Hetherington's Trustees v Lord Advocate
| Jurisdiction | England & Wales |
| Judgment Date | 25 January 1954 |
| Date | 25 January 1954 |
| Docket Number | No. 2. |
| Court | House of Lords |
HL
Lord Morton of Henryton, Lord MacDermott, Lord Reid, Lord Keith of Avonholm.
Revenue—Estate duty—Property deemed to pass on death—Inter vivos trust—Trust fund constituted by cash payment and subsequently invested—Truster dying within five years of constitution—Value of trust estate for estate duty—Whether value as originally constituted or value as invested at truster's death—Finance Act, 1894 (57 and 58 Vict. cap. 30), sec. 2 (1) (c)—Customs and Inland Revenue Act, 1881 (44 and 45 Vict. cap. 12), sec. 38 (2) (a).
The Finance Act, 1894, enacts:—Sec. 2. "(1) Property passing on the death of the deceased shall be deemed to include … (c) Property which would be required on the death of the deceased to be included in an account under section thirty-eight of the Customs and Inland Revenue Act, 1881 …" In such an account there requires to be included, inter alia, under sec. 38 (2) (a) of the 1881 Act, as amended, any property taken under a disposition, made by the deceased, purporting to operate as an immediate gift inter vivos by way of declaration of trust, which shall not have been bona fide made five years before his death.
A truster paid over by cheque to trustees a sum of £5000, "which, or investments representing the same," they were directed primo loco to hold and apply for the alimentary liferent of his daughter. The trustees invested the £5000 in the purchase of shares, which, when the truster died less than five years later, were worth £9250, and the value of the truster's inter vivos gift was assessed for the purposes of estate duty at £9250. The trustees having appealed against the assessment,—
Held (rev. judgment of the Second Division,diss. Lord Keith of Avonholm) that the property taken under the truster's disposition was the sum of £5000 and nothing more, and that accordingly estate duty was payable only on that sum.
In re Payne, [1940] Ch. 576, discussed, Lord Morton of Henryton being of the opinion that it was wrongly decided.
(In the Court of Session 10th October 1952–1953 S. C. 66.)
This was an appeal by George Peat Sneddon and others, the surviving trustees acting under an inter vivos deed of trust granted by William Galbraith Hetherington, against an interlocutor pronounced by the Second Division (Lord Mackay dissenting), whereby the Court sustained an assessment to estate duty made by the Commissioners of Inland Revenue.
The facts are summarised in the rubric, and are fully stated in the speeches of Lord Morton of Henryton and Lord Reid.
The case was heard before the House of Lords on 11th, 12th and 16th November 1953—the Lords present being Viscount Simon,1Lord Morton of Henryton, Lord MacDermott, Lord Reid and Lord Keith of Avonholm.
At delivering judgment on 25th January 1954,—
LORD MORTON OF HENRYTON.—On 19th December 1946 William Galbraith Hetherington executed a deed of trust whereby he nominated himself and three others as trustees "for the ends, uses and purposes aftermentioned," and declared that "the trust fund consists of the
sum of five thousand pounds sterling which is vested in the trustees and which, or investments representing the same, shall be held and applied for the trust purposes afterwritten, videlicet." Then follow trusts in favour of the truster's daughter Elizabeth for her life with remainders over. The trust deed gave the trustees wide powers of investment, including power to purchase, subscribe for, pay for and take up any shares or stock in a number of companies, including Creamola (England) Limited.On 21st December 1946 the trustees' solicitors, on the instructions of the trustees, applied for an allotment of 5000 new £1 ordinary shares of Creamola (England) Limited at par. On that date and at the date of his death the truster was a director of that company and had a controlling interest in it. On 24th December 1946 the truster, by cheque in favour of the trustees' solicitors, paid over to the trustees the sum of £5000 to be held by them on the trusts declared by the deed of trust. On the same date the trustees' solicitors sent their own cheque to Creamola (England) Limited in payment of £5000 due in respect of an application by the trustees for an allotment of 5000 new £1 ordinary shares in that company. These shares were allotted to the trustees and are still held by them. They were at the time of the truster's death, and still are, the only investment held by the trustees.
The truster died on 5th February 1948 and thus did not live for a period of five years after the execution of the deed of trust and the payment of £5000.
Section 2 (1) of the Finance Act, 1894,17 as amended by subsequent legislation, provides that property passing on the death of the deceased shall be deemed to include (inter alia) "any property … taken under a disposition made by any person … 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 five years before the death of the deceased." Section 7 (5) of the same Act provides:—"The principal value of any property shall be estimated to be the price which, in the opinion of the Commissioners, such property would fetch if sold in the open market at the time of the death of the deceased." No one doubts that the truster made a disposition which comes within the section and that estate duty is payable upon certain property which is deemed to pass upon his death, but the question is—What is the property which is deemed to pass; is it the £5000 or is it the trust fund constituted by the deed of trust, in its state of investment at the death of the truster,i.e., the Creamola shares? It is common ground that £9250 was the value of the Creamola shares at the truster's death. Thus no question as to value or as to the proper method of valuation arises in the present case.
What, then, is the property which is deemed to pass? The statute
says it is the "property taken" under the disposition made by the truster. I feel no doubt that the property taken under that disposition was the sum of £5000. That was the only property which passed from the truster, and it was the only property taken by the trustees from the truster under his disposition. They took that property, of course, as trustees for the beneficiaries under the deed of trust. The truster never owned the 5000 Creamola shares and, therefore, these shares could not be "taken" under any disposition made by him. As soon as the trustees received the £5000 it became in their hands a trust fund to be held on the trusts declared by the deed of trust, and it was, of course, proper for the trustees to invest that sum in some one or more of the numerous investments authorised by the trust deed. They invested it in the Creamola shares, but they did not take these shares under the disposition made by the truster; they took the shares because, in the exercise of their discretion, they decided to apply for them and because the company decided to allot them to the trustees.Some discussion arose in the course of the argument as to whether the "disposition" in the present case was the drawing of a cheque for £5000 by the truster, coupled with the sending of the cheque to the trustees' solicitors, or was the execution of the trust deed by the truster. I think the former is the true view, because the trustees "took" nothing until the £5000 reached their solicitors, but to my mind it makes no difference to the result of this appeal whether the "disposition" was made by the cheque or by the trust deed. In the former case the disposition carried the sum of £5000 and nothing else. In the latter case the truster, by the trust deed, "disposed" of property which was to be vested by him in the trustees, and that property was again £5000 and nothing else.
At one time counsel for the Crown seemed disposed to place some reliance on the words in the trust deed—"And I provide and declare that the trust fund consists of the sum of five thousand pounds sterling which is vested in the trustees and which, or investments representing the same, shall be held and applied for the trust purposes afterwritten, videlicet." In my view, these words are far indeed from helping the Crown. The truster declares that the trust fund consists of £5000. Must not the "property … taken under a disposition" be the sum which he declares to be the trust fund? The words "and which, or investments representing the same", etc., in no way assist the Crown. They merely introduce the trusts upon which the trustees are to hold the trust fund (already defined as the sum of £5000) or the investments which the trustees decide to make with that fund.
If the gift of £5000 had been made to a donee who was to retain it for his own benefit, there could surely have been no doubt that duty would have been payable, on the donor's death within five years, on £5000 cash, even if the donce had forthwith invested the gift in Creamola shares and still held these shares at the donor's death. If authority were needed for this proposition, it is to be found in the case of Lord Strathcona v. Inland Revenue,18applied and approved in Attorney-General for Ontario v. National Trust Co.ELR,19 per Lord Hanworth, M.R., at pp. 822–823; see also Attorney-General v. OldhamELRELR.20
There is, however, one case in which a distinction appears to have been drawn between a gift to a person for his own benefit and a gift to trustees for the benefit of persons entitled in succession. That is the case of In re Payne's Declaration.21 The three learned Judges who formed the majority in the Second Division of the Court of Session in the present case all placed some reliance on Payne'scase,22 but, in my view, it was wrongly decided. I can see no logical distinction, for the present purpose, between any of the following cases:—(1) A. B. gives cash or transfers...
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