Life under the Finance Bill MONEY

NICHOLAS DAVENPORT

Every year, as the wise Lord Goodman re- marked in his devastating article on The

decay of liberty' in last week's SPECTATOR, we

are subjected to a budget which may ruin someone overnight. Can a society, he asked, regard itself as well-ordered when it can dam- age or destroy innocent members without a word of warning or a word of regret or a whisper of compensation, that is, by the mere drop of a Finance Bill? Nervously I turned the pages of the new Finance Bill of 1968.

It covers 111 pages and contains fifty-six clauses and twenty complicated schedules. At first reading it did not appear as fearsome as

Mr Jenkins threatened in his budget speech—

has he had second thoughts or has some bene- ficent influence been at work behind the scenes?—but it is still full of deadly traps and injuries for the innocent taxpayer trying through life assurance to dispose of his hard-won savings in the best interests of his family.

The Chancellor's intention was not to attempt a major reform of- direct taxation this

year but to close up some, of the remaining

loopholes, especially in regard to the estate duty. The period (before death) after which gifts inter vivos are not liable to estate duty has been extended from five to seven years. Clause 30 of the Finance Bill makes one reasonable concession. Gifts made more than two years before budget day (19 March) which had qualified under the old rules for a 15 per cent reduction in estate duty are allowed to retain this reduction even if the donor dies less than four years after the gift.

This period of grace for gifts applies, though the Bill does not mention it specifically, to the assignment of life policies. Mr Jenkins's pur- pose is to put a stop to the device of making gifts of life assurance policies in such a form that they rank as a separate estate for estate duty purpose, that is, when husband or wife assigns to the other a life policy under the provisions of the Married Women's Property

Act. Clause 33 of the Bill lays it down that all such policies are aggregable in the case of the

death of donor or assignor after 19 March whenever the policies had been effected. The new rule, however, does not apply when the total sum assured does not exceed £25,000. This concession looks good but, alas! is . vitiated by the subsequent wording of the Bill.

As the clause stands, three dutiable policies of £9,000 would be caught, being over £25,000 in all. This would be a monstrous injustice. The clause must be redrafted to allow one or more policies to be exempt up to £25,000. Aggrega- tion with the donor's or assignor's estate should apply only to any excess over £25,000. Marginal relief is surely the essence of this concession.

In the case of marriage gifts marginal reliefs are, in fact, allowed in the Bill. The maxi- mum marriage gift allowable as free is £5,000 but the four parents of a young couple about to get married can each give £5,000, making £20,000 in all. This is the sole concession when it pays to get married and not to live in sin. On another occasion the Bill acts in a re- verse moral way. Imagine a woman who has secured a divorce from an errant husband who has settled money on the children of the marriage. Or imagine the dear husband dying during a happy marriage. The woman— divorcée or widow—is anxious to get married again and has become intimate with a rich, charming, unattached man. Under the Finance Bill her chances of bringing him to the altar are nil. He may confess his undying love for her but, being already a rich man taxed in a high bracket, he will protest that it is impossible to marry a woman whose children by another man (he might well de- test the brats) would bring his tax up to, say, 19s 3d in the pound. (Under the Bill the chil- dren's income is aggregated with that of the mother if she has custody of them.) In mar- riage the loving pair would be in financial stress; in sin they would be in clover. I sug- gest to Mr Lever, the Financial Secretary, when he takes this clause in committee that he should come to the rescue of virtue by allowing the income of such children to re- main unaggregated with that of their widowed or divorced mother.

Mr Jenkins in his budget speech properly declared that he had no desire to weaken the tax position of legitimate life assurance or endowment schemes. He merely wanted to deal with tax avoidance more effectively. He did so very effectively over the single premium policies which are now liable to full surtax on the excess profit over premiums paid, plus interest. But the Finance Bill also introduces new conditions which life assurance policies must satisfy if the present tax reliefs are to be enjoyed. One of these conditions concerns the even spreading of premiums. But some excellent policies are issued starting with a low premium of, say, £1 a month to enable students or appren- tices to insure their lives and to step up premiums when they are earning good money. It would be absurd if the Bill were to put a stop to this very desirable form of saving and to discourage the young from being prudent, economical and thrifty.

There are other clauses is this Bill which reveal how legislation designed to catch a few tax avoiders can work to disrupt our way of life and restrict our few remaining liberties. Gifts, for example, have to be 'normal and reasonable'—in the eyes of—God help us! the often abnormal and unreasonable Board of Inland Revenue. Gifts have to be made out of income and leave the donor with sufficient income to support 'his usual standard of life.' But suppose a man is utterly tired of his 'usual standard of life'? Suppose he wants to give away his money, retire to a bedsitter with a few pounds a week and cook his meals on a gas ring in order to be free to contemplate or write or paint or make the protesting objects of 'pop art' now on show at the new Nash ' Gallery? The stern dictators at the Board of Inland Revenue would surely disapprove and find a way to tax his estate remorselessly. I hope that the Mother of Parliaments will see that the Board's dangerous and unreasonable powers will be decently restricted when this Finance Bill comes under debate.