United Kingdom Special Commissioners of Income Tax Decisions

Curnock v Inland Revenue [2003] UKSC SPC00365 (15 May 2003)

INHERITANCE TAX – cheque issued and paid in before death but cleared after death – whether a completed gift – no

THE SPECIAL COMMISSIONERS

JOHN CURNOCK Appellant

- and -

THE COMMISSIONERS OF INLAND REVENUE Respondent

Special Commissioner: DR JOHN F AVERY JONES CBE

Sitting in public in London on 9 May 2003

The Appellant in person

Peter Twiddy, Assistant Director, Capital Taxes Office, for the Respondents

© CROWN COPYRIGHT 2003


 


DECISION

1. Mr John Curnock as personal representative of Paul Anderton MacGregor Curnock (the Deceased) who died on 22 December 2001 appeals against a Notice of Determination dated 24 January 2003
2. The Determination states that "in relation to (a) a cheque for £6,000 payable to Mark Curnock [the Appellant's son] dated 21 December 2001 on a bank account in the name of [the Deceased] by way of intended gift; (b) the death of the [Deceased] on 22 December 2001 that (1) the above intended gift failed as a result of the death of the [Deceased] before the cheque had been cleared by the bank; (2) the above sum of £6,000 was an asset in the estate of the [Deceased] immediately before his death for the purposes of inheritance tax."
3. The remaining facts are agreed

(1) On 21 December 2001 the Appellant as attorney of the Deceased under an enduring power of attorney drew the cheque for £6,000 in favour of the Appellant's son by way of gift intending to use the annual exemption for that year and the previous year carried forward.

(2) On the same day the Appellant paid in the cheque on behalf of his son.

(3) On 22 December 2001 the Deceased died.

(4) On 23 December 2001 the Appellant informed the bank, the Bank of England, of which the deceased was a pensioner, of the Deceased's death. The Bank agreed to pay the cheque.

(5) On 27 December 2001 the cheque was cleared.

4. The Appellant contends that there was a completed gift before the date of death, or, if not, the cheque was a debt in the estate, or that the Revenue should have made a concession. Mr Twiddy, for the Revenue, contends that there was no completed gift, that the cheque was not a debt in the estate as it was not a liability incurred for a consideration in money or money's worth in section 5(5) of the Inheritance Tax Act 1984, and that this is not a case of a donatio mortis causa. He cited Re Owen, Owen v IRC [1949] 1 All ER 901 in which the question was whether gifts by cheque had been made more than 3 years before death for estate duty. The cheques was signed on 21 May 1941 and presented on 4 June, 5 June and 2 July. The death occurred on 1 June 1944. Romer LJ held at page 907D:

"The proper interpretation of the facts is that until the donees had received their cheques and paid them into their own banking accounts, and the cheques were cleared and the money came into the donees' banking accounts, no property was transferred at all, nor was any effectual gift achieved."

5. Accordingly no gift had been made more than three years before the death. Re Owen follows Re Swinburne [1926] Ch 38 a decision of the Court of Appeal. In it the donor drew a cheque and the donee immediately paid it in. There were insufficient funds in the current account although there were funds in the deposit account and the practice of the bank had been to allow an overdraft on the current account until funds were transferred from the deposit account. The bank did not pay the cheque because it doubted the donor's signature. The donor died before anything could be done. Sir Ernest Pollock MR said at page 41:

"A cheque, as explained by Lord Romilly, MR, in Hewitt v Kaye [(1868) L.R. 6 Eq. 198] is nothing more than an order to obtain a certain sum of money, and it makes no difference whether the money is with the bankers or elsewhere. It is an order to deliver the money; and if the order is not acted upon in the lifetime of the person who gives it, it is worth nothing."

Sargant LJ said at page 47:

"The mere instruction by means of a cheque to a banker to pay the money to the drawee of the cheque is not a gift. It is merely a revocable authority to the agent to make the payment; and the piece of paper containing that revocable authority is not a piece of property when it is given to the drawee by the drawer. It is merely the handing to the drawee of the means of entitling the drawee to obtain from the agent acting in pursuance of the authority the sum in question. In my judgment, even if this had been claimed as a donatio mortis causa, the claim must have failed; a fortiori it must fail when the claim is made as on a gift inter vivos."

6. The principle in those cases applies here. The cheque was not cleared before the death of the deceased and until the cheque is cleared there was no completed gift. The Bank agreed with the Appellant after the Deceased's death to pay the cheque but that is an act in the administration of the estate. The balance in the bank account not depleted by the cheque for £6,000 vested in the personal representatives on the Deceased death and is accordingly liable to inheritance tax.
7. I agree with Mr Twiddy that this is not a donatio mortis causa and that cases relating to that are not relevant. I also agree with him that the cheque does not create a debt in the estate for inheritance tax purposes because of section 5 of the Inheritance Tax Act 1984:

"(3) In determining the value of a person's estate at any time his liabilities at that time shall be taken into account, except as otherwise provided by this Act.

…

(5) Except in the case of a liability imposed by law, a liability incurred by a transferor shall be taken into account only to the extent that it was incurred for a consideration in money or money's worth."

The cheque is neither a liability imposed by law, not was it incurred for a consideration in money or money's worth. On the Appellant's final contention I have no jurisdiction to grant concessions.

8. Accordingly I dismiss the appeal and confirm the Determination. I am happy to record that Mr Twiddy told me that the Revenue had waived interest on the inheritance tax as they were slow in making the claim.

J F AVERY JONES

SPECIAL COMMISSIONER

SC 3022/03

Authorities referred to in skeletons and not referred to in the decision:

Re Rose, Rose v IRC [1952] 1 All ER 1217