the interest which a person derives from property left to or devolving on him upon a death. The Legacy Duty applies to all moveable property of an individual dying domiciled in Great Britain. The Succession Duty applies to all moveable property, not liable to Legacy Duty, under a British settlement, and to all immoveable property in Great Britain. The rate at which the duties are charged is determined solely by the relationship of the beneficiary to the author of the benefit. The existing rates are: 1 per cent. where the beneficiary is the husband, wife, or lineal issue or ancestor of the author of the benefit, subject to exemption where the total value of the property passing does not exceed £15,000 or where the total individual benefit does not exceed £1,000, or in some instances £2,000. 5 per cent. where the beneficiary is a brother or sister, or a descendant of a brother or sister. 10 per cent. in all other cases. 536. We have seen (para. 461) that the incidence of these duties is mainly upon the beneficiary. They cannot, in general, be regarded like the Estate Duty as a deferred tax upon the predecessor, supplementing the Income Tax. Rather, they are acquisition duties, based on the idea that a person who comes into an inheritance may justly be asked for a special contribution to the needs of the State, and that, if the inheritance has in it something of the nature of a windfall, the contribution should on that account be at a higher rate. Practically, however, the duties are very much in the nature of an addition to the Estate Duty, going some way to differentiate the total burden according to consanguinity. In the main, the considerations affecting the Estate Duty affect these duties also. 537. The existing scheme of graduation, which disposes of all the degrees of relationship under three heads only, is rough and cannot be called scientific. But, within its limits, it recognises the main broad distinctions. The rate charged on brothers and sisters is substantial, especially in view of the fact that estates passing by collateral descent fall in more frequently than the average. The 10 per cent. rate, applying to less closely related beneficiaries, is justified by the fact that they have less natural expectation; in other words, the windfall element is greater. 538. The following tables show the yield of the duties in Great Britain for the year 1924-25. Taking the two duties together, it will be seen that more than half of the capital brought into charge related to benefits taken by husband, wife, or lineal issue or ancestor, while the duty relating to such benefits was less than one-fifth of the total. 65184 G 2 * A relatively small part of the duty was chargeable according to lower scales in force at the time of the deceased's death. In certain cases supplementary rates to a maximum of 1 per cent. are chargeable except as between spouses. 66 539. The Legacy and Succession Duties take no account either of the amount of the benefit, or of the other wealth of the beneficiary at the time when he receives the benefit. Professor Cannan, who was dissatisfied with the existing scheme of death duties graduation, suggested that it would be better to base the progression, as in France, on the first of these two factors, combined, perhaps, with the second; he also recommended that the old detailed scheme of progression according to relationship should be restored in place of the very crude existing graduation, and the present confusion between progression according to amount and progression according to relationship should be tidied up " (E. in C., 16). This proposal appears to amount to the substitution of an inheritance tax for the whole of the existing duties, although in oral evidence Professor Cannan showed that his suggestion was meant to be rather tentative. We refer briefly to the proposal for a single inheritance tax in paragraphs 1025-27. * Prior to the Finance (1909-10) Act, 1910, there were 5 steps instead of 3. "I think, perhaps, by altering the system of progression a little, making it depend less entirely upon the one point, the magnitude of the deceased's property, and making it depend also on certain other considerations, it might be possible to do this [make avoidance less likely], but it is a matter that requires investigation and thought." (Q. 814). 540. If the Legacy and Succession Duties were the main duties chargeable on death; their basis would, it is clear, be totally inadequate. Even in their subsidiary position they are open to attack. We have dealt above with the criticism against the Estate Duty that it takes no account of the successor's ability to pay. The existence of the Legacy and Succession Duties amounts to an admission that the principle of the Estate Duty can to some extent be combined with that of an inheritance tax. Naturally, therefore, the question arises whether the Legacy and Succession Duties might not be developed, and whether they might not take account of other elements than the single one of relationship. We do not suggest that in their present form they give rise to positive inequity in any marked degree. It is rather that they appear to fall short of the standard which the idea of an inheritance tax suggests. It is, however, possible that considerations of productivity and of simplicity of administration, which are strong features of the existing system, may in present circumstances be decisive. VIII. The Death Duties and Government Expenditure. 541. It is commonly held that the death duties should be earmarked for redemption of debt or for some other capital expenditure. Many of our witnesses expressed this view, although others were opposed to it. 542. The underlying reason for the view is usually that the death duties “come out of capital," and that, if they are spent as revenue, the country is " living on its capital" instead of its income. This argument is fallacious. We have seen that the Estate Duty (and the same is true of the Legacy and Succession Duties) does not destroy existing capital; what it does, on the collection side, is to prevent a certain amount of new capital from coming into being. In this respect it is not essentially dissimilar to the Income Tax. This point appears to be recognised by some of those who advocate the earmarking of the duties. They emphasise, however, the seriousness of their effect on the supply of new capital, and urge this as a reason for not applying the proceeds to ordinary current expenditure. 543. It appears to us that there would be no special virtue in earmarking the duties to redemption of the debt, or to other capital expenditure which is, in fact, included in the Budget. At best it would seem to be a book-keeping transaction. Mr. Selfridge thought that it would have a good psychological effect. "It is really a matter of book-keeping, but there is the sentimental nature of it. People think that their estates are being taken to pay the pay rolls in Whitehall" (Q. 7181). We recognise that this suggestion has some force. To act upon it, however, would be to encourage the fallacious idea that the death duties are paid out of the nation's capital, while other 65184 G 3 taxes are paid out of income. In any case, there are arguments of a practical nature on the other side. We agree with Mr. McKenna, who was opposed to any allocation, that it might be hampering to lay down "an arbitrary rule an arbitrary rule" (Q. 1920). This aspect of the question was developed at some length by Sir Otto Niemeyer. As he pointed out (Q. 8809), there is a general sort of rough correspondence" between the present Sinking Fund of £50,000,000 and the revenue from the death duties. We agree with him, however, in not thinking "that it at all follows that the amount you ought to be providing for Sinking Fund, on the general consideration of your financial position, is necessarily the same as the amount you happen to be getting from death duties, even on the assumption that death duties come completely out of capital" (Q. 8806). 544. We have expressed the opinion that the Estate Duty is to a certain extent more damaging than income taxation to the supply of new capital. Some of our witnesses held that it does far more harm in this respect. We think it proper to make this effect on capital a ground for scrutinising State expenditure, and requiring that a due proportion of it should be devoted to capital and productive purposes. But we do not think it can justify any special allocation of revenue. A special allocation of the death duties would seem to endorse the mistaken notion that taxes on income do not materially affect the capital of the country. IX. Summary of Main Conclusions. 545. We may very briefly sum up our main conclusions in regard to the effects of the death duties. In the lower ranges of capital value the Estate Duty is comparatively light, and it is only in estates upwards of £50,000 that the burden becomes markedly severe. In the largest estates, although not so crushing as is sometimes represented, it is very heavy, and leads, we believe, to considerable avoidance. 546. Owing to the fact that the Estate Duty is levied on estates in transit, its weight is, on the whole, less acutely realised than correspondingly heavy taxation of income. For the same reason, several incidental inequities are less damaging to the duty than they would otherwise be. Although the duty, when regarded separately, is less equitable than the Income Tax, it forms a valuable supplement to it, capital and income together furnishing a better criterion of ability to pay than either could in isolation. 547. Special inconvenience and hardships are sometimes caused to agricultural landowners and also to private businesses, and in a minority of cases the damage done may be considerable. At the same time, with regard to businesses, it is probable that the duty, amount for amount, is rather less of a deterrent to enterprise than the Income Tax. As regards the effect on savings, we think that the Estate Duty, taking physical and psychological effects together, is distinctly more prejudicial, amount for amount, than the Income Tax; this is due partly to the nature of Estate Duty as a deferred tax, and partly to the fact that the bulk of the duty is drawn from the largest estates. Public companies, as well as private, are concerned here, so far as their supply of capital from the public may be affected. But, whatever the effect of the Estate Duty, it is fallacious to distinguish it from the Income Tax, as coming out of the nation's capital. Although the duty comes out of the capital of individual estates, it is provided out of the national income no less than the Income Tax; both forms of tax alike prevent a certain amount of new capital from coming into being, the ultimate effect depending very largely on the direction of Government expenditure. 548. The Legacy and Succession Duties are minor imposts. While their form is open to some criticism, they appear to us to be based on a sound principle, in that they go some way to differentiate the total death duties burden according to consanguinity. SUB-SECTION VII: INCIDENCE AND EFFECTS OF THE STAMP DUTIES. Introductory. 549. The Commissioners of Inland Revenue remark in their 65th Annual Report that the Stamp Duties are the oldest duties under their management. "They were first imposed in 1694 by the Statute 5 William and Mary, c. 21, the scheme of which was, broadly, that the documents to be charged were to be written on stamped paper, and the sanction relied on for the protection of the Revenue was the fact that documents could not be given in evidence in any Court unless they were properly stamped. Modifications have been made from time to time to meet changing conditions, and new heads of charge have been added, but the main outlines of the scheme of duties remain to-day as they were in 1694." (Cmd. 1780, page 54.) In 1818, after the Napoleonic Wars, the Stamp Duties (exclusive of Probate and Legacy Duties, which were commonly included under this heading) yielded about £5 millions, or about 10 per cent. of the total tax revenue. In 1913-14 they yielded just under £10 millions, or about 6 per cent. of the total revenue. There was no change in the rates of duty between the outbreak of the late War and the 1st September, 1918; the yield fell during the War, the lowest figure being, approximately, £63 millions in 1915-16; in 1917-18 it had advanced to £8 millions, but this figure represented only 1 per cent. of the then expanded total yield of taxation. After the Armistice the duties became much more productive, answering to the boom in trade; as from September, 1920, the rates of certain leading duties were largely increased. In 1925-26 the duties yielded a 65184 G 4 |