Scottish Court of Session Decisions

The Finance Act 1894 (57 and 58 Vict. cap. 30), in Part I, which includes sections 1–24, deals with estate duty, and by section 1 imposes such duty upon the principal value of the property, real or personal, settled or not settled, which passes on the death of a person dying after the commencement of the Act. Section 2 (1) provides—“Property passing on the death of the deceased shall be deemed to include the property following—that is to say … ( c) Property which would be required on the death of the deceased to be included in an account under section 38 of the Customs and Inland Revenue Act 1881, as amended by section 11 of the Customs and Inland Revenue Act 1889, if those sections were herein enacted and extended to real property as well as personal property, and the words ‘voluntary’ and ‘voluntarily’ and a reference to a volunteer were omitted there from.”

Section 38 (2) of the Customs and Inland Revenue Act 1881, as amended by section 11 of the Customs and Inland Revenue Act 1889, and by the above-quoted section of the Finance Act 1894, reads as follows—“The real and personal or moveable property to be included in an account shall be property of the following descriptions, viz., ( a) Any property taken as a donatio mortis causa made by any person dying after the first day of August 1894, or taken under a disposition made by any person so dying, purporting to operate as an immediate gift inter vivos, whether by way of transfer, delivery, declaration of trust, or otherwise, which shall not have been bona fide made twelve months before the death of the deceased, or property taken under any gift, whenever made, of which bona fide ossession and enjoyment shall not have een assumed by the donee immediately upon the gift, and thenceforward retained to the entire exclusion of the donor, or of any benefit to him by contract or otherwise. (b) … (c) …”

The Finance Act 1894, by section 3, enacts—“(1) Estate duty shall not be payable in respect of property passing on the death of the deceased by reason only of a bona fide purchase from the person under whose disposition the property passes, nor in respect of the falling into possession of the reversion on any lease for lives, nor in respect of the determination of any annuity for lives, where such purchase was made, or such lease or annuity granted, for full consideration in money or money's worth paid to the vendor or grantor for his own use or benefit, or in the case of a lease, for the use or benefit of any person for whom the grantor was a trustee. (2) Where any such purchase was made, or lease or annuity granted, for partial consideration in money or money's worth paid to the vendor or grantor for his own use or benefit, or in the case of a lease, for the use or benefit of any person for whom the grantor was a trustee, the value of the consideration shall be allowed as a deduction from the value of the property for the purpose of estate duty.”

On 17tli July 1905 the Lord Advocate, on behalf of the Inland Revenue, brought an action against John Pemberton Heywood-Lonsdale, of Bicester Hall, Oxfordshire, and others, trustees acting under the antenuptial contract of marriage, dated 28th July 1899, between Henry Heywood Heywood-Lonsdale, of Shavington and Coverley, Shropshire, and the Honourable Helena Mabel Hamilton, third daughter of John Glencairn Carter Hamilton, Baron Hamilton, of Dalzell. In it he sought, inter alia, that the defenders should be ordained to deliver an account of the amount paid to them as trustees by Lord Hamilton of Dalzell twelve months before his death, which occurred on 15th October 1900, in terms of the obligations undertaken by him in the said marriage-contract, in order that the estate duty payable thereon might be ascertained. The amount which had been so paid by Lord Hamilton was £10,000.

The defenders, inter alia, pleaded—“(2) On a sound construction of the Finance Act 1894 estate duty is not payable upon the sum of £10,000 in question, and the defenders should be assoilzied from the conclusion therefor. (3) The said sum not being liable to estate duty is not liable in settlement estate duty. (4) In any event the defenders are entitled to a deduction of £2000 from said sum of £10,000, in respect that Mrs Heywood-Lonsdale purchased the provision to that extent in money's worth as condescended on.”

The facts of the case are given in the opinion (infra) of the Lord Ordinary ( Pearson), who on 3rd January 1906 pronounced this interlocutor—“Repels the defences: Finds that estate duty and settlement estate duty are payable by the defenders in respect of the sum of £10,000 paid to them on 5th September 1900 by the late Lord Hamilton of Dalzell, as property passing on his death within the meaning of the Finance Act 1894, and decerns and ordains

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the defenders to deliver an account accordingly: Appoints the cause to be enrolled for further procedure; and grants leave to reclaim.”

Opinion—“The defenders are the trustees under the antenuptial contract of marriage between Captain Heywood-Lonsdale and the Hon. Helena Mabel Hamilton, third daughter of the late Lord Hamilton of Dalzell. The question in dispute is, whether estate duty and settlement estate duty are due in respect of a sum of £10,000 which was paid to the defenders by Lord Hamilton on 5th September 1900, about six weeks before his death, which occurred on 15th October 1900.

By his own marriage-contract dated in 1864, Lord Hamilton being heir of entail in possession of the estate of Dalzell, bound himself and the heirs of entail to pay a provision of £12,000 to his younger children, divisible among them as he (whom failing, his wife) should appoint, and failing appointment, equally. Upon a disentail and re-entail of the estate carried through in 1894–95, the security for this provision was continued by a bond of corroboration and disposition in security. The younger children of Lord Hamilton were six in number. The provision, equally divided, would yield £2000 to each, but this was subject to the parents' reserved power of apportionment.

This was the position of matters when Captain and Mrs Heywood-Lonsdale were married. By their antenuptial contract of marriage, which is dated 28th July 1899, Lord Hamilton bound himself and his heirs, executors, and representatives to pay to his daughter as pin-money during his and her joint lives, or until payment of a capital sum as after mentioned, a free yearly annuity of £300 as an alimentary life provision, exclusive of all rights of her husband. Lord Hamilton further bound himself to pay to the trustees at the first term after his death a sum of £15,000, free of all death duties, with penalty and interest. He reserved, however, the right to prepay this sum in whole or in part during his life, in which event the payment of £300 should cease from the date of payment of the£15,000, or of not less than £10,000 thereof. The trustees were to hold the fund and pay the income to the wife, whom failing to the husband, and on the death of the survivor it was to be held for behoof of the children or issue of the marriage, subject to a power of apportionment. Failing children or issue, the whole was to be paid to the person for the time holding the peerage of Hamilton of Dalzell.

These provisions were accepted by Mrs Heywood-Lonsdale as in full satisfaction to her of all legitim and others which she could claim through the death of her father, and also in lieu of all provisions by him in her favour in his own contract of marriage.

The present question has arisen in consequence of Lord Hamilton having availed himself of his reserved power to make prepayment of the provision of £15,000 in whole or in part during his life. He prepaid £10,000 of it to the trustees on 5th September 1900, and thereby terminated his obligation to pay £300 a-year as pin-money; though, as he died within six weeks, this ceased to be of practical importance.

The Crown claim that estate duty is payable in respect of the sum so paid as being property passing on the death of the deceased under and by virtue of section 2, sub-section (1) ( c), of the Finance Act 1894. It is proper to note at the outset that section 2, sub-section (1), as now authoritatively construed, brings into charge certain classes of property which do not pass on the death of the deceased, but which, in terms of section 2, ‘shall be deemed’ to be property so passing; see per Lord Macnagnten in Cowley, 1899, App. Cas. 210–3. It is necessary to keep this in mind in construing the section, as it displaces the criterion of ‘passing on the death’ as the test of liability to duty, and substitutes for it the question whether the circumstances of the case in hand fall within the sub-section founded on. Now, the sub-section founded on is sub-section (1) (c), whereby ‘property passing on the death’ is to be deemed to include property which would be required to be included in an account under section 38 of the Inland Revenue Act 1881, as .amended by section 11 of the Inland Revenue Act 1889, if those sections were re-enacted subject to certain important amendments which are set forth. The resulting enactment is to be found at page 110 of Hanson's Death Duties (5th edition), and it is under head A of that enactment that the question arises. This, so far as applicable here, includes (1) property taken under a disposition purporting to operate as an immediate gift inter vivos, whether by way of transfer, delivery, declaration of trust or otherwise, which shall not have been bona fide made twelve months before the death of the deceased; and (2) property taken under any gift, whenever made, of which bona tide possession and enjoyment shall not have been assumed by the donee immediately upon the gift, and thenceforward retained to the entire exclusion of the donor, or of any benefit to him by contract or otherwise. It is plain that this clause is dealing not only with gifts pure and simple, but with a wider class of transactions. In the previous Acts referred to the gift must have been taken under a ‘voluntary’ disposition, and the word ‘voluntary’ is now deleted, which points to gifts made in pursuance of some antecedent obligation as being within the clause. Further, the last clause, as to possible benefit to the donor by contract or otherwise, shows that the gifts contemplated include such as may have an element of onerosity in them, and this (as has been held in England) not necessarily by way of reservation out of the corpus or income of the gift itself, but arising aliunde. Now, the clause so construed appears to me wide enough to include the payment of £10,000 made on 5th September 1900. And if so, if that is the date at which the gift is to be regarded as made, then it is taxable, because it was made within twelve months before the death of the deceased. It is said that

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this is merely a case of a debtor paying his debt before it was due and payable under the contract—which no one would think of describing as a gift; and, moreover, that even the anticipation of the period of payment was here of no advantage to the creditor, because the annuity of £300 (being three per cent. upon £10,000) ceased ex contractu as soon as the £10,000 was paid. But the repayment could not have been enforced, so that it was purely voluntary (though that is not required to bring it within the section); and operating as it did as a gift inter vivos, it was none the less so, within the meaning of the section as above explained, because it was not a pure and simple gift, but was attended with onerous considerations on the other part. I take it that one purpose of the section as it now stands is to distinguish transactions of gift (in the widest sense) from transactions of purchase and sale; and at all events the former, as defined by the words of the clause, do not exclude any given transaction merely because it may be (1) onerous, or (2) enforceable.

But it is said that the only ‘property’ here was the original obligation by Lord Hamilton in his daughter's marriage-contract to pay the £15,000 at the first term after his death, subject to his reserved power to make prepayment to the effect of extinguishing her claim for pin-money. In this view, the ‘disposition’ is to be found in the marriage-contract which contained the obligation to pay, and which is dated 28th July 1899, more than twelve months before the death. But this brings into play the last clause of the enactment, namely, that relating to property taken under any gift whenever made, of which bona fide possession and enjoyment shall not have been assumed by the donee immediately upon the gift, and thenceforward retained to the entire exclusion of the donor, or of any benefit to him by contract or otherwise. It is said that here the donee was put into immediate possession and enjoyment of the gift, first by the delivery of the marriagecontract to trustees, and secondly by the payment of the pin-money. But the payment of £300a-year and the payment of the £10,000 are quite different things, though not unconnected with each other. And the immediate possession and enjoyment of the gift can only be said to have been assumed at the date of the marriage-contract if it is the obligation to pay which is regarded as the gift, as distinguished from the payment. If so, possibly the delivery of the marriage-contract might be regarded as putting the trustees into possession, but in no view' can it be regarded as conferring the ‘enjoyment’ of the gift.

In either view, therefore, I hold that the main defence to the action fails, and that the Crown is entitled to have an account for the ascertainment of estate duty and settlement estate duty. The authorities to which I was referred on this part of the case were Roberts, 20 I). 449; Montefiore, 21 Q.B.D. 461; Worral, 1895, 1 Q.B. 99; Holden, 1903, 1 K.B. 832.

But the defenders maintain that even if estate duty is payable in inspect of the £10,000 they are entitled to a deduction therefrom of £2000, being Mrs Heywood-Lonsdale's equal share of the younger children's provision of £12,000, which, as already mentioned, she renounced and discharged in her marriage-contract. It is urged that this discharge, and also her discharge of legitim, operated as a partial consideration for the £15,000 provision undertaken by her father in her marriage-contract; and that deduction of such partial consideration is expressly provided for in section 3, sub-section 2, of the Finance Act 1894. I do not think this view is sound. In the first place, it would be impossible to put any definite money value upon the two items said to have been surrendered in 1899—on the legitim, because it was not ascertainable until Lord Hamilton's death, and was till then at his discretion; on the £2000 provision, because, although that was her equal share, it was defeasible by her father under his reserved power of apportionment. But, further, I do not regard section 3 as having any application to this case. The part of it which is said to apply is that which deals with a bona fide purchase and sale—‘estate duty shall not be payable in respect of property passing on the death of the deceased by reason only of a bona fide purchase from the person under whose disposition the property passes … where such purchase Was made for full consideration in money or money's worth paid to the vendor for his own use or benefit.’ Then sub-section 2 deals in the same terms With the case of a purchase for partial consideration, the value of which is to be allowed as a deduction from the value of the property for the purpose of estate duty. In my opinion there was here no purchase and sale; and there certainly was no consideration in money or money's worth paid to the vendor Lord Hamilton ‘for his own use or benefit.’ I hold, therefore, that the defenders are not entitled to any such deduction as they claim.”

The defenders reclaimed, and argued—The present case did not come under section 2, sub-section (1) ( c), of the Finance Act 1894, as the payment was made in pursuance of an antecedent obligation. The cases which were cited to the Lord Ordinary, and on which his decision proceeded, did not apply. Att.-Gen. v. Holden, [1903] 1 KB 832, Was distinguishable, inasmuch as there was in it no antecedent obligation but a complete absence of onerosity. So, also, there was no antecedent obligation in Att.-Gen. v. Worrall, [1895]1 Q.B. 99; Earl Grey v. Att.-Gen., [1900] AC 124; Att.-Gen. v. Johnson, [1903]1 K.B. 617. Att.-Gen. v. Beech, [1899] AC 53, was more nearly in point. This payment was no gift, since full consideration was given for it, and it was in effect the purchase of an annuity, so distinguishing the present case from that of Att.-Gen. v. Viscount Cobham, [1904] 90 L.T.R. 816. Nor did the second clause of the section of the statute as set forth in the Lord Ordinary's opinion render the payment liable to duty, since there was no

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interest left in the settlor. The annuity was enjoyed by the donee, and a beneficial title was given to the total exclusion of the donor, so distinguishing the present case from those of the Lord Advocate v.Roberts' Trustees, January 26, 1868, 20 D. 449; Att.-Gen. v. Monteiore, L.R. [1888], 21 Q.B.D. 461. Here, had the donee been an individual, he might have realised full value in the open market; in addition the donee was in possession of a bond of corroboration, and so had bona fide possession of the gift, taking it to be such. No duty was exigible, and the Lord Ordinary's interlocutor should be recalled. In any event, a deduction should be made in assessing the sum liable to duty in terms of section 3 of the Finance Act 1894, since Mrs Heywood Lonsdale had given consideration by renouncing her legal and conventional rights. The cases of Lord Advocate v. Warrender's Trustees, January 9, 1906, 43 S.L.R. 278; and Att.-Gen.v. Ellis and Others, L.R. [1895],2 Q.B. 466, were also referred to.

Argued for the pursuer and respondent—The duties sued for were exigible; under the statute section 7, sub-section 1, no deduction would have been made in consideration of the obligation to pay the £15,000.This payment was clearly a gift in the sense of the statute, and the case was ruled by that of Att.-Gen. v. Cobham, ut supra. Section 2, sub-section (1)( c), applied, since it aimed at bringing in to the scope of the Finance Act 1894 such transactions as the present which were alleged to be onerous. The word “gift” was here used in its ordinary sense as distinct from donation, and such a gift with are servation was liable in duty— Att.—Gen. v. Worrall, ut supra; Att.—Gen. v. Johnson, ut supra. The question was, was the payment or obligation to pay originally a gift, whatever it had now become? It was Att.—Gen. v. Holden, utsupra, per Ridley(J.) As to consideration having been received for the payment, in Scotland it was well settled that payments in a marriage-contract were not for a consideration in money or money's worth in the sense of the statute, the true consideration being marriage— Lord Advocate v. Sidgwick, June6,1877, 4 R. 815, 14 S.L.R. 522; Inland Revenue v. Alexander's Trustees, January10, 1905, 7F. 367, 42 S. L.R. 307. The case which ruled the present was that of Att.-Gen.v. Smyth, L.R., Ir. [1905], vol. 2, K. B. D. 553, and the duties sued for were payable.

Atadvising—