Scottish Court of Session Decisions

The Finance Act 1894 enacts as follows:—Section 5 (2)—“If estate-duty has already been paid in respect of any settled property since the date of the settlement, the estate-duty shall not, nor shall any of the duties mentioned in the fifth paragraph of the First Schedule to this Act, be payable in respect thereof until the death of a person who was at the time of his death or had been at any time during the continuance of the settlement competent to dispose of such property.” Section 5(1)—“Where property in respect of which estate-duty is leviable is settled by the will of the deceased, or having been settled by some other disposition passes under that disposition on the death of the deceased to some person not competent to dispose of the property—( a) a further estate-duty (called settlement estate-duty), on the principal value of the settled property shall be leviable at the rate hereinafter specified except where the only life interest in the property after the death of the deceased is that of a wife or husband of the deceased, but ( b) during the continuance of the settlement the settlement estate-duty shall not be payable more than once.”

Dr Thomas Harvey and Mrs Rebecca Harvey, his wife, on 23rd December 1853 executed a postnuptial contract of marriage, whereby, inter alia, the wife assigned and conveyed to the trustees named the whole means and estate, heritable and moveable, real and personal, then owing and belonging to her or which might be owing and belonging to her at the time of her decease, or to which she might acquire right during the marriage, with full power and authority to uplift, receive, and discharge the estate and effects thus conveyed. It was declared that the said estate and effects and proceeds thereof should be held and applied by the trustees for behoof of the spouses during the subsistence of the marriage and the survivor of them in liferent, and for behoof of Mrs Harvey's children in fee, each of the spouses having stante matrimonio a right to one-half of the income of the estate and effects conveyed.

On 14th February 1897 Mrs Harvey's brother Barnett Harvey, distiller at Yoker, died leaving a trust-disposition and settlement dated 3rd August 1866, whereby he directed his trustees, inter alia, in the last place, to hold and apply, pay, divide, and convey the whole rest, residue, and remainder of his means and estate, heritable and moveable, real and personal, and the produce thereof, equally to and among such of his brothers and sisters as might be alive at the time of his death, and the lawful issue of such of them as might have predeceased leaving issue, who should succeed equally to the share or shares which would have fallen to the respective parents had they been in life. His trustees paid estate-duty on the whole of his property which had passed. Mrs Harvey's share of residue amounted to £26,800, and was paid over by the testamentary trustees to her postnuptial marriage-contract trustees, who gave a discharge therefor in the ordinary course.

On 29th September 1899 Mrs Harvey died survived by her husband and by children of the marriage. Her husband died on 5th January 1901.

On 12th April 1901 an action was raised by the Lord Advocate on behalf of the Commissioners of Inland Revenue against the marriage-contract trustees to ordain them to pay estate-duty in respect of one-half of the trust funds held by the trustees under the contract as they stood at the time of her death, including the amount derived from Barnett Harvey's estate. The marriage-contract trustees lodged defences, and maintained that the sum acquired by Mrs Harvey as a residuary legatee under her brother's settlement ought not to be reckoned as part of the estate liable to estate-duty on her death, because estate-duty was paid at her brother's death on the whole of his property.

The pursuer pleaded—“(1) Under the provisions of the Finance Act 1894 estate-duty is due in respect of the trust funds liferented by Mrs Harvey, and deemed to have passed on her death.”

The defenders pleaded—“(1) On a sound construction of the Finance Act 1894, and particularly section 5 sub-section (2), the defenders are entitled to exemption from the estate-duty claimed.”

The Lord Ordinary ( Stormonth Darling) on 17th ‘July 1901 pronounced an interlocutor in which he repelled the pleas of the defenders; found the pursuer entitled to estate-duty as claimed; appointed the defenders to lodge an account; and granted leave to reclaim.

Opinion.—“The only answer made by the defenders to this demand for estate-duty, as exigible on the death of Mrs Harvey in September 1899, is founded on sec. 5 (2) of the Finance Act of 1894. That section provides (taking it shortly) that if estate-duty has already been paid in respect of any settled property since the date of the settlement, the estate-duty shall not be payable in respect thereof until the death of a person competent to dispose of such property.

Now, the property to which the claim relates is settled property, for it was settled by the postnuptial contract of Dr and Mrs Harvey in December 1853, in trust for behoof of the spouses, and the survivor in liferent, and of their children in fee. No estate-duty has yet been paid in respect of it as settled property, for Mrs Harvey was the first of the spouses to die. But on the death of Mr Barnett Harvey, a brother of Mrs Harvey, on 14th February 1897, she succeeded as absolute fiar under his will to a share of his residue amounting to £26,800, which was carried to her marriage-contract trustees by the conveyance of acquirenda in the marriage-contract, and it now forms by much the greater part of the marriage-contract funds. Estate-duty was paid on

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the whole property left by Mr Barnett Harvey, and this, the defenders say, satisfies the provisions of section 5 (2). It was estate-duty paid in respect of a portion of the settled property subsequent to the date of the settlement, for it was paid in 1897, and the date of the settlement was 1853. True the property was not settled by the will of Mr Barnett Harvey, for he left it absolutely to his sister without any settlement, but it was settled, they say, by the combined effect of his will and the marriage-contract, and it fell at the moment of his death under the marriage-contract trust as effectually as if he had himself created the settlement.

The fallacy of this argument is, I think, that it ignores the double operation which took place on the death of Mr Barnett Harvey. The share of his residue bequeathed to Mrs Harvey became by virtue of his will her absolute property, and if it had not become her absolute property it would not have passed under the clause of acquirenda. No doubt her prior obligation at once attached to it and carried it off to her trustees as creditors in that obligation. The ultimate effect as regards the beneficiaries may have been the same as if Mr Barnett Harvey had created the settlement. But the effect on the rights of the Crown is altogether different. The estate-duty which the Crown received was not paid ‘in respect of any settled property,’ but in respect of property which, so far as the testator is concerned, was not settled. Accordingly the Crown is not said on his death to have claimed or received settlement estate-duty, which no doubt would have been claimable if the property had been settled by his will. It must be remembered that the whole language of the Finance Act, when it speaks of estate-duty, has reference to the death of some person as the punctum temporis on which property passes. The fair meaning of section 5 (2), I think, is that when estate-duty has once been paid under a settlement it shall not be paid again until the death of some person who can dispose of it as he pleases. The settlement may either be the work of the person whose death gives rise to the claim, or it may have been created by the prior disposition of somebody else, but in that case the terms of the disposition must have been such as to pass the property on the death giving rise to the claim. Here the disposition creating the settlement, i.e. the marriage-contract, did not and could not profess to pass any property on the death of Mr Barnett Harvey.

I shall therefore find the Crown entitled to estate-duty, and appoint the defenders to lodge an account.’

The defenders reclaimed, and argued—Mrs Harvey's interest in her brother's estate clearly came within the exemption from estate-duty granted by section 5 (2) of the Finance Act. It was settled property according to the definition, and estate-duty had been paid upon it since the date of the settlement. These were the only requisites to entitle to exemptions and they were both present here. It was not provided that the payment of estate-duty must have been made in respect of the death of the settler, and it was not admissible to read this condition into the clause. In this respect section 5 (2) was in marked contrast to section 5 (1). The policy of the Act was the enfranchisement of the estate after the first payment of estate-duty, and in no event could double estate-duty be claimed— Priestly [1901], A.C. 208; Doddington [1897], 2 Q.B., 373. It might be said that if it were settled estate settlement estate-duty would have been paid upon it as in Wilson v. Maryon Wilson, 1900, L.R. 1 Ch. 565; but that duty had never been asked, and the fact of its not having been paid could not subject the estate to a double estate-duty. The only thing which could disentitle to the exemption was that the party interested in the fund should have had a power of disposal over it, but Mrs Harvey never had such a power, as all estate was immediately carried to the marriage-contract trustees— Simson's Trustees v. Brown, 17 R. 581, 27 S.L.R. 472.

Counsel for the respondent were not called upen.

At advising—