Financial Resolutions. - Financial Resolution No. 7: Death Duties.

I move:

(1) That in relation to gifts made on or after the 28th day of April, 1971, the exemption of gifts made in consideration of marriage be limited—

(a) when made by a party to the marriage or a parent or remoter ancestor of a party to the marriage, to so much of the principal value of the property comprised in the gift as does not exceed £5,000, and

(b) when made by any other person, to so much of the principal value of the property comprised in the gift as does not exceed £1,000.

(2) It is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1927 (No. 7 of 1927).

I wonder would the Minister explain this? There may be a reason for it but I do not recall that this resolution in its terms is covered by the Budget statement and so far as it appears——

Speaking from recollection, I think the Deputy is correct.

Well, it is strictly not dealt with.

It is not. Death duties are dealt with but this is not dealt with.

I think the Deputy is correct in saying that. I certainly did not specify what is involved in this. It is part of an avoidance operation in relation to death duties. I did indicate generally that we are dealing with them but in this particular case it is necessary to deal with it now. The reason for taking it now is that having given notice of the change, duty could be avoided by a person giving a gift now. If we were to await until the enactment of the Finance Bill there could be large scale avoidance and that is why I am asking the House to take it now.

There could hardly be large scale avoidance unless there was a large number of marriages pending.

Or a lot of deaths between this and the Finance Bill.

What is involved here is really a method of avoidance. Admittedly, it is related to gifts in consideration of marriage but there are a lot of marriages taking place.

I would suggest that it is anti-social. It is the only piece of legislation which I know which reduces marriage consideration from its category of being a valuable consideration. In effect, it disregards marriage as being a valuable consideration and it is equating it with a completely voluntary gift. It is anti-social to that extent. If a father,bona fide, settles property of £10,000 on a daughter, and I presume that the five year exemption applies——

Well, if he settles property of £10,000 on a daughter or son on marriage, which might not be a large sum having regard to the value of agricultural land nowadays——

Two fields.

Or a house.

——and he does not live for five years following that there could be death duties payable. It is completely anti-social.

Well, it is a view which one may take of it but all I would say is that is a view that has been taken before. As the Deputy appreciates, this is merely an amendment of an existing provision and it is not a new concept that we are introducing.

Has there been provision already in the estate duty code to bring within the estate duty net gifts in consideration of marriage? I quite appreciate the voluntary gift.

Yes. They are restricted at the moment to gifts made by a person to the parties to a marriage, and the value of the gift is limited for the purpose of exemption from duty so that, as I say, the concept is not new.

Limited to what figure?

I think it is what is set out in the resolution.

No, the resolution, in effect, says the exemption of gifts shall be limited in relation to the parent to £5,000. This seems to be a resolution restricting or cutting down an exemption already recognised, the exemption already recognised being that gifts made in consideration of marriage shall be exempt from death duty. Now this resolution says that the exemption of these gifts, when made by a parent or remoter ancestor, shall be restricted to £5,000 in the case of a parent and £1,000 in the case of, say, the uncle or the aunt, or somebody else, or a putative father or somebodyin loco parentis.

I am sorry, I have misinformed the House. I was under the impression that we had limited this before to relatives but we have not in fact done so. The Deputy is correct. The proposal here is to limit it to relatives and to the figure set out in the resolution.

I think Deputy Cooney is quite right. This seems to be a major change in taxation. As I understand it, it has always been taxation policy—I suppose that is the wrong phrase—that a gift in consideration of marriage, to encourage young people to marry, particularly in relation to rural Ireland, has always been regarded as socially right and proper, and subject to the usual liability that follows any gift in relation to death within a particular period, five years, it was exempt. Now we are being asked to pass this resolution and may I say to pass it without it being mentioned at all in the Budget statement which is certainly unusual?

I must confess that the principle involved does not worry me at all although it seems to worry Deputy Cooney. I would be more concerned with the practical application of it. Perhaps if I mentioned to the House a case which did occur it would illustrate what we are trying to get at. The case was where a man was dying and within a week of his death he transferred what appeared to have been his entire assets, valued at at least £100,000, to his daughter in consideration of her forthcoming marriage. He had a wife and four children but this is the provision he made and of course the property was thereby exempt from estate duty——

Provided she married.

It is quite clear what is going to happen, that this man did not decide that he was going to leave his widow and other children completely unprovided for. On the face of it that is what he is doing but that is not what he is really doing.

That is falling into one of the oldest fallacies, arguing from the particular to the general. It is fallacious to bring in this rule because of one instance. An anomaly that occurs to me is that the State can come along and collect death duties on the excess of £5,000 from a person who, during his lifetime, was entitled to draw the old age pension if he qualified by reason of age, having divested himself of his property.

I did not get the Deputy's last point.

If a settlor settles property—indeed if it is a voluntary gift but more so if it is in consideration of marriage—and so divests himself of assets and is over 70 years of age, he becomes entitled to old age pension, non-contributory. Yet, if that person does not live for five years after making the gift, any part of the gift in excess of £5,000 can become liable for estate duty. In other words, a person that the State will recognise as an old age pensioner on a non-contributory basis can be liable for estate duty.

You can include War of Independence veterans in that also.

That may be. Is the Deputy quarrelling with that? I would not. It seems that what is involved here is a form of evasion of duty and the suggestion that, as the Deputy says, we are arguing from one case to the general is not, I think, true. In all of these cases—I have mentioned only one example; there are others—we can take it as axiomatic from what we know of the situation that, if there are some cases, there are others. The word gets around very quickly among members of certain professions as to how duties may be avoided. I may be going a little off course in saying this but I shall not go too far. The point is frequently raised that we appear in these matters to be following the British. There is good reason for this. When the British bring legislation to close loopholes people here discover these loopholes and begin using them. In this particular case, that is what happened, that the British did close this loophole some years ago and now it is being operated here.

Surely this is a radical departure. We changed the law some years ago. We extended the period to which Deputy O'Higgins and Deputy Cooney are referring from three to five years but that did not apply to gifts in contemplation of marriage. Is Deputy Cooney not right that this is anti-social? The Minister may have quoted an extreme case but in the average case whatever the value is that a parent will make provision for if he has more than one child—in fact under the Wills Act he is now liable to make provision one way or another for his widow—in those cases where he made a gift on the marriage of a son or daughter it was exempt from duty. Under this, there is a new proposal by which a gift in anticipation of marriage or on the marriage of a son or daughter will be liable. Surely that is a radical change?

Surely the Minister will take the point—Deputy Cooney puts it on a social ground perfectly validly—that purely from the point of view of existing administrative law, I have never before seen it suggested in a tax proposal that a gift in consideration of marriage would be regarded as an ordinary giftinter vivos. Marriage is always regarded as valuable consideration, removing the gift from the designation of a voluntary gift. This is quite a serious departure it seems to me.

As a matter of principle I am not opposed to this type of taxation which is taxation on wealth as such but a tax measure of that nature should not have built within itself disincentives that have other undesirable features. This one has the undesirable feature of being anti-social.

This is mentioned in the Budget figures.

I was just going to say that——

Perhaps the former Minister could?

"It is proposed to introduce wide ranging provisions designed to prevent avoidance of estate duty by means of family companies, gifts . . . "

I am obliged to Deputy Haughey for drawing attention to that.

That is the only reference to it.

No. There is another reference on page 42—the concessionary provisions in relation to gifts and artistic objects. I admit that the reference is not——

The reference is a bit vague.

I agree. I am not disputing that. However, the problem here as far as I am concerned is, as I have indicated, that when a loophole is closed in Britain people begin to avail of it here and we have to close it. This has happened here. I think we must close this loophole. I gathered Deputy O'Higgins was concerned with the practical application of this and the amount involved. I confess that I have not examined very closely the particular limits we are proposing here, what their practical application is but if the House wishes and it is open to me I will have a look at this between now and the Finance Bill. May I just check in case there may be a technical problem here? Of course we could relax the limits but we may have to have regard to the terms of the Resolution.

Could the Minister say what amount is expected to accrue from this?

The amount of duty?

What is the extent of the evasion?

I could not put a figure on that.

I suggest that such a drastic change should only be made when there is very clear evidence that it is needed.

I am sure Deputies realise that this whole thing is a continuing battle between the Revenue Commissioners and the duty avoidance specialists and, as I have indicated, very often if there is a loophole discovered and closed in Britain, it is used here. In regard to tax avoidance, we have a duty where we can, without chasing into every mousehole, to prevent this kind of thing happening. There is no point in imposing higher death duties, as I have done, if at the same time we are lax about avoidance measures. Therefore, we must do these things. They create difficulties but if we fail to do them we shall make the situation worse.

I agree with what the Minister says about the perpetual warfare and so on but here may be an example of ordinary innocent people being made cannon fodder in that warfare.

Is it intended that the increased rates will only apply to deaths occurring after the passing of the Finance Act?

Yes. We assume, reasonably or otherwise, that a person will not actually die in order to avoid duty. It is one form of evasion he will not adopt so that we are safe enough in leaving it until after the Finance Act.

It will apply to gifts made after the 28th, today?

This one, yes, but Deputy Haughey's question was a different one.

Question put and agreed to.