Re Kilpatrick's Policies Trusts ; Kilpatrick v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE DIPLOCK,LORD JUSTICE RUSSELL |
| Judgment Date | 16 March 1966 |
| Judgment citation (vLex) | [1966] EWCA Civ J0316-1 |
| Date | 16 March 1966 |
| Court | Court of Appeal |
[1966] EWCA Civ J0316-1
D.12
In The Supreme Court of Judicature
Court of Appeal
From Mr Justice Cross.
The Master of the Rolls
(Lord Denning)
Lord Justice Diplock and
Lord Justice Russell
In the Matter of Stewart Kilpatrick's Policies Trusts
MR J.L. ARNOLD, Q.C. and MR J.P.E. WARNER (instructed by the Solicitor of Inland Revenue) appeared as Counsel for the Appellants.
MR E.I. GOULDING, Q.C. and MR P.W.E. TAYLOR (instructed by Messrs Fladgate & Co.) appeared as Counsel for the Respondents.
In 1952 Mr. Kilpatrick took out fourteen policies of assurance on his own life for the benefit of his wife Mrs Kilpatrick, and his two sons, Stewart and Allen Kilpatrick. These policies were made under the provisions of Section 11 of the married women's Property Act 1952, and consequently created a trust for his wife and two sons. They were single premium policies. Mr Kilpatrick paid the single premiums in 1952 once and for all. He appointed he himself and his wife to be trustees of each of the policies and of all moneys payable there under.
On each policy there was endorsed this special note:
1. This policy is effected under the provisions of the Married Women's Property Act 1882 for the benefit of Rochelle Edith Kilpatrick, the wife of the assured, if she shall survive the assured for more than one month.
2. If the said Rochelle Edith Kilpatrick shall not survive the assured for the period of one month, then this policy shall be for the benefit of the two sons of the assured, namely, Stewart Kilpatrick, Junior, and Allen James Kilpatrick otherwise known as Allan James Kilpatrick in equal shares".
There were also express provisions giving the trustees "power at any time at their discretion to borrow any money required for the purposes of the policy and the trusts" and also "power at any time to invest moneys" with the "absolute power of varying such investments".
Nine years later, on 20th October 1961, Mr Kilpatrick died. The trustees never did borrow or invest any moneys during Nr Kilpatrick's lifetime. Mrs Kilpatrick survived her husband. So did their two sons. Mrs Kilpatrick survived for more than one month. Accordingly, the benefit of all the policy moneys went to her and none to the two sons. The total sum of all fourteen policies came to £66,638. 19s.2d.
The Revenue now claim to be entitled to estate duty amounting to £26,000. They can, of course, make no claim under Section 1 of the 1894 Act, because the property in these policies did not pass on Mr Kilpatrick's death in October 1961. It passed in 1952 when he created them for the benefit of his wife and two sons. But the Revenue say the property is to be deemed to pass under Section 2(l)(d) of the 1894 Act. That subsection says that: "Property passing on the death of the deceased shall be deemed to include any interest purchased or provided by the deceased to the extent of the beneficial interest accruing or arising by survivorship or otherwise on the death of the deceased". These policies were clearly an interest provided by the deceased. By Section 22(1)(1), the phrase "on the death" includes "at a period ascertainable by reference only to the death". So it includes the period of one month after Mr Kilpatrick's death mentioned in the policies. Sub-section 2(1)(d) is qualified by Section 28 of the Finance Act, 1934, which says that "where an annuity or other interest has been purchased or provided by the deceased……the extent of any beneficial interest therein accruing or arising by survivorship or otherwise on the death of the deceased shall be ascertained, and shall be deemed always to have been ascertainable, without regard to any interest in expectancy the beneficiary may have had therein before the death".
Mr Arnold for the revenue put his arguments under four heads which I will deal with separately.
(1) Mr Arnold said that the beneficial interest of the widow in the policy moneys was a contingent interest up to the moment when it vested at the end if a month after her husband's death. At that moment the beneficial interest "arose", and as it was provided by the deceased, it wag chargeable under Section 2(1)(d) of the 1894 Act. The interest which the widow had before that moment was an expectant interest, being one which existed by reason only of the expectation that the contingency would occur, and accordingly to be ignored under Section 28 of the 1934 Act.
If I were untrammelled by authority, I would have accepted this contention. It seems to me obvious that Mrs Kilpatrick had no beneficial interest until one month after her husband's death: and then she got the whole £66,638. 19s.2d. So estate duty -should be payable. Bat I am compelled by authority to come to a different conclusion. First, in D'Avigdor-Goldsmith v. Inland Revenue Commissioners 1953 Appeal Cases, p. 347, the Rouse of Lords held that the words "beneficial interest" in Section 2(1)(d) do not mean financial benefit. They mean legal or equitable right. we have to see, therefore, whether Mrs Kilpatrick, before her husband's death, had a legal or equitable right to the policies or whether she only acquired a right on his death or a month afterwards. Second, in Phipps v. Ackers (1842) 9 Clark a Finnelly, p. 583, the House of Lords held that when property is given in these terms: To A "if" or "when" or "as soon as" a tine is reached, but that if dies before that time, then the property is to go to B; in such a case takes, not a contingent interest, but a vested interest which passes to him at once as soon as the gift is made, but is liable to be defeated if he dies before the time. Phipps v. Ackers was decided in regard to real property. But it was assumed by the text book writers to extend also to personalty: and eventually it was decided by the Judges to extend to personalty. In particular by Mr Justice Farwell in 1936 in Re Heath, 1936 Chancery, p. 259, and in 1951 by Lord Justice Black in McGredy v. Inland Revenue Commissioners, 1951 N.I.R., p. 155. I do not think we can possibly overrule those cases, seeing that so many transactions have been effected on the faith of them.
We must take it, therefore, that as from 1952 when these policies were effected, Mrs Kilpatrick had a vested interest in these policies, which was liable to be defeated by her death before her husband or within one month after his "death. She had the legal and equitable right to the policies all the time. That disposes of Mr Arnold's first point.
(2) Mr Arnold next said that, even if the interest of the widow was not contingent until the end of the month but was vested until defeasance, it was not, until her husband died, an interest in possession but it was an interest in futuro, and therefore for that reason an interest in expectancy. When it fell into possession on the husband's death, it "accrued" or "arose" within the meaning of Section 2(1)(d).
If I were untrammelled by authority, I would have accepted this contention also. It seems to me plain that no one contemplated that there would be any income from these policies during the husband's lifetime. The whole object was to provide capital on the husband's death and not to provide any income beforehand. There was nothing coming into possession during his life, but only on his death when the policies matured and the moneys became payable But again I am compelled by authority to come to a different conclusion. In Mrightson's case, 1958 Appeal Cases, p. 210, a father assigned policies of assurance on his life to trustees on. the terms that on maturity, i.e. on his death, the moneys were to be dividedamongst his sons. The House of Lords held that the beneficial interest remained unchanged in character from the date of the settlement. No beneficial interest accrued or arose to the sons on the father's death. So estate duty was not payable. In Child's case, 1960, I Chancery, p. 534, Mr Justice Cross managed to distinguish Wright son's case in some way which is not very clear to me. Suffice it to say that I cannot distinguish Wright son's case here. Indeed, the present case is stronger in favour of the taxpayer than Wright son's case: because here there was some possibility of income during Mr Kilpatrick's life. The trustees had power to borrow and to invest. If there had been income during Mr Kilpatrick's life, it would seem that Mrs Kilpatrick ought to receive it. However that may be, this case is not distinguishable from wright son's case! and I feel bound to hold that Mrs Kilpatrick had a vested interest in possession as from 1952 when the policies were taken out: that her beneficial interest cane into existence then: and did not accrue or arise on or after her husband's death.
(3) Mr Arnold next submitted that, if (1) and (2) were both wrong, and the widow had a vested interest in possession all the way through, and liable to be defeated only by death before maturity, then the widow's entitlement consisted of two interests: (i) a right to the income until the end of the month or her earlier death: (ii) a right to capital if she should be living at the end of the month. Right (i) came to an end when Right (ii) came into existence. Right (ii) was an interest in expectancy until it came into existence at the end of the month and then it accrued or arose for the first time as an indefeasible beneficial interest.
I do not think this submission merits prolonged examination. If the first two propositions are wrong, then Mrs Kilpatrick had a vested interest in possession from 1952 and this did not change in character at any time. She had the one contractual right all the time - the one entitlement - from which she was entitled to receive the income during his life and for one month...
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