Mrs. Thatcher
I beg to move Amendment No. 107, page 43, line 33, at the end to add:
(5) (a) This section shall not apply where prior to 3rd May 1966 an interest which at some time belonged to the deceased but which apart from this section was not limited to cease on his death has been bona fide sold for full consideration in money or money's worth; and,
(b)in the case of any mortgage of such an interest so made, any duty payable by reason of an application of this section shall rank as a charge subsequent to that of the mortgagee.
This is a short point, and I shall put it briefly. Niall MacDermotThe Financial Secretary will be aware that when there is a change in Estate Duty provision it operates in one sense retrospectively. I am particularly concerned with the case where, before the change was announced, the interest affected by the change had been purchased by a bona fide purchaser for full consideration.
Where there is a change of this kind, protection for such a purchaser is often put in the Statute. There is a precedent in Section 17 of the Finance (No. 2) Act, 1940. When a change was made in the rate of Estate Duty, that Section gave protection to those who purchased the interest before the change in the rate. We ask for similar protection here, as otherwise the purchaser may be very adversely affected by the change.
The Solicitor-General
Everyone in the Committee can understand and sympathise with the principle for which the hon. Lady has contended. She says that where someone has bona fide purchased an interest, or advanced money on mortgage in reliance upon the existing law, that person should not be penalised by a change in the law which he could not have foreseen.
When the law has been changed in the past, provision has sometimes, but not always, been made to protect such bona fide purchasers or mortgagees. There was such a case in 1962. By Section 28 of the Finance Act, 1962, foreign land was for the first time brought into charge for Estate Duty purposes. At no time since 1894 had such land been chargeable. It was therefore thought right to except transactions of that kind which were entered into before Budget Day, 1962.
The hon. Lady referred to Section 17 of the Finance (No. 2) Act, 1940, which [column 770]provides permanent protection against increases in rates of Estate Duty for such bona fide purchasers and mortgagees. The situation with which we are confronted is quite different. Any purchaser or mortgagee of one of these extended life interests will only have made his purchase or executed his mortgage deed at some time since 15th December last. That was the date of the judgment in the Ralli case. It must have been abundantly clear to everyone concerned in transactions of this kind that a new loophole, and a very large loophole, in the revenue law had been opened up by the decision of the House of Lords, and it must have been also abundantly clear that this was a loophole which would be closed at the first opportunity. That would have been done quite certainly whichever party had been in power and whoever had been the Chancellor of the Exchequer. That is what we are doing in this Clause. Therefore, it is extremely difficult to imagine anyone entering into a transaction of this kind since 15th December last without knowing the risk that he was running.
But, moreover, if we were to accept the Amendment, we should be creating a very dangerous precedent for the future, because it will almost certainly happen again, as has happened on this occasion, that the ingenuity of tax consultants will discover some fresh gap in the revenue law, and then again, whichever party is in power, it will only be a matter of time before the gap is filled by fresh legislation. During the interval until the fresh legislation, however, the beneficiaries have an easy way out. All that they will need to do will be to sell their interest in advance of the legislation and so protect themselves against the charge which will arise.
That is a situation which is bound to happen if we accept the principle in such a case as this. But a very clear distinction is to be drawn between this sort of case, when everyone during this short time since the House of Lords decision must have foreseen that in this Finance Bill or, at latest, the next Finance Bill this loophole would be closed, and the sort of case to which the hon. Lady has invited the attention of the Committee.
Mrs. Thatcher
Sir Dingle FootThe Solicitor-General is assuming that the language of this [column 771]Clause strikes only at the Ralli case. I do not believe that it does. I believe that it goes wider, and for that reason I ask, him to look at the language of the Clause again to ensure that it strikes only at the mischief which he has described. I can foresee one or two cases in which it will go wider. If that is so, his explanation falls to the ground. Again, I ask him to look at the matter. I agree with him in so far as it applies only to the Ralli case.
The Solicitor-General
I certainly agree to look at this point again in conjunction with the other point which the hon. Lady has raised. We are concerned with drafting. We do not want the language to go too wide. We want it to be as comprehensible as the subject-matter permits. But we still draw a distinction between the sort of case with which we are dealing here and the sort of case to which the hon. Lady alluded in her speech.
Mrs. Thatcher
On the basis of that undertaking, I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Clause, as amended, ordered to stand part of the Bill.