Re Holmden's Settlement Trusts
| Jurisdiction | England & Wales |
| Judge | Lord Reid,Lord Morris of Borth-y-Gest,Lord Hodson,Lord Guest,Lord Wilberforce |
| Judgment Date | 13 December 1967 |
| Judgment citation (vLex) | [1967] UKHL J1213-1 |
| Date | 13 December 1967 |
| Court | House of Lords |
[1967] UKHL J1213-1
House of Lords
Lord Reid
Lord Morris of Borth-y-Gest
Lord Hodson
Lord Guest
Lord Wilberforce
Upon Report from the Appellate Committee, to whom was referred the Cause Commissioners of Inland Revenue against Holmden and others, that the Committee had heard Counsel as well on Wednesday the 18th, as on Thursday the 19th and Monday the 23d, days of October last, upon the Petition and Appeal of the Commissioners of Inland Revenue, of Somerset House, Strand, London, W.C.2, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal, of the 12th of May 1966, so far as therein stated to be appealed against, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order, so far as aforesaid, might be reversed, varied or altered, and that the Petitioners might have the relief prayed for in the Appeal, or such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet; as also upon the Case of George Alexander Holmden, Philip Howard Byam-Cook and John Henry Francis Collingwood, lodged in answer to the said Appeal: and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal, of the 12th day of May 1966, in part complained of in the said Appeal, be, and the same is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellants do pay, or cause to be paid, to the said Respondents the Costs incurred by them in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.
My Lords,
It has long been notorious that the Estate Duty legislation can cause great injustice or hardship in many cases. An individual who is well advised can often take action during his life which will diminish tax liabilty on his death. But before 1958 no such action was possible with regard to trust funds, except in the unlikely case where all who had vested or contingent rights were of full age: then they could combine to require immediate payment of the fund or alter the trust purposes. By the Variation of Trusts Act 1958 it became possible to make application to the Court. Generally all of full age combined to put forward an arrangement and, if it was otherwise unobjectionable, the Court could approve the arrangement on behalf of minor beneficiaries and of unborn persons who might become beneficiaries if the arrangement was for their benefit. And an arrangement which would avoid large payments of estate duty could hardly fail to be for the benefit of such infant and potential beneficiaries.
In the present case an arrangement was approved by the Court in 1960. The original settlement was made by the settlor Sir G. Holmden, in 1927. He died in 1945, survived by his widow and two children. The position after his death was that the trustees had power during the life of the widow to pay or apply the whole or such part of the income of the trust fund as they should in their uncontrolled discretion think fit for the benefit of the widow, the children and any grandchildren or any of them. A provision in the settlement for the accumulation of any surplus income not so paid or applied came to an end at the death of the settlor and thereafter any surplus was not disposed of by the settlement but belonged to the settlor's estate. On the death of the widow the discretionary trust came to an end and, subject to a power of appointment given to the widow, half of the fund was to be held in trust for each child and his or her family.
It was obvious that, if no alteration was made, estate duty would be payable on the death of the widow. It is not disputed that the purpose of the arrangement was to alter the trust purposes so that there should be no passing of the property on the death of the widow. The arrangement provided that as from 12th January 1960, the date of the Order of the Court, the discretionary trusts of income should have effect during the life of the widow or the period of twenty-one years from that date whichever should be the longer. The arrangement also altered the rights of the children and grandchildren to receive the capital at the end of the twenty-one-year period. The widow died in 1962.
Estate duty is claimed on the ground that as regards rights to income the arrangement did not come into operation until the death of the widow. But in my opinion the whole arrangement did come into operation in 1960. I can see no ground at all for the Appellants' argument that until the death of the widow the original settlement continued unaltered: the plain meaning of the arrangement is that the whole of it came into operation at once. So the discretionary trust set out in the arrangement came into operation in 1960 and continued in operation until after the widow's death. The only change at the widow's death was that one of the objects of the discretionary trust dropped out and admittedly such a change does not involve any liability for estate duty.
But the Appellants also found on section 43 of the Finance Act 1940. Subsection (1) is as follows:
"(1) Subject to the provisions of this section, where an interest limited to cease on a death has been disposed of or has determined, whether by surrender, assurance, divesting, forfeiture or in any other manner (except by the expiration of a fixed period at the expiration of which the interest was limited to cease), whether wholly or partly, and whether for value or not, after becoming an interest in possession, and the disposition or determination (or any of them if there are more than one) is not excepted by sub-section (2) of this section then—
( a) if, had there been no disposition or determination as aforesaid of that interest and no disposition of any interest expectant upon or subject to that interest, the property in which the interest subsisted would have passed on the death under section 1 of the Finance Act, 1894, that property shall be deemed by virtue of this section to be included as to the whole thereof in the property passing on the death; or
( b) if, had there been no disposition or determination as aforesaid of that interest and no disposition of any interest expectant upon or subject to that interest, the property in which the interest subsisted would have been deemed by virtue of paragraph ( b) of sub-section (1) of section 2 of the said Act to be included to a particular extent in the property passing on the death, the property in which the interest subsisted shall be deemed by virtue of this section to be included to that extent in the property passing on the death."
Let me assume for the moment that the rights under the Settlement of the objects of the discretionary trust were interests or an interest in possession within the meaning of this section. The question then is whether such interests were "determined" by the coming into operation of the arrangement. If they were and the other express or implied requirements of the section are satisfied then the trust fund must be deemed to have passed on the death of the widow.
There are two ways of looking at the effect of the arrangement. One is that it merely amended or varied the original settlement by writing in to clause 2 ( a) the alternative period of twenty-one years from 1960: otherwise that clause remained unaltered. If that is an adequate statement of the effect of the arrangement then there was no determination of the clause or of the "interest limited to cease" on the death of the widow which it contained. All that happened was that an alternative period of duration of the interest was added, and in the event which happened, the death of the widow within the twenty-one years, the alternative period prevailed.
The other way of looking at the effect of the arrangement raises the question what was the true nature of the arrangement. Under the variation of Trusts Act the Court does not itself amend or vary the trusts of the original settlement. The beneficiaries are not bound by variations because the Court has made the variation. Each beneficiary is bound because he has consented to the variation. If he was not of full age when the arrangement was made he is bound because the Court was authorised by the Act to approve of it on his behalf and did so by making an order. If he was of full age and did not in fact consent he is not affected by the Order of the Court and he is not bound. So the arrangement must be regarded as an arrangement made by the beneficiaries themselves. The Court merely acted on behalf of or as representing those beneficiaries who were not in a position to give their own consent and approval.
So we have an alteration of the settlement which was not made by the settlor or by the Court as being empowered to make it, but which was made by the beneficiaries quite independently of the settlor or of any power, express or implied, given or deemed to have been given by him. Is it possible in those circumstances to say that, when the agreement of the beneficiaries alters the settlement, it merely amends the settlement? Or is the true position that, in so far as the arrangement alters the provisions of the settlement, it brings to an end or "determines" those provisions and substitutes for them new provisions arranged by the beneficiaries? Here the settlor gave interests limited to cease on his widow's death: the beneficiaries substituted interests which probably would not and in fact did not cease on her death. I do not find the point at all easy but I have come to be of opinion that the...
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