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TMI Blog1957 (7) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... er Wrightson, by originating summons pursuant to the Act of 1933 to have a similar question determined. WESTMINSTER BANK LTD. v. INLAND REVENUE COMMISSIONERS The originating summons in the matter of two several policies of assurance on the life of Sir John Milne Barbour, deceased, effected with the Scottish Amicable Life Assurance Society and comprised in a settlement dated March 5, 1929, raised the question whether having regard to the provisions of the above-mentioned settlement and in the events that have happened estate duty became payable under section 2(1)(d) of the Finance Act, 1894, or otherwise on the death of the late Sir John Milne Barbour in respect of the life interest of James Barbour in the money or property assured by the above-mentioned policies of assurance. Harman J. held that estate duty did not become payable. The Court of Appeal reversed his decision. It was not contended that duty was payable otherwise than under section 2(1)(d). The facts, stated by Lord Morton of Henryton, were as follows: The settlement of March 5, 1929, was made between the settlor of the one part and the appellant, Westminster Bank Ltd., of the other part, and contained reci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he name of the bank in or upon... Then followed a list of investments which need not be set out. Clauses 3 and 4 were as follows: 3. The bank shall until June 30, 1942, accumulate the entire income of the trust fund by investing the same and the resulting income thereof at compound interest in any of the investments hereby authorized and shall hold and apply the accumulated fund as part of the capital of the trust fund. 4. From and after the said June 30, 1942, the bank shall pay the income of the trust fund and of the accumulations thereof and of the investments for the time being representing the same (the said policies and the proceeds thereof however not to be treated as income bearing until the amounts payable in respect thereof shall have been received and invested) to the settlor's son John Milne Barbour during his life and if necessary the said income shall be apportioned as between capital and income as of the said respective dates. Clause 5 contained trusts to take effect after the death of John Milne Barbour in favour of his sons and grandsons. In fact, John Milne Barbour predeceased the settlor. He died without issue in the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e policy from the policy moneys. The only thing that happened on the death was that the date of payment had arrived. The respondents could only succeed if they showed that a beneficial interest arose on the death. If, however, the life tenant did not really have an interest in the policy at all, his only interest was in the proceeds as and when they came in, with the right to see that the trustees carried out their trust. That would be a beneficial right in relation to the trust fund and it would not change in character on the settlor's death. That situation produces a dilemma for the Crown. Reliance is placed on Lord Advocate v. Hamilton's Trustees(3), which was unanimously approved in the D' Avigdor-Goldsmid case(2) so far as related to the absolute interests of the sons. There is nothing in Tennant v. Lord Advocate(4) to support the view that the coming into possession of the policy moneys is the accruing of a beneficial interest in the policy. That authority does not help in this case in the least. All it decides is that if a man owns a policy it cannot be said that he never had an interest in the policy moneys. Further, the policies of assurance and their pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase extended meaning than property. John Pennycuick Q.C. and E.B. Stamp for the respondents. This case satisfies the three conditions set out in D' Avigdor-Goldsmid's case*** which are necessary to bring it within section 2(1)(d). But that decision has no application to the present case, because here, before the settlor's death, the life tenant had no interest in the policies or policy moneys. That case was a case of an absolute gift of a policy, a gift taking effect once and for all on its being made. In Attorney-General v. Lloyds Bank Ltd.# liability under section 2(1)(d) was admitted so far as the children's interests at the date of the relevant death exceeded the value of those interests immediately before the death. The ordinary case under section 2(1)(d) is one where there is no interest in possession during the life of the settlor but an interest is taken on his death, so that during the settlor's life the beneficiary really has an interest in expectancy, e.g., a right to the future enjoyment of the fund. As to the general principle of liability, see also section 28 of the Finance Act, 1934. See also Adamson v. Attorney-General## and Attorney-General ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me under a liability to pay any money under them, the life tenant acquired a life interest in possession in the money so paid. That interest in possession is different in quality from the previous life interest in expectancy and section 2(1)(d) is accordingly brought into play. Further, it must be treated as a life interest provided by the settlor. Admittedly if A gives B 2,000 and B buys a car with it, A has not provided the car. But a settlor provides anything which provided by him and the property in which that interest subsists is provided by him. This applies to investments as well as to policies. Sneddon v. Lord Advocate** was a different case, a gift inter vivos, a single operation. On the true construction of this settlement, neither the life tenant nor any or the beneficiaries was intended to have any enjoyment of the policy moneys until the settlor's death, except for any sum payable during his life on the redemption of a Victory Bond. This case, like any other case, turns on the terms of the settlement to be construed in the light of the general law. Section 2(1)(d) applies to it because it is an ordinary type of settlement. With an unusual type of settlement it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the interest there was defeasible. That case must not be carried too far, particularly in view of the powerful dissenting opinion. Attorney-General v. Lloyds Bank Ltd., adds nothing to that case. What the life tenant got here on the settlor's death was not sufficiently different from what he had before to bring in section 2(1)(d). A new interest did not arise on the death in a beneficial interest provided by the settlor. When there is a change from an interest in expectancy to an interest in possession, there is not a relevant change, unless there is an intervening interest. This life tenant always had an interest in possession. Their Lordships took time for consideration. WRIGHTSON v. INLAND REVENUE COMMISSIONERS. The facts, stated by Lord Morton of Henryton, were as follows: The originating summons issued in this case raised the question whether, having regard to the provisions of a settlement of June 21, 1932, and in the events that happened, estate duty became payable under section 2(1)(d) of the Finance Act, 1894, or otherwise on the death on Sir Thomas Garmondsway Wrightson, Bt. (hereafter called the settlor ) in respect of the life interests of his four ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Clauses 5 and 6 contained trusts in favour of the settlor's sons Rodney and Oliver respectively in the same terms as clause 4, save for the alteration in the name of the beneficiary. Clause 7 was as follows: If and when any of them the said Peter Wrightson Rodney Wrightson and Oliver Wrightson shall become tenant for life of the said Neasham Hall Estate or shall die then the trustees shall pay or transfer his share of the trust fund and the investments for the time being representing such share to the then trustees of the Neasham Hall settlement to be held by them upon trusts and limitations and with powers corresponding to the trusts limitations and powers affecting the said Neasham Hall Estate so settled as aforesaid or such of the same trusts limitations and powers as shall then be subsisting and capable of taking effect And if there shall be no such trustees the trustees shall hold such share and the income thereof upon the like trusts as if the same had been or represented capital moneys arising under the Settled Land Act, 1925, from the Neasham Hall Estate so settled as aforesaid. The 1932 settlement contained no power for the trustees thereof to sell or surrend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tancy during the settlor's life, and on his death they acquired for the first time a right of present enjoyment. In the present case the terms of the settlement make it clear beyond question that none of the brothers was intended to take any beneficial interest in the policies or proceeds in the lifetime of the settlor. That was so also in the previous case, but here it is particularly plain. There is also a distinction between a contingent and vested reversionary life interest : see In re Legh's Settlement Trusts.* If it be held that these beneficiaries had some kind of interest in possession in the settlor's lifetime. nevertheless on his death there arises an indefeasible right which brings the case within Adamson v. Attorney-General.** The present case is different from the previous case, because each son had only a contingent interest during the settlor's lifetime. On the settlor's death each son took a vested interest for the first time. The relevant interests were clearly contingent in the present case. E.B. Stamp following. The tenants for life before the settlor's death had no right of enjoyment or possession. The property was being retained for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of section 2(1)(d); and (2), if so, whether, on the death of the settlor, a beneficial interest in the property so provided accrued or arose to James Barbour within the meaning of the same section. [His Lordships stated the facts and continued:] I now turn to the first of the two questions stated above. My Lords, in the case of D' Avigdor-Goldsmid v. Inland Revenue Commissioners* I expressed a doubt whether a policy of assurance was an annuity or other interest within the meaning of section 2(1)(d) of the Act of 1894, and if I had to decide that question in the absence of authority, I should feel the same doubt today. The argument presented by counsel for the appellant has considerable attractions. However, in Attorney-General v. Murray the Court of Appeal answered that question briefly in the affirmative. That decision has stood unquestioned for over 50 years and very many policies must have been dealt with on the footing that it was correct. Moreover, this House in Adamson v. AttorneyGeneral* gave a wide meaning to the words just quoted, though it does not appear that the trust funds included any policy of assurance. Finally, if the decision in Murray's case** h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the case. The point which all the members of the House, including myself, were concerned to establish was that it was not only the policy moneys which were provided by the deceased, for he also provided the policies the source from which these moneys came. No other member I now refer, although Lord Porter approved of my analysis of certain authorities and Lord Asquith of Bishopstone expressed his concurrence with my opinion. In these circumstances I feel free to say that, in my opinion, any observations of time which stated or implied that the deceased, Sir Osmond, did not provide the policy moneys were to that extent incorrect. I would answer the first question, already stated, in the affirmative. I now turn to the second question, whether on the death of the settlor a beneficial interest in the property provided by the settlor accrued or arose to James Barbour. My Lords, in my view this question should be answered in the negative, having regard to the D' Avigdor-Goldsmid case*. The facts of that case were as follows: By a marriage settlement made in 1907 a settlor settled a policy on his life effected in 1904 for ? 30,000 with profits. Subsequently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delivered in the D' Avigdor-Goldsmid case*, reference was made to Lord Advocate v. Hamilton's Trustees, and the facts of that case were summarized by me as follows##: In that case the deceased, who died in 1936, had in 1912 settled certain policies on his life on trusts for the benefit of his sons and daughter. The sons were to become absolutely entitled on attaining the age of 25 and the daughter's share was settled on her for life with remainders over. The trust deed stated that these provisions in favour of the children 'shall vest in them respectively at the date hereof.' The policies became fully paid in 1914 and 1915, and the premiums payable in the meantime were borrowed by the trustees from the deceased. On the deceased's death, duty was claimed under section 2(1)(d) on the amount of the policy moneys less the amount borrowed from the deceased by the trustees in order to pay the premiums, and the claim was rejected by the Inner House, affirming the Lord Ordinary (Lord Keith) on the grounds * that in the circumstances 'the property sought to be charged had not been provided by the deceased,' and ** 'that there was no beneficial interest a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to receive the income of the moneys which were paid to the trustees under the policies on the death of the settlor? The answer would again appear to be, by virtue of the beneficial interest in the policies to which he was entitled under the settlement. Does, then, the beneficial interest which, entitled him to receive the income of the last-mentioned moneys differ in quality from the interest which entitled him to receive the income of the 750, and would have entitled him to receive the trustees during the settlor's lifetime? I confess that I cannot see in what respect it does differ. the 750 and the moneys received on the settlor's death were equally moneys which became payable under the policies (or 'proceeds' of the said policies) and James Barbour's right to receive the income of both funds derived under precisely the same title, namely, the life interest which he took under the settlement. In these circumstances I do not for myself see how, in the words of Lord Reid in the D' Avigdor-Goldsmid case*, it can truly be said that 'some right or property of a different kind from that previously enjoyed by' James Barbour accrued or aro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h they already held. But it does not necessarily follow that no new beneficial interest then accrued or arose to any beneficiary under the settlements. The provisions made by a settlor may be in such a form that a new beneficial interest does accrue or arise to a particular beneficiary at the time of the settlor's death, and the question in each of these cases appears to me to be whether, on a proper construction of each settlement, a beneficial interest did accrue or arise to the life tenants on the settlor's death. In my opinion, Lord Advocate v. Hamilton's Trustees** was rightly decided in all respects. In that case policies on the life of the truster were held by trustees for his four children equally. The three sons had vested rights to the capital of their shares and it follows from the decision of this House in D' Avigdor-Goldsmid*** that no beneficial interest accrued or arose as regards their shares on the truster's death. The trustees were directed to hold the daughter' share for her life-rent alimentary use allenarly and on her decease to divide the amount of her share among her children equally, with further provision for the event of her dying w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the settlement was beneficial interests in the policy moneys received by the trustees on maturity of the policies. If that be so, then beneficial interests did accrue or arise to the sons on the settlor's death and, with some hesitation, I have come to the conclusion the appeal in this case ought to be dismissed. LORD RADCLIFFE. My Lords, I am afraid that I do not find it possible to arrive at the conclusion which, as I understand, commends itself to the majority of your Lordships. I entertain the clear opinion that the orders made by the court of Appeal in these cases were correct. I will try to be as short as is, I think, the point itself. In considering whether and, if so, to what extent a beneficial interest accrued or arose on the death of Sir Thomas Wrightson, Bart, (to take the Wrightson case) in the interest which he had purchased or provided, it seems to me that the important thing to do is to compare the beneficial interests of the sons as from the date of his death with their beneficial interests prior and up to the same date. We are, after all, considering equitable interests under a trust of personalty. Such interests consist either of the equitable ownershi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of until the settlor died and the moneys fell in. Trust funds do not exist as ideal conceptions without material substance; nor, I would suppose, does the form of a settlement take shape without reference to the nature and incidents of the property that is to be the subject of settlement. When a man takes out a policy on his life and ties it up in this way it is of the essence of the arrangement that he makes and the benefits that he provides that those benefits arise on and by virtue of this death and not before. I am sorry that an approach to the subject as simple as this does not commend itself to your Lordships. What divides us, as I understand it, is not any difference as to the legal effect of the settlement made--it is indisputable that there was to be no trust fund for a son to enjoy income out of until the settlor died and the policy moneys were got in--but a difference as to the meaning of section 2(1)(d) when applies to the circumstances of this case. I cannot avoid the opinion that the application favoured by the majority of the Court of Appeal is fairly in line with the main purport of this subsection. Its general purpose, said Lord Loreburn L.C. in Lethbridge v. At ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds by survivorship in section 38(2)(b) of the Customs and Inland Revenue Act, 1881, which is incorporated by section 2(1)(c) of the Finance Act, 1894. I have never known a suggestion that they have any other meaning and, so far as I know, all the established textbooks on estate duty treat them as relating to joint tenancies. I do not think, therefore, that this case can be solved by any refining on the significance of the words by survivorship. I would dismiss the appeal. LORD KEITH OF AVONHOLM. My Lords, this is my opinion in the Westminster Bank case. The facts in this case have already been sufficiently stated. I only note (1) that the four several policies of assurance were assigned by the settlor to the bank, as trustee of the settlement, at the same time that there was paid to the bank as trustee the sum of 12,000; (2) that the policies were at the date of the settlement fully paid; (3) that the settlor retained no interest in the policies and that they were assigned more than five years before his death; (4) that the policies were payable on the death of the settlor; and (5) that, apart from a direction in clause 2 of the settlement that death duties if any in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the death, in the proceeds, because the proceeds are not there at the death. I would observe also that it is the interest provided that is to be deemed to pass at the death, but the value of this interest is quantified, for the purposes of duty, by the extent of the beneficial interest accruing or arising by survivorship at the death. This is noted, for example, by my noble and learned friend, Lord Morton of Henryton, in D' Avigdor-Goldsmid v. Inland Revenue Commissioners* in commenting on Attorney-General v. Dobree** by Lord President Normand and Lord Fleming in Tennant's Trustees v. Lord Advocate***, and by the Court of Appeal in Westminster Bank Ltd. v. Attorney-General#. If no beneficial interest accrues or arises by survivorship on the death, then the interest provided, even if it is assumed to pass at the death, attracts no liability to duty. In short, the beneficial interest must be in the interest provided, which, in this case, in my opinion, is the policies with all the rights inherent in the holding of that particular type of asset. If there is no beneficial interest in the policies arising by survivorship on the death, there is no liability to duty. No point was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cut down to a life-interest a different result should follow. In Lord Advocate v. Hamilton's Trustees** a father had placed in trust during his lifetime certain policies of insurance on his life and whole sums of money to be divided therefrom to be held for behoof of three sons and a daughter. The sons were to take each a quarter of the proceeds of the policies at his death, but the daughter was restricted to a life-rent of a quarter of the proceeds with fee to her issue. It was held that no estate duty was exigible on the death of the truster on the proceeds of the policies. In that case no argument was directed to showing that there was a difference in respect of the sons' shares and in respect of the daughter's share. It is not, I think, correct to say, as suggested by Harman J. and the Master of the Rolls in the present case, that the position of the daughter may have been overlooked. as no point was specifically made of a possible distinction between sons' shares and daughter's share, the court had not the benefit of any argument similar to that addressed to your Lordships, but the position of the daughter was quite clearly taken notice of by the court and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the opening words of subsection 2(1)(d)--an annuity purchased or provided by the deceased. But it is not caught, in my opinion, by the concluding words of the subsection, to the extent of the beneficial interest accruing or arising by survivorship...on the death of the deceased. The beneficial interest would arise, in my opinion, not be survivorship, but by virtue of the contract made with the insurance company when the policy was taken out, fixing the commencement date of the annuity as the date of the deceased's death. It is not, in my opinion, possible to distinguish this case from a case where any other date for commencement of the annuity is stipulated for in the policy. My noble and learned friend, Lord Reid, I think recognized this in D' Avigdor-Goldsmid v. Inland Revenue Commissioners*. So far I have taken the illustration of an annuity policy taken out by the deceased without the interposition of a trust. But it does not appear to me to make any difference that a settlor, wishing to secure that the life-interest in a policy maturing at his death shall go to A and the capital to B, assigns the policy to trustees of the settlement. If the life-tenant is given ..... X X X X Extracts X X X X X X X X Extracts X X X X
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