Scottish Court of Session Decisions

The Finance (1909–10) Act 1910 (10 Edw. VII, cap. 8) enacts—Section 16—“ Duty on Site Value of Undeveloped Land.—(1) Subject to the provisions of this part of this Act, there shall be charged, levied, and paid for the financial year ending the thirty-first day of March Nineteen hundred and ten, and every subsequent financial year, in respect of the site value of undeveloped land, a duty called undeveloped land duty, at the rate of one halfpenny for every twenty shillings of that site value. …”

Section 19.—“ Recovery of Undeveloped Land Duty.—Undeveloped land duty shall be assessed by the Commissioners …, and any such duty for the time being unpaid shall be recoverable from the owner of the land for the time being as a debt due to His Majesty, and shall be borne by that owner notwithstanding any contract to the contrary. …”

Section 42—“ Application of Part I to Scotland.—In the application of this part of this Act to Scotland, unless the context otherwise requires—(1)… The expression ‘owner’ means the fiar of the land, except that where land is let on lease for a term of which more than fifty years are unexpired, the tenant under the lease shall be deemed to be the owner, and includes an institute or heir of entail in possession. …”

Mrs Janet Belch or Smyth or Dalziel, daughter of the late John Belch of Drumoyne, and others, his testamentary trustees, first parties, the said Mrs Dalziel as an individual, second party, and John James Belch Smyth and others, the children of the second party, and the marriage-contract trustees of the said John James Belch Smyth, third parties, brought a Special Case for the opinion and judgment of the Court as to whether undeveloped land duty payable in respect of heritable property belonging to the first parties was a charge against the capital or the income of the trust estate.

John Belch of Drumoyne died 28th December 1881, leaving a trust-disposition and

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settlement dated 30th March 1865, which, after conveying his whole estate, heritable and moveable, real and personal, wheresoever situated, to the first parties, provided, inter alia—“ Fourth, I direct my trustees to hold the whole residue of my means and estate for behoof of John Belch, presently residing in New Zealand, my son, and Janet Belch, my daughter, equally between them, share and share alike, in liferent for their liferent alimentary use allenarly during all the days and years of their respective lives and for their lawful issue equally among them per stirpes, if sons in fee, and if daughters in liferent for their liferent alimentary use allenarly during all the days and years of their respective lives, and their issue equally among them, share and share alike, in fee; declaring that in the event of either of my said children predeceasing without issue, the share of such predeceaser shall be held by my trustees for behoof of the survivor and his or her issue in liferent or fee, under the same provisions and restrictions as are applicable to their own respective shares as hereinbefore provided; declaring further, that the shares of the residue hereby bequeathed shall not become vested interests in my said children and their issue until they respectively attain the age of twenty-four years complete if males, and the said age or marriage if females.”

The Special Case set forth—“2. The testator had only two children, John and Janet. The testator's son John Belch attained twenty-four years of age. He survived his father, but died on 25th April 1889 intestate without leaving issue. The truster's daughter Janet survives, and since her brother's death she has been entitled to receive as liferentrix the whole revenue of the trust estate. She has issue, one son and four daughters. Her son John James Belch Smyth, by the said antenuptial contract of marriage between him and the said Mary Dickie Douglas, assigned one-half of his share and interest in his grandfather the testator's estate to his marriage-contract trustees.

3. The testator died possessed of considerable heritage. Part thereof consisted of three feuing estates known as Teucharhill, Craigton, and Mid-Drumoyne, all situated in the burgh of Govan. The estates of Teucharhill and Craigton adjoin, and are practically one property, extending to 34 acres or thereby. At the date of the testator's death in 1881 they were let as agricultural subjects at the rent of £223, 16s. At that time the lands were suitable for agricultural and dairy purposes, there being no public works in the vicinity, and the population at this part of the burgh being small. Since then, however, the lands have become more and more unsuitable for agricultural purposes, and the rental obtained has gradually decreased until in 1900, the previous tenant having gone out leaving arrears of rent due, the lands were let at a rental of £32 on a lease for ten years. On the expiry of the lease the tenant refused to renew. Since that date it has been impossible to get the lands let, and owing to their situation on the verge of a densely populated district, to their being almost surrounded by engineering and other works, and to the practical impossibility of excluding trespassers, they are now incapable of being let or used for agricultural purposes. At the testator's death none of the lands had been feued, but as the agricultural value declined the trustees recognised that it would be desirable, if possible, to make the lands remunerative by endeavouring to feu for the erection of tenements or public works. They accordingly took steps for doing this, and in 1892 they feued off a small part of said estates, but they have since then only succeeded in feuing off some further small portions, the last being in the year 1908. The estates of Teucharhill and Craigton therefore now yield yearly feu-duties from the feus given off amounting to £304, 9s., but the larger portion of the estates is unfeued and unbuilt on, and being as before mentioned useless for agricultural purposes yields no revenue to the trust. The first parties have in furtherance of their desire to make the said estates remunerative by feuing, and also with the view of selling them if possible, repeatedly advertised said estates for sale, or to be feued at very low rates, but they have not received a single offer for the sale of any part thereof, nor have they been able to give off a feu since 1908 as before mentioned. Further, an area of ground which was feued in 1906 is still unbuilt on, and the vassal has offered the first parties the sum of £1500 to cancel the feu and take that ground back. The estate of Mid-Drumoyne, which is situated to the west of Teucharhill, is still occupied as a farm, and it yields an agricultural rent of £100 per annum.

4. The income of the trust-estate is about £1180, whereof £654 is derived from heritable estate. This income of £1180 is arrived at after deduction of interest on heritable bonds, taxes, ground burdens, insurances, teinds, repairs, &c., but before allowing for the full expenses of management. The difference between the £1180 and £654 is income derived from feu-duties, ground annuals, and bonds—investments made by the trustees out of the proceeds of the sale of certain portions of the original heritable estate of the testator.

5. On the passing of the Finance Act 1909–10 the first parties were advised by expert valuators, and under their advice made returns of said estate under Form IV, and adjusted the assessable site value of the estates as follows:—Lands of Teucharhill and Craigton £22,720; Mid-Drumoyne £11,200. Under section 16 of the said Finance Act they have been called upon to pay and have paid as undeveloped land duty in respect of the first named lands for the years 1910–1914 a total sum of £127, 6s. 4d., and in respect of the second named lands a total sum of £73, 0s. 8d., in all £200, 7s. Said payments have been made by the first parties out of the general funds of the trust estate, and no allocation thereof against either capital or income has yet been made by them. Further payments in name of undeveloped land duty will require to be made by the first parties for the year

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1915, and annually thereafter so long as said estates remain undisposed of.”

The second party contended “that said duty falls to be charged wholly against the capital of the trust estate, and that no part thereof should be charged upon the revenue arising therefrom.”

The third parties contended “that said duty should be charged wholly upon the income arising from the said trust estate, and that no part thereof should be debited against the capital of the trust estate.”

The question of law was—“Is the undeveloped land duty levied in respect of the said lands of Teucharhill and Craigton and Mid-Drumoyne, or any and which of them, a charge against ( a) the capital, or ( b) the income, of the trust estate.”

Argued for the second party—The undeveloped land duty ought to be paid out of capital, for it was a tax on the holding up of land so as to obtain an enhanced price therefor, which price would go into the liar's pocket. The object of the Finance (1909–10) Act 1910 (10 Edw. VII, cap. 8) was to provide a compulsitor to sell land for which there was a growing demand. That compulsitor was provided by taxing those who held up their land; the increment value duty enabled the Crown to obtain a share of the increased value when the land was sold; the undeveloped land duty was to secure a similar result in the absence of transmission of the land. The two were similar in nature and increment value duty and likewise reversion duty were chargeable against capital— re Smith-Bosanquest's Settled Estates, 1912, 107 L.T. 191; Finance (1909–10) Act 1910, sec. 39 (1) to (4). Undeveloped land duty was made a burden upon the fiar—Finance (1909–10) Act 1910, secs. 16, 19, 42 (1), 39 (5), which sections plainly fixed the incidence of that duty on the fiar, not upon the liferenter. The liferenter, however, would bear a share of the burden, for the liferent would suffer with the diminution of the capital caused by meeting that charge. Mineral rights duty was payable by the “proprietor” and not by the “owner”—Finance Act 1910, sections 20 (4), and 24, as contrasted with sections 19 and 42 (1). Johnstone v. Mackenzie's Trustees, 1912 S.C. (H.L.) 106, per Lord Shaw at p. 108, 49 S.L.R. 986, and Napier, New Land Taxes, 2nd ed., p. 413–4, were referred to.

Argued for the third parties—Increment value duty was payable by the transferror or lessor, i.e., was a capital charge—Finance (1909–10) Act 1910, secs. 3(6), 4(1) and 5; so was reversionduty—section 15(1). Mineralrights duty (which was more analogous to undeveloped land duty than the foregoing duties for it was an annual payment) was payable by the person in receipt of the mineral rents. By section 39 (1) mineral rights duty and undeveloped land duty were for some reason placed, so far as payment was concerned, on a different footing from increment value duty and reversion duty. Those two duties were associated together in the scheme of the Act. Minerals were treated as parts of the land which were sold in mineral form year by year—sections 23 (2) and 24. If the second party's argument were sound, where minerals were held for a liferenter, the mineral rights duty would fall upon the fiar, who might never get any benefit. Mineral rights duty and likewise undeveloped land duty had both to be paid by the fiars, who in the present case were the trustees, and section 39 (1), which showed how trustees were to proceed after payment, did not authorise payment out of capital. The trustees could not be regarded as entitled to charge the land with those duties, for they were not persons “having a limited interest” in the land in the sense of section 39 (5). Both of those duties were annual charges and should be met out of income. The charging by trustees of the cost of changing investments held in trust bore no analogy to the present case, for that was not an annual charge. No difficulty was presented by the case of land bearing no rent; in that case the trustees would pay the undeveloped land duty and recover the payment out of the trust estate. Section 39 (1) to (4), except for the reference to settled land, applied to Scotland, and so did section 41 in so far as not inconsistent with section 42; thus section 41 contained the only definition of “transferror.” Allen v. Inland Revenue Commissioners, [1914] 1 KB 327, 2 K.B. 327, was referred to.

At advising—