Re Harmsworth, deceased ; Barclays Bank Ltd v Inland Revenue Comissioners
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE HARMAN,LORD JUSTICE SALMON |
| Judgment Date | 01 March 1967 |
| Judgment citation (vLex) | [1967] EWCA Civ J0301-2 |
| Date | 01 March 1967 |
| Court | Court of Appeal (Civil Division) |
[1967] EWCA Civ J0301-2
In The Supreme Court of Judicature
Court of Appeal
Civil Division
From Mr. Justice Buckley
The Master of The Rolls
(Lord Denning)
Lord Justice Harman and
Lord Justice Salmon
MR. M.M. WHEELER, Q.C. and MR. J.P. WARNER (instructed by the Solicitor of Inland Revenue) appeared as Counsel for the Appellants.
MR. E.I. GOULDING, Q.C. and MR. V.G.H. HALLETT (instructed by Messrs Taylor, Willcocks & Co.) appeared as Counsel for the Respondents.
Sir Leicester Harmsworth was a man of means. His wife, Lady Harmsworth, had considerable investments of her own. A year or two before his death he made a will in which he made some specific bequests, but he left his residuary estate to his five children and their families. One of the specific bequests was this: he left his wife an annuity of £5,000 a year for her life. But he imposed a condition on this bequest. In order to get the annuity, she had to tie up one half of her own investments. This has been called the "moiety fund". She was to receive the income from this moiety fund during her life, but she was to leave the capital of the fund by her will to her husband's residuary legatees, i.e. to their five children and their families.
The bequest was in these terms:
"I bequeath to my wile during her widowhood a conditional annuity of £5,000 and I direct that the same shall be paid upon the following terms:
The bequest shall bo conditional upon my said wife within a period of three months of my death agreeing to hold one moiety of the real property and income producing investments to which she may be entitled at the time of my death upon trust to retain the same and the income thereof for her use during her life and subject thereto to devise and bequeath the said moiety to the trustees of her will to be held by such trustees upon the same trusts as those of my residuary estate".
Sir Leicester Harmsworth died on the 19th January, 1937. Within the three months Lady Harnsworth accepted the condition. On the 7th April, 1937, her solicitors wrote to the executors of Sir Leicester's will and to the trustees of the will and their solicitors saying that she accepted the conditional annuity of £5,000 on the terms laid down in his will.
Lady Harmsworth lived on for nearly 27 years. She died on the 1st December, 1963. All that time she received the annuity of £5,000 a year from her husband's estate. She also did her part. She set aside one-half of her investments. That half was valued in 1937 at £44,310. 2s.11d. It was kept as a separate fund. She received the income from it during her life: and by her will she left it, as she was bound to do, to her husband's residuary legatees, i.e. to their five children and their families.
At her death in 1963 the moiety fund had increased in value to £186,030. 19s.0d. The Revenue claimed estate duty on it on the ground that the moiety fund passed on her death. Prima facie the moiety fund did pass under Section 2(1)(b) of the Finance Act 1894. The moiety fund was property in which the deceased, Lady Harmsworth, had a life interest ceasing on her death. The whole benefit accrued to the residuary legatees. So prima facie estate duty was payable on the whole. The duty came to £102,316. 17s.8d. Her personal representatives paid it. But they now say that no estate duty was payable on it and claim that it should be returned. They base their case on Section 3 of the Finance Act 1894, which says: "Estate duty shall not be payable in respect of property passing on the death of the deceased by reason only of a bona fide purchase from the person under whose disposition the property passes…. where such purchase was made…. for full consideration in money or money's worth paid to the vendor…. for his own use or benefit".
In order to understand this section, I will take twoillustrations: The first is where a young man agrees to pay an old man an annuity for life on the terms that the old man will leave the young man his house in his will. In that case, on the old man's death, estate duty would prima facie be payable on the house under Section 2(1)(a): but under Section 3 it is not payable because the young man had purchased the house for its full value by paying the annuity. It would be unjust that he should have to pay estate duty on a house for which he had already given full value, see Attorney-General v. Dobree, 1900, 1 Queen's Bench at page 450 by Mr. Justice Darling.
The other instance is the converse case: when a man buys a life interest in a house for full value on the terms that it is to revert to the seller after his death, that would prima facie be caught by Section 2(1)(b): but it is exempt by Section 3 as the purchase was for full value, of. Attorney-General v. Earl of Sandwich, 1922, 2 king's Bench, page 500.
In the present case "the property passing on the death of the deceased" was the moiety fund. It passed on the death. of Lady Harmsworth from her to her husband's residuary legatees. Under whose "disposition" did that property pass? At first sight one might think it passed under the disposition which Lady Harmsworth made by her will in 1963. But that is not correct. She had bound herself as long ago as 1937 to dispose of the moiety fund to her husband's residuary legatees. As soon as she agreed on the 7th April, 1937, to the condition attached to the request, she became under a trust to hold the moiety fund as trustee for herself for life with an obligation to leave it to the residuary legatees after her death. The "disposition" was her acceptance on the 7th April, 1937, of the bequest by that acceptance she disposed of her reversionary interest in return for an annuity. The annuity was "full consideration in money or money's worth". That is admitted. The only question is: Was there a purchase" from her?
Mr. Wheeler argued that "purchase" is the converse of "sale": that "sale" is a transfer of property by one person to another as the result of a contract express or implied (relying on Kirkness (inspector of Taxes) v. John Hudson & Co. Ltd., 1955 Appeal Cases, page 696): and that here there was no contract between Sir Leicester and Lady Harmsworth. Mr. Wheeler pinned his case to this: that for a "purchase" there must be a contract. Thus he admitted that if Sir Leicester and Lady Harmsworth had in their lives made an agreement that he would leave her an annuity if she would leave the moiety fund to his residuary legatees, then there would be a "purchase" from him; or if he had, by a testamentary option in his will, directed his executors to offer her the annuity in return for the moiety fund, and she accepted the offer, there would be a purchase" from her. But he submitted that a conditional bequest was not a. contract, even when she accepted the condition; and, therefore, there was no "purchase".
I am disposed myself to think there was a contract here. Sir Leicester made an offer through his executors to his wife, just as much as if he had directed them to make it: and she accepted it when she accepted the conditional bequest. Even if there was no contract, however, I think there was a purchase" within Section 3. The meaning of "purchase" in any statute depends on the context, see Frederick Lawrence Ltd. v. Freeman Hardy & Willis Ltd., 1959, 1 Chancery at page 746. It is obvious that "purchase" is not used in Section 3 in any technical sense because it covers the case where the consideration is not in money but in money's worth. I think that in this section "bona fide purchase for money or money's worth" means a "bona fide acquisition in return for a fair equivalentin money or money's worth". So interpreted, the reversionary interest in the moiety fund here was acquired by reason of a bona fide purchase by Sir Leicester through his executors from Lady Harmsworth. It was acquired in return for the annuity. The property an it passed on her death by reason only of that purchase, seeing that but for that purchase it would probably not have passed at all, because if she had not sold the moiety fund in return for the annuity, she might have disposed of the moiety fund elsewhere long before her death.
If the matter had stopped there, there would have been no estate duty payable on the moiety fund. But now comes the second point. Lady Harmsworth made this disposition in favour of her relatives as well as his (being their own five children and their families). Dispositions in favour of relatives are caught by special statutory provisions.
By Section 44 of the Finance Act. 1940, as originally enacted in 1940 (omitting immaterial words): "Where a (deceased) person has made a disposition in favour of a relative of his, the creation in favour of the deceased of an annuity shall not be treated for the purposes of Section 3 of the Finance Act 1894 as consideration for the disposition made by the deceased". If that section had remained unamended, is would have fitted this case exactly. Lady Harmsworth made the disposition of the moiety fund in favour of her relatives. She received the annuity in exchange for it. That is not to be treated as consideration for the purpose of Section 3. So Section 3 would be of no avail. Estate duty would be payable.
But Section 44 was amended by Section 46 of the Finance Act, 1950. This amendment was provoked by the decision of Mr. Justice Denckwerts in Re Earl Fitzwilliam's Agreement, 1950 Chancery, page 448. As amended, the section says that: "(1) Any disposition made by the deceased in favour of a relative of his shall be treated for the purposes of Section 2(1)(c) of the Finance Act 1894 as a gift...
To continue reading
Request your trial