Section thirty of the Finance Act, 1922 (which relates to residuary legacies to charitable institutions) shall have effect subject to the following amendments: —
I beg to move, "That the Clause be read a Second time."
No doubt my hon. Friend the Financial Secretary to the Treasury, in considering whether or not he can accept the Clause either now or at some future period, will consider whether he can accept it subject to the necessary Amendment to omit the latter part of the Clause, which, we realise, goes further than the Treasury would probably be willing to go. It has long been the recognised practice to allow exemption from Income Tax in respect to incomes payable to, or held in trust for, a charity. In 1920, as a result of a decision in connection with a charitable bequest to Dr. Barnardo's Homes, it was decided that a residuary gift was not exempted from liability to Income Tax until the residue had been ascertained and was therefore available for transfer to the charity. As a result of that decision, an Amendment was made in the Finance Act of 1922, whereby the residuary gift was exempt as from one year after the date of the death of the testator. From one year after death until the date of distribution an exemption is in fact now allowed, but that leaves a residuary gift to a charity liable to Income Tax during the year following the death of the testator.
The real object of our Clause is to permit the exemption to apply to that year equally as it applies to the period after that year. There is no difference in reality between the first year and the subsequent period, and I hope my hon. Friend will look with favour at any rate upon that part of the Clause which would give exemption for the year following the death. I appreciate that the latter part of the Clause would give a right to a return of Income Tax already paid, and I do not think that that would be a reasonable thing to ask. It was for that reason that I did not wish to include it.
I beg to second the Motion.
As one who is interested in our voluntary hospitals, I am pleased to be able to speak in favour of this new Clause. Its effect would be to allow our voluntary hospitals and other such institutions to be free of the levying of Income Tax in regard to residual estates on any part of their income. If a man leaves a sum to a charity there is often a great delay—and there is bound to be, for no avoidable reason—in winding-up the estate, and because of that I see no reason why the hospital or charity should be penalised by not having the sum free of tax during the first year. Charities are hard hit, as we all know, and anything that we can do to enable them to carry on in a more efficient way than they are doing, ought to be done. In fact many are finding the very greatest difficulty in carrying on at all at the present time, and therefore I think this amendment of the law would be both fair and reasonable.
The Inland Revenue may suggest that they cannot do without the money. That is a suggestion which is often made in respect to Amendments and new Clauses of one sort and another, but I suggest that in this case the Revenue would not be losing a large amount of money. It is a case where they could spare the small amount which they obtain by this means. In fact I go so far as to say that charitable bequests are to a certain extent dried up because the persons who are making the bequests are aware of this liability. I therefore appeal to my hon. Friend to view this in a broad and sympathetic way and to do his best for these great voluntary organisations.
My hon. Friend the Member for West Nottingham (Mr. caporn), who moved this Clause, as far as I could follow him gave correctly the history of this matter. The general principle of the law, as he indicated, is that a residuary legatee has no interest in any of the property of the testator until the residue has been ascertained, his right being merely to have the estate properly administered and applied for his benefit when the administration is complete. The effect of this principle in connection with cases where the residuary legatee is a charity came before the House of Lords in a case concerning Dr. Barnardo's Homes. There the administration of the estate and the payment of residue were long delayed, and the House of Lords held that until the date when the residue was ascertained, the charity had no property in any specific investment forming part of the estate or any income there from, and it was not entitled to repay-
ment of the Income Tax which had been paid. This case came before the attention of the Voluntary Hospitals Committee in 1921, and they made this observation:
We think that the law applicable to such cases might well be amended so as to allow a hospital to claim repayment of the tax as from the expiration of the year from the testator's death.
In accordance with that recommendation, representations were made to the Chancellor of the Exchequer at the time, and the result has been that the recommendation has been embodied in the existing law, in Section 30 of the Finance Act, 1922. Why was the period of one year selected? The period of one year is based on the general rule in administration under which an executor is normally allowed a minimum period of one year in which to pay funeral expenses, specific legacies, and costs of administration. That is why the period of one year was selected, and that is why the recommendation was that the period of one year should be selected. My hon. Friend who moved this new Clause wishes to do away with the period of one year and to allow the charity in question to enjoy the full benefit of the property as from the date of death.
The second part of this Clause is retrospective. I quite understand that my hon. Friend did not wish to move it, but had to move it, having put it upon the Paper, and attaches no immediate importance to it. I should have made some criticisms upon it, but those I can forgo. I ask the House to observe that the law has carried out the recommendations of the committee. No more was asked for until my hon. Friend put his Clause upon the Paper, and if the law is now to be altered, it cannot be altered in a minor detail of this sort satisfactorily. The whole position of taxation in relation to the prolonged administration of estates would have to be investigated. That position reacts very adversely on the Treasury and therefore, while it is appreciated that my hon. Friend has drawn attention to a particular grievance that he thinks exists, I hope he will be satisfied with my assurance that, if and when the law upon this subject is reviewed by the Chancellor of the Exchequer, what he has said will be taken into account.
I am afraid that I have no estimate of it, and I do not think that it would be easily possible to obtain an estimate. It would be a considerable sum in some years and a small sum in other years.