Scottish Court of Session Decisions

The Finance Act 1894 (57 and 58 Vict. c. 30) enacts, inter alia—section 5, sub-section 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 7, sub-sec. 6, enacts—“Where an estate includes an interest in expectancy, estate-duty in respect of that interest shall be paid at the option of the person accountable for the duty either with the duty in respect of the rest of the estate or when the interest falls into possession, and if the duty is not paid with the estate-duty in respect of the rest of the estate, then ( a) for the purpose of determining the rate of estate-duty in respect of the rest of the estate, the value of the interest shall be its value at the date of the death of the deceased; and (b) the rate of estate-duty in respect of the interest when it falls into possession shall be calculated according to its value when it falls into possession, together with the value of the rest of the estate as previously ascertained.”

Section 21, sub-section 1—“Estate-duty shall not be payable on the death of a deceased person in respect of personal property settled by a will or disposition made by a person dying before the commencement of this part of the Act, in respect of which property any duty mentioned in paragraphs 1 and 2 of the First Schedule to this Act, or duty payable, or any representation or inventory under any Act in force before the Customs and Inland Revenue Act 1881, has been paid or is payable, unless in either case the deceased was at the time of his death, or at any time since the will or disposition took effect had been, competent to dispose of the property.”

The duties mentioned in the First Schedule to the Finance Act 1894 are, inter alia, as follows—inventory-duty, account—duty, legacy or succession-duty.

This was an action raised by the Lord Advocate for and on behalf of the Commissioners of Inland Revenue against the testamentary trustees of the deceased Dr William Mackenzie, who died on 30th July 1860, in which the pursuer concluded (1) for the delivery of the account of the heritable estate which was liferented by the testator's widow under his testamentary provisions in order that the estate-duty or otherwise the succession duty payable in respect thereof on her death should be ascertained; (2) for payment of the said estate-duty, or alternatively for payment of the said succession-duty in respect of the succession to the heritable estate arising at the death of the widow; and further (3) for delivery of an account of all the personal and moveable estate which under the said testamentary provisions were liferented by the widow and had vested in his son William James Mackenzie, so that legacy-duty in respect thereof might be ascertained; and (4) for payment of the said legacy-duty.

The defenders pleaded in answer that estate-duty having been paid in respect of the whole settled property since the date of the truster's settlement, no further estate-duty was payable; and further, founding on section 5, sub-section 2, of the Finance Act 1894 above quoted, that they were entitled to absolvitor.

The facts sufficiently appear from the opinion of the Lord Ordinary.

On 1st March 1905 the Lord Ordinary ( Stormonth Darling) pronounced the following interlocutor:—“Having considered the cause, appoints the defenders to lodge the account called for and decerns: Finds the pursuer entitled to expenses.”

Opinion.—“Dr William Mackenzie of No. 1 Oakfield Terrace, Glasgow, died in 1868 leaving a widow and an only child. By his will he directed that his widow should have the liferent of his house in Oakfield Terrace and of one-half of the residue of his estates, heritable and moveable. The other half was to be made over to his son at majority or marriage, and at the widow's death he was to get the half liferented by her. At the testator's death inventory-duty was paid on the whole personal estate.

“The son attained majority in 1879, and on that event the residue was divided into two equal parts, one-half being made over to him absolutely, and the other half being retained by the trustees for the widow in liferent and the son in fee. A residuary account was given up and legacy-duty was paid on the half made over to the son. The other half liferented by the widow was treated as not then chargeable with legacy-duty. It consisted almost entirely of personal property in respect of which, as I have said, inventory-duty had been paid, but it also included a small ground-annual on which no duty had been paid. The same remark applies to the Oakfield Terrace house, which Was retained for the widow's occupation.

“The son died on 3rd February 1901. The widow survived till 20th September 1902. On the son's death an inventory of his estate was given up, showing the value of his expectancy in the estate liferented by his mother to be £19,120, 8s. But from this sum deductions were made for burdens laid on by him which brought out a small deficiency of £99. Accordingly no estate—duty was paid on that half of the original testator's residue, and as regards the value of the Oakfield Terrace house estate-duty was paid only on that part of the value which remained after deducting (1) a sum

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representing the widow's liferent of the house, and (2) the deficiency of £99 on the son's expectancy in the half of the residue.

“On the death of the son's widow in April 1901 a payment of estate-duty was made which included a sum representing the interest assigned to her by her husband in the original testator's residue; but this circumstance cannot affect the question for decision except as regards amount.

“The Crown's claim is (1) for estate-duty on the balance of the value of the Oakfield Terrace house as well as on the value of the ground-annual (so far as not already accounted for), and (2) for legacy-duty on the half of the residue liferented by the widow.

“The defence is founded solely on section 5 (2) of the Finance Act 1894, which provides that ‘if estate-duty has already been paid in respect of any settled property since the date of the settlement, the estateduty 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.’

“Now, the half of the residue liferented by the widow undoubtedly answers the description of ‘settled property,’ and it is true that ‘since the date of the settlement’ estate-duty has been paid on a small portion of it. But does this exempt the rest of the settled property from payment of either estate-duty or of the duties mentioned in Schedule I (5), including legacy-duty? I cannot think so. The meaning and intention of section 5 (2) have been explained by the House of Lords in Priestly [1901], App. Cas. 208. Adopting the reasoning of the late Lord Justice Rigby in Attorney General v. Dodington [1897], Q.B. 373, the Lord Chancellor said—‘The whole question turns upon section 5, sub-section 2. As Rigby, L.J., has said, the manifest difficulty that was in the mind of the framers of the statute was that it would be unreasonable and improper in respect of settled property that the same whole estate should pay over and over again.’

“But this exposition affords no colour to the argument that settled property on part of which no payment either of inventory-duty or estate-duty has been made is to be exempted from duty as regards that part when the settlement comes to an end. The personal part of the settled property here is not liable to estate-duty by virtue of section 21 (1), because it has already paid inventory-duty, and the heritable part is not liable by virtue of section 5 (2) in so far as it has already paid estate-duty. But that is no reason, in my opinion, why the heritable part which has not paid estate-duty should escape payment of estate-duty now, or why the personal part which has not paid legacy-duty, to which it became liable on the death of the testator, should escape payment of legacy-duty now. Such payment will not in either case be a second payment of duty, which is the thing truly struck at by section 5 (2), but a first and only payment;

“That seems to me the short and sufficient view which supports the Crown's claim. I was referred to section 7 (6), but the sole effect of that section on the circumstances which here occurred was to give the son's executors an option (which they may not have had otherwise) either to pay estate-duty on the settled property in which his interest was only an interest in expectancy, or to delay making payment till the interest should fall into possession. For that purpose the section contains provisions as to the mode of calculating the payment. But the section does not seem to me to affect the question of liability for estate-duty, as distinguished from the question of its amount.

“I shall therefore order an account as concluded for.”

The interlocutor pronounced is quoted supra.