Morgan v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE UPJOHN,LORD JUSTICE DIPLOCK |
| Judgment Date | 20 December 1962 |
| Judgment citation (vLex) | [1962] EWCA Civ J1220-6 |
| Date | 20 December 1962 |
| Court | Court of Appeal |
[1962] EWCA Civ J1220-6
In The Supreme Court of Judicature
Court of Appeal
From Mr Justice Crose
The Master of The Rolls (Lord Denning)
Lord Justice Upjohn and
Lord Justice Diplock.
MR G. H. NEWSON, q. c. and MR. E. BLMSHARD STAMP (instructed by the Solicitor of Inland Revenue) appeared, as Counsel for the Appellants.
The Hon, B. L. BATHURST, Q. C. and MR L. J. T. ELPHLSTORE (instructed by Messrs Peacock & Goddard, Agents for Messrs Russel & Co., Halvern) appeared as Counsel for the respondents.
I will ask Lord Justice Upjohn to give the first Judgment.
This is an appeal from Mr. Justice Cross giver on the 10th April of this year when he held that no claim to duty arose under Section 2 sub-section (l)(d) of the finance Act, 1894, upon the death of the settlor, Henry Frederick Stanle Morgan, who died on the 15th June, 1959. On the 6th February, 1952, the settlor made a settlement of shares in Morgan Motor Company Ltd. upon each of his five children. The trusts declared by the settlement in favour of his respective children and their testamentary beneficiaries were in identical from and so throughout, for the purposes of argument, only the trusts declared in favour of his son Peter have been considered.
The trusts were very simple in form, the shares in the Company were settled upon trust for Peter for the joint live of the settlor and Peter, and upon the death of the settler during the lifetime of Peter in trust for Peter absolutely, but if Peter predeceased the settlor, then in trust for a class of persons described thus: "for the person or persons who would be entitled to the residuary personal estate of Peter if the settle and is wife were then dead in the same shares and subject to the same trusts as should be applicable to such estate". The settlement contained, a clause if revocation, out this was later released. Later on it was apprehended rightly that the settlement in this form was well devised to attract the maximum amount of duty upon the death of the first to die (see now Parker v. Lord Advocate, 1960 Appeal Cases, p. 608), and so on the 1st May, 1957, leter made a revocable assignment whereby he assigned to the trustees all the interest to which he was entitled in the investments settled under the 1952 settlement during the joint lives of his father and himself and also all that interest to which he was entitled contingently upon surviving his father to the intent that the investments should be held upon the trusts thereinafter declared and contained concerning the same. Peter then declared that he mi ht by deed executed by him at any time with consent in writing of the trustees revoke the provisions of the deed and thereupon the interest created by Clause 1 should belong to Peter as if the deed had never been executed. Subject to that the trustees were to hold the investments upon trust to pay the income to Peter during is life and upon his death upon trust for the persons who would then be entitled to the residuary personal estate of Peter if his father and any wife of his were then dead and in the same shares and subject to the same trusts as were applicable to such estate, being the like trusts as were declared by the 1952 settlement in the event of Peter predeceasing his father but - and now follow some important words which I quote - "excluding any person whose interest shall not vest (either in possession or in reversion) "before the expire of 21 years from the death of the last survivor of the descendants of Mr. Morgan lining at the date of this deed". I shall call this the 1957 settlement. The whole question is whether on the death in Peter's lifetime of his father, the settlor, duty is exigible under Section 2(l)(D).
The relevant part of Section 2(l) is in these term: "Property passing on the death of the deceased shall be deemed to include the property following, that is to say:- (d) any annul or other interest purchased or provided by the deceased, either "by himself alone or in concert or "by arrangement with any other person, to the extent of the beneficial interest accruing or arising by survivorship or otherwise on the death of the deceased".
For the section to apply, three matters have to be established (see lord Morton in D'Avigder-Goldsmid v. Commissioners of Inland Revenue, 1953 Appeal Cases, p. 347, at p. 366): (i) there must be an annuity or father interest: (ii) purchased or provided by the deceased. So far there is no difficulty; the deceased father has provided the shares, (iii) a beneficial interest therein must accrue or arise by survivorship or otherwise on the death of the deceased. That is the problem.
Some reliance was placed on the identity of the trustees under the 1952 settlement and the 1957 settlement but that seems to me quite unimportant. Liability to estate duty in general depends not on a transfer of a legal or equitable estate on death, but upon a transfer of a beneficial interest. This is clear beyond argument in a case under Section 2(1)(d) where all that is taxed is the "beneficial" interest accruing or arising on the death. One must fasten on the beneficial interest and disregard changes in the purely legal or equitable interests held by trustees. Mr Justice Cross held ft. at there was no claim under this sub-section. Mr Newsom for the Crown submits that that is wrong and he submits that the son Peter could not deal with his interest, first, during the joint lives of himself and his father, and, secondly, after his father's death so as to create a continuing interest; he could only deal with them separately. Therefore, so the argument runs, he could deal with two interests only, his own interest during the joint lives of himself and his father and his interest in capital if he survived his lather, in which case he would, of course, become absolutely entitled to the whole capital. Nothing that Peter could dc in his father's lifetime could amalgamate these interests. On his father's earlier death there must inevitably, whatever Peter did, arise his new interest in capital, and, therefore, there must necessarily arise a claim for duty under Section 2(l)(d). Mr. Newsom's argument can briefly be stated by saying that no dealing by Peter with his interest during the joint lives and his interest thereafter could possibly make any difference - any dealing by Peter, described by Mr Newsom as a sub-settlement, can be ignored.
On behalf of Peter it is argued that this is merely a variation or a resettlement and you must look at the facts as they are at the date of the death. It is said one must approach Section 2(1)(d) bearing in mind, that although many settlements come under its provisions, the sub-section is not necessarily aimed at settlements at all; what you have to do in every case is to look at the beneficial trusts as they are immediately before the relevant death and immediately after the relevant death and you have to see whether an interest was provided by the person so dying, and, if so, whether any beneficial interest arose on the death. That seems to me to be a complete answer to the substance of the Crown's argument. Consider as an example a trust to A. for the joint lives of A. and X. and on the death of X., if he predeceases A., then far B., and on the death of A., if he predeceases X., then far C. The only persons beneficially interested are A., B. and C. Mr Newsom recognises that, of course, A., 3, and C. can put an end to the trust altogether and can entirely defeat the Crown's claim if they re-arrange the trust so that no beneficial interest arises on the death of X., but he contends that if one person only makes some re-arrangement, that this is only a variation or sub-settlement which cannot affect the matter. I do not agree with this. Take the case I have just envisaged. Suppose B. assigns his interest to C. The trust has been modified but it is still in existence. On the death of the first to die of A. or X., what interest arises in C? C. knows that he has in any event the beneficial reversion expectant on thatevent either through his own title or as assignee of 3. There will be a passing for the purposes of Section 1 but nothing arises under Section 2(1)(d) in the sense of a contingent interest becoming vested. It was vested before the relevant death. Then supposing in A'S lifetime C, having acquired B's interest, chooses to grant a life interest to A. After this grant A. knows he has a whole life interest regardless of whether or X. dies first. Nothing arises and nothing passes on X's death. The fact that purely as a matter of limitations A's joint life interest ceases on the death of X. but at once starts again, does not give rise to a claim for duty, for no beneficial interest arises on the death (see Re Parker, 1956, 1 Weekly Law Reports, p. 403), and there is no passing under Section 1. Lord Simonds' reservations on this case in Parker v. Lord advocate turn I think on the particular phraseology of the trusts in Re Parkes and do net challenge its authority for that general proposition. Mr toewsom relied on some observations of Lord Justice Jenkins in Midland Bank Executor & Trustee Go. v. Commissioners of inland Revenue, 1959 Chancery, p. 277 at p. 289. There he was "dealing with the" "case of a derivative settlement and he pointed out that if a life tenant assigns his life interest to another, then on the death of that other all that passes is the life interest and not the funds subject to the head settlement. I respectfully agree but it does not support the argument that a subsettlement cannot affect the Crown's claim to duty under Section 2(1)(d).
I return to the problems what beneficial interest arose on the death of Peter's father? When considering...
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