Scottish Court of Session Decisions

The Lord Ordinary ( Fraser) pronounced this interlocutor:—“Ranks and prefers the claimant the Lord Advocate upon the fund in medio for succession-duty, at the rate of ten per cent, on the free residue as at the date of Mr Hume's death, with interest on the said duty at the rate of four per cent, per annum from said date in terms of the alternative of his claim; and, subject to that claim, and to the expenses found due to the pursuer and real raiser, ranks and prefers the claimant Georgina M'Cracken to the whole balance of the fund in medio in terms of the first branch of her claim: Finds no expenses due to or by either of the claimants, and decerns.

“ Opinion.—The Lord Ordinary is of opinion that no proof as to the domicile of the testatrix is necessary in this case, because, assuming the domicile to have been in France, he has come to the conclusion that succession-duty is due.

The 18th section of the Succession-Duty Act (16 and 17 Vict. cap. 51), enacts that ‘no duty shall be payable under this Act upon any succession … by any person in respect of a succession who, if the same were a legacy bequeathed to him by the predecessor, would be exempted from the payment of duty in respect thereof under the Legacy-Duty Acts.’ Now, as it was decided— Advoeate-General v. Thomson, February 18, 1845, 4 Bell's App. 1—that legacy-duty was not exigible where the legacy was bequeathed by a person domiciled in a foreign country, then it is said that no succession-duty is claimable by the Crown in the present case. This, however, is a misapprehension of the 18th section of the Succession-Duty Act, because it has been decided that the words quoted referred to exemption by express provision contained in the 55th Geo. III. cap. 184, Sched., Part 3— Attorney-General v. Fitzjohn, 2 Hurlst. & Norman, 465. Therefore, although a bequest may be exempt from legacy-duty because the testator is a foreigner, it does not follow that it may not be a succession, and therefore liable to succession-duty under the wider words of the Succession-Duty Act.

There are two decisions of the House of Lords of recent date, and the question as to liability for succession-duty depends upon whether the present case comes within the rule laid down in the one case or in the other. The first case was that of Wallace v. Attorney-General, 1 L.R., Ch. App. 1, the rubric of which is in the following terms—‘Succession-duty is not payable on legacies given by the will of a person domiciled in a foreign country.’ The testator was domiciled in France, but had large personal estate in the English funds, and he bequeathed the residue of his personal estate to the hospitals of Paris and London, and upon this residue succession-duty was claimed, but the House of Lords held that the claim was untenable. The same learned tribunal had the question before them in 1872 in the case of the Attorney-General v. Campbell, 5 L.R., Eng. & Ir. App. 524, where it appeared that the testator was domiciled in Portugal. He directed his executors to collect all his property which was in Portugal, to convert it into cash, pay certain legacies, and invest the residue in the English three per cents, to appropriate what they should think necessary to pay a life annuity of £50 to his sister, on the termination of which the appropriated fund was to revert to and form part of his residuary estate, and be divided (like the rest) among his three children. The executors exactly performed the directions of the trust; when the sister died the part appropriated to satisfy her annuity became divisible among the children. It was held that this constituted a succession within the meaning of the 2nd section of the Succession-Duties Act, and was liable to the payment of succession-duty. Now, this case of Campbell is very similar to the present one. The testatrix in the present case gives a liferent of the whole of her property to her brother-inlaw Mr Hume, whom failing to Mrs M'Cracken. This liferent corresponds to the annuity given in the case of Campbell. The executors continued to hold the property, and to pay the liferent to Mr Hume. The original executors were Mr Hume and Mr M'Cracken. Mr Hume having died, Mr M'Cracken continued to be the sole trustee in the administration till 1878, when he assumed two new trustees and executors in the persons of Francis Cairncross and George Heron, the pursuer and real raiser in this action. The whole property was conveyed over to these Dew trustees in trust to be applied for the purposes of the will. A further change in the administration took place in October 1878, when Mr M'Cracken died and Mr Cairncross resigned his office of trustee, thus leaving the administration alone in the hands of Mr Heron, the pursuer, who has continued to adminisister the estate for behoof of Georgina M'Cracken, to whom the revenues have been paid since Mr Hume's death. The only difference between this case and the case of Campbell is this, that in the case of Campbell the property was at the time of the death in Portugal and brought to this country by the executors, whereas in the present case the property was within the United Kingdom at the time of the death, but this, according to the English decisions as cited by Mr Hanson in his treatise on the Succession-Duties Acts (p. 225), ‘is immaterial—‘It is to be observed that in this case the testator expressly directed that his property should be invested in this country, but the principle of the decision equally applies to cases where the trustees have power to invest it here or abroad at their discretion, or where the property itself is already actually invested in this country. For when once the property has been appropriated to answer the specific gift, it acquires the character of a trust-fund as distinguished from an ordinary legacy.’ Now, then, let us see what were the grounds upon which the case of Campbell was decided. The Lord Chancellor (Lord Hatherley) said (p. 528)—‘In order to have the personal property administered you must seek the forum of that country where the person whose property is in question had acquired a domicile. Then, when you obtain possession of that property, you do all which has to be done in the country to which the testator belonged. The question is afterwards, when the property has been so obtained and administered, and is in the state in which the testator desired it to be placed, in what condition do you find the fund? You find it in the condition of a settled fund. That condition arises no doubt from the operation of the testator's will; but I can see no difference in consequence of that circumstance from its having arisen in any other manner, as, for instance, from a deed executed in his lifetime, as might have been the case, or supposing he had transmitted to his bankers a sum of money to be invested upon the same trusts. When there is any fund standing in this country in the names of trustees in consols or other property which has a quasi local settlement, which stock in the funds has all the dividends having to be received in this country, and the persons who have to be dealt with in respect of it being persons residing in this country, that fund is subject to succession-duty. The settlement provides for the succession, and the interest of each person on coming into possession is liable to the payment of duty upon that interest to which he so succeeds. That is really the whole question involved in this case.’ Now, applying these reasons to the present case, we have an estate situated in, and with executors resident in, the United Kingdom. They obtain probate as such executors, and they and the assumed trustees vest themselves with the administration of this estate, which they continue until the life-renter dies. The fund which is to be given to Georgina M'Cracken upon the expiry of the liferents has as much the character of a settled fund as the sum which was appropriated to paying the annuity in the case of Campbell.

The executors in the present case are required by the will to give the property over to Georgina M'Cracken under conditions, viz., ‘that the capital shall be placed in such a way that she can neither lend it or spend it, but may, if she please, buy an annuity with it.’ It is very clear that a person to whom money has been bequeathed, without any right overgiven to any other person, cannot be deprived of the jus disponendi by a mere prohibition against alienation; nor can the executor insist, and he does not insist, upon purchasing an annuity for Georgina M'Cracken.” …