just recently when he was explaining to us that he was trying to catch managing directors of companies who were avoiding tax by salting away part of their estates in their superannuation schemes. It is, of course, very common now to assume that all company directors in general, and managing directors in particular, are inherently immoral so far as taxation and remuneration matters are concerned. I think that is not a fact. Certainly we should not pin this section around immoral or even moral company directors.
If a director who is a member of his company's superannuation scheme were doing something unusual, it would be perfectly obvious to the Revenue Commissioners as soon as the scheme was submitted to them for approval. That, I think, wipes out that as an argument. I do not know whether the Minister has got any information from the Revenue Commissioners that this has become a common practice, and that company directors are salting away their funds. We have no evidence so far that that is the case. If I am wrong in that, I am sure the Minister will tell me, but I do not believe it is the case for one moment. To be perfectly frank, I agree with a lot of what Deputy Sweetman said.
I am not so much worried about the person with tons and tons of money because his estate will suffer the maximum rate of estate duty anyway. I am concerned about the great number, and the growing number, of small people who are now members of superannuation schemes. We must get this clearly stated and I want to state it quite clearly now: beneficiaries of superannuation schemes go down in some excellent companies to the very lowest level of employment, and even in medium companies, they include salesmen, foremen, charge-hands and senior employees, male and female. These are not capitalists by any manner of means. They are earning £700, £800, £900 or £1,000 a year at the very least, and many of them are earning up to £1,200 or £1,400 a year, and they are still not regarded as being overpaid or as being wealthy.
Those are the people who will be hit by this provision if it goes through. Those are the last people the Minister wants to hit, or any of us wants to hit. I feel there is still a misconception in the minds of the Minister's advisers that there is some fearful skulduggery carried on by company directors and that this is the only way to stop it. I deny that there is any such skulduggery on any scale. I cannot say there is not even one case; there may be a few; but there are few, if any.
Here we are making provision for what I regard as an almost impossible situation and thereby making life impossible for the dependants of a deceased member of a superannuation scheme who, in many cases, will be completely crippled by the burden placed on them. While the amount which the larger dependants will have to pay in estate duty will be considerable, I cannot foresee that the total amount to Revenue raised thereby would be considerable by any manner of means. I do not think it will help us to reduce income tax, or turnover tax, or anything else. It will be a marginal receipt and Revenue will hardly know whether they got it or missed it. There seems to be in the minds of the Minister's advisers a feeling of jealousy that "someone is getting something which I cannot get", and they take one wide swipe and try to hit someone. They may hit him but the follow-through connects with a lot of other innocent heads.
For that reason I agree with Deputy de Valera in his plea to the Minister to lay off section 22 for the moment and give us some assurance that the whole matter will be reconsidered before Report Stage. We could, if he likes, have a showdown on it, but that is not the way in which we should do it. We had an argument with him this morning on the question of retrospection and, after a very quiet and reasoned discussion, the Minister met us very fairly indeed, and he satisfied us that certain amendments would be made. We were all delighted. I certainly was. I see no reason why we should not be met equally fairly in this matter. There is no point in having a clash. It is quite unnecessary.
I would feel much happier if some specific steps were being taken to combat unjustifiable tax avoidance. I do not agree for a moment that section 22 does that. It is far too much of an omnibus arrangement, and it taxes people who should properly be excluded altogether. I have a horrible suspicion that there are people whose dependants will be in receipt of death benefits of a certain sort who will be excluded from this altogether. The Minister mentioned certain ex gratia payments. I do not know whether he would like to enlarge on that matter at this stage, but that appears to me to show there are still loopholes, and that certain classes of people are being given preferential treatment. I see no reason why they should.
I can see that there should be some differential between contributory schemes and non-contributory schemes. A non-contributory scheme can never benefit the individual who was a member of the scheme. A contributory scheme is part of his own money and, as I say, I can see there may be some reason for a differential there. As regards the ex gratia payment I am more doubtful. On the general principle I feel we would be very well advised, in view of the unanimous opinion expressed in this House, to defer consideration of this section over the week-end at least. I would prefer if it were possible for the Minister to meet us here and now and say that he will agree to have a complete reconsideration of sections 22 and 23 before Report Stage.
Every time I get up I seem to stimulate someone else into action. It is with some trepidation that I get up at this stage. When Deputy Dillon heard last week that the Housing Bill was to be introduced, he said it looked as if we would be here by October. It looks to me at the moment as if we shall be here by October without any Housing Bill. Of course, this is democracy in action.
It was not the Housing Bill. It was the Prices (Amendment) Bill, arising out of the credit squeeze.
The turnover tax.
Brú cháirdeas.
A new word. Nach é brú airgeadais atá i gceist ag an Teachta?
Brú cháirdeas—a new word for Deputy Corish's foclóir.
Where did the Deputy get it from?
As mo cheann féin.
Dineen would not agree.
Táim ceart go leor gan é.
I thought I would be prepared to extend the limit which would apply here to bring in all the genuine cases, but while there is an objection generally to the broad scope of the section, there seems to be a feeling on both sides that the persons who adopt avoidance devices in a big way would defeat the Exchequer generally. Will the House be satisfied, therefore, if I say that not only shall I have a look at the section to see if I can raise the £5,000 limit but to look at it also in a wider context? I shall not suggest that the section will be wiped out altogether.
I do not think it should be wiped out in respect of persons who should be caught, but caught in isolation. In saying that openly here, I am going a long way with the Minister.
If the principle of the amendment were accepted, I suggest it would achieve what the Minister has in mind.
The trouble with me is that I am too reasonable.
That is impossible.
The first essential for any Minister for Finance is to be as unreasonable as possible—as unreasonable as Deputy Sweetman can be on occasions. I am being more than reasonable in saying I shall look the section up and not only, perhaps, raise the figure of £5,000 but widen my thinking on the scope of the section.
I should rather have the Minister say that than that he should commit himself on any particular facet of the provision. I shall be very satisfied if the Minister looks at it generally without giving any specific commitment.
I shall withdraw the amendment in the circumstances.
Having regard to the atmosphere the Minister has generated, I shall use a mild observation. What was in my mind in this respect was far from mild. The paragraph in the explanatory memorandum dealing with section 22 is outrageous. Section 22 does two things: it provides a liability for duty and a liability for aggregation. The paragraph in the explanatory memorandum deals with a liability for duty but is completely silent on the more important effect of the section, the liability for aggregation. Memoranda of this sort are for the purpose of explaining to nontechnical, non-legal people what the sections mean and the legal consequence they will have. The second legal consequence of this section was not explained and it should have been. However, in the atmosphere the Minister generated a moment ago I shall not say what was in my mind in this respect. I shall keep it for another occasion.
I entirely agree with Deputy Sweetman. At this stage it is worth calling the attention of the House to the fact that yesterday and today in many instances we have been probing, inquiring and seeking, at some times unduly persistently, information with regard to the meaning of sections in this highly technical Bill. It is a Bill of legislation by reference and the precise meaning is at times concealed in references to previous sections. Therefore, when one finds in relation to sections 22 and 23 that the explanatory memorandum does not alert Deputies in a clear way to what the proposals are, there is a clear danger that this House, as a deliberative assembly, can be stultified.
It is a very grave threat to the position of Deputies. We in this House, apart from Ministers, have not the assistance of experts in the Departments. Whatever we do must be the result of our researches. We are perfectly willing to do it provided we are alerted to the need for it. In relation to sections 22 and 23, Deputies have been lulled by a feeling of false security through the explanatory memorandum. We have a repetition of what took place in relation to Resolution No. 18. If that continues we might as well lock up the House and let somebody in a backroom in a Government Department legislate. I protest as strongly as possible against this position.
Section 22 as it stands provides that death benefits will be liable to duty in all circumstances, whether or not it is property in which the deceased was deemed never to have had an interest. There is nothing in the section which says it will be aggregated. Section 23 does say so.
That it is automatically aggregated.
The memorandum explained sections 22 and 23 and the word "aggregated" is used in regard to section 23.
Now, now.
It says "shall in future be aggregated with the rest of the property". I am not suggesting that there might not have been a fuller explanation of section 22 if there were a reference in that section to what section 23 proposed but, strictly speaking, an explanatory memorandum is limited to giving three or four lines of explanation of what is proposed. It might have been fuller.
It should have been fuller.
Of course, it is not usual always to invade one section by another in an explanatory memorandum.
It should have been put in layman's language, not in the language of a barrister.