Re Cassel’s Will Trusts, Public Trustee and Others v HM Attorney General and Others

 

Re Cassel’s Will Trusts, Public Trustee and Others v HM Attorney General and Others

TAXATION; Estate Duty: SUCCESSION; Gifts, Wills: TRUSTS

CHANCERY DIVISION

ROMER J

25 OCTOBER, 15 NOVEMBER 1945

Estate Duty – Assessment of duty – Property passing on death – Annuity – “To Mrs E J an annuity of £5,000 and after her death an annuity of £5,000 to her

two daughters, C and N, and to the survivor of them” – Cesser of annuity on Mrs J’s death and springing-up of a new annuity – Finance Act, 1894 (c 30), ss 1,

2(1) (b).

By his will dated 9 July 1920, the testator gave certain annuities including: “to Mrs E J an annuity of £5,000 and after her death or if she shall predecease me

then from the date of my death an annuity of £5,000 to her 2 daughters, C and N, and to the survivor of them.” The testator authorised his trustees to

appropriate, if necessary, a fund sufficient by its income to answer the several annuities given by his will, or such of them as were for the time being payable,

and he declared that, if the income of the appropriated fund should at the time of the appropriation be sufficient to satisfy the said annuities, such appropriation

should be a complete satisfaction of the trusts to provide for such annuities (the annuities being charged on the capital and income of the appropriated fund).

No fund was, however, appropriated (except with regard to certain annuities payable in foreign currency) and the annuities were paid out of the income of the

residuary estate. The testator died on 21 September 1921, and Mrs E J died on 11 June 1944, leaving the two daughters mentioned in the will. The question to

be determined was whether, in regard to the annuity enjoyed by Mrs E J, there was, on her death, a cesser of an interest in respect of which estate duty became

payable under the Finance Act, 1894, s 2(1)(b), or whether there was a passing of property under sect 1 of the same Act. The Estate Duty Office contended

that, upon the true construction of the testator’s will, there was a cesser of one annuity and a springing-up of a new annuity of the same amount in favour of

Mrs E J’s daughters. The residuary legatees contended that, for the purpose in question, the language in which the annuities were given was immaterial and

the substance of the matter was that there was an annual sum payable without intermission to successive takers; therefore (it was contended) estate duty should

only be charged as on the passing of property (viz, a share of the annuity) in accordance with the practice now prevailing in regard to successive interests in a

single annuity:—

Held – Upon the true construction of the testator’s will, Mrs E J and her daughters were not successive takers of one item of property, but separate proprietors

of different and independent interests the difference between, their interests being a matter of substance and not merely a matter of form. The annuity to which

Mrs E J was entitled ceased to be payable by reason of her death, and the Finance Act, 1894, s 2(1)(b), therefore, applied.

Notes

It is the practice of the Estate Duty Office, in the case of successive interests in a single annuity, not to levy estate duty on a cesser of interest until the death of

the last annuitant. It is argued in this case that, although as a matter of construction the annuity given to the mother is a different annuity to those given to the

daughters, being something apart and independent, yet there is no rational ground for not applying a practice of the office so calculated to avoid hardship. The

court, however, refuses to extend the conception of one single annuity with successive takers as a separate item of property to a case where, on the

construction of the will, there are separate proprietors of different and independent interests.

􀂭 32􀀉

As to Property Passing on Death, see Halsbury, Hailsham Edn, Vol 13, pp 232–237, paras 222–226, and Supplement; and for Cases, see Digest, Vol 21,

pp 7–10, Nos 21–42.

Case referred to in judgment

Re Palmer, Palmer v Palmer [1916] 2 Ch 391, 21 Digest 35, 220, 85 LJCh 577, 115 LT 57.

Adjourned Summons

Adjourned Summons to determine whether, on the death of Mrs Ella Joshua, estate duty became payable in respect of the annuity given to her under the

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Preamble

testator’s will as property passing under the Finance Act 1894, s 1, or as property deemed to pass under sect 2(1)(b) of the same Act. The facts and the

relevant provisions of the will are fully set out in the judgment.

Wilfrid Hunt for the trustees.

J H Stamp for the Crown.

Raymond Jennings KC and M J Albery for Mrs Joshua’s daughters.

H H King for the other annuitants.

R F Roxburgh KC and M G Hewins for the residuary legatees.

Cur adv vult

15 November 1945. The following judgment was delivered.

ROMER J. By his will dated 9 July 1920, the late Sir Ernest Cassel, after appointing executors and trustees and making certain pecuniary bequests,

proceeded as follows:

‘I bequeath the following annuities to the following persons during their respective lives to accrue from day to day but to be payable quarterly as

from the date of my death (except where otherwise stated) namely: to my sister Wilhelmina Cassel an annuity of £30,000; to my brother-in-law Arthur

Maxwell an annuity of £300; to Beatrice Maxwell wife of the said Arthur Maxwell an annuity of £300; to Minna daughter of the said Arthur and

Beatrice Maxwell an annuity of £200; to Nellie Maxwell wife of my brother-in-law Ernest Maxwell an annuity of £240 and to each of her four children

now living an annuity of £100; to Mrs. Ella Joshua of 20a Manchester Square an annuity of £5,000 and after her death or if she shall predecease me then

from the date of my death an annuity of £5,000 to her two daughters, Cathy and Nellie, and to the survivor of them; to my old friend and relative Isidor

Silverberg an annuity of £300; to the Hon. Mrs. Thomas Seymour Brand while living an annuity of £600; to her and the late Admiral the Hon. Thomas

Seymour Brand’s children or child living at her death and at the death of myself an annuity of £600 to commence from her death and to continue until

the death of the last survivor of such children and to be payable to such of them as shall for the time being be living and if more than one in equal

shares; to my old friend Mdlle. Berthe Guillaume of 6 Rue Allard Saint Mande Paris an annuity of 12,000 French francs; to her sister Mdlle. Marie

Guillaume of the same address an annuity of 5,000 French francs to commence from the death of the survivor of myself and the said Mdlle. Berthe

Guillaume.’

There then followed certain annuities to other persons, but I need not notice them in any particular detail. After further dispositions, the testator directed

his net residuary estate to be divided into eight equal parts which he settled upon trusts therein mentioned. He authorised his trustees, in case at any time with

a view to the due administration or distribution of his estate it should be deemed convenient so to do, to appropriate and retain a sufficient part of his estate or

of the investments representing the same for answering by the annual income thereof the several annuities thereinbefore bequeathed or such of them as should

for the time being be payable, but without prejudice to the powers of sale and investment and transposing investments therein contained; and he declared that

in case the income of the appropriated fund should at the time of appropriation be sufficient to satisfy the said annuities, such appropriation should be a

complete satisfaction of the trusts to provide for such annuities and that in case the income of the appropriated fund should at any time and from any cause

whatever prove insufficient for payment in full of the said annuities, resort might be had to the capital thereof respectively from time to time to make good

such deficiency and the surplus income (if any) of the said fund from time to time remaining after payment of the said annuities should be applicable as

income of his residuary estate; and the testator declared that as and when any of the said annuities should cease, a corresponding part of the appropriated fund

should sink into his residuary estate.

The testator died on 21 September 1921, and his will was duly proved on 7 October of the same year. His estate is a very large one. No fund has up to

now been 􀂭 33􀀉 appropriated to answer any of the annuities which the testator bequeathed, save that a fund in Funding Loan has been treated as set aside to

answer the annuities which were given in French and Swiss francs. The other annuities have been paid out of the income of the general estate.

On 11 June 1944, Mrs Ella Joshua died, leaving surviving her two daughters who were named in the testator’s will. They are the second and third

defendants to this summons and are aged respectively about 47 and 44 years. A difference has arisen between the Estate Duty Office and the trustees of the

testator’s will as to the proper principle to be applied in assessing the estate duty which became payable on Mrs Joshua’s death in respect of the £5,000 annuity

which she enjoyed during her life. As stated in Sir Felix Cassel’s affidavit sworn in support of the summons, the Estate Duty Office claim that on the death of

Mrs Joshua there was a cesser of one annuity for £5,000 in respect of which estate duty became payable under the Finance Act, 1894, s 2(1)(b), and a

springing-up of a new annuity, also for £5,000, in favour of the daughters of Mrs Joshua and the survivor of them, whereas the trustees claim that there was no

cesser of an annuity, but a passing of an annuity of £5,000 on the death of Mrs Joshua to her daughters and that estate duty was payable on the value of such

an annuity. This and other matters are raised for determination in the summons, to which the Attorney General is joined as a defendant. The question with

which I am immediately concerned is the point of difference between the Estate Duty Office and the trustees to which I have just referred.

As a question of construction, solely and simply, it is, in my judgment, reasonably plain that the annuity of £5,000 bequeathed to Mrs Joshua’s daughters

after her death is not the same annuity as that bequeathed to Mrs Joshua during her lifetime. It is a distinct and different annuity, although of the same amount.

Preliminary to the annuities which he specifies, the testator himself draws attention to the fact that some of them are not immediate, but future. An

examination of them then reveals that, whilst most of them are to take effect at the testator’s death, others are to await the deaths of certain named persons. In

the latter category are (i) the annuity to Mrs Joshua’s daughters, (ii) the annuity to the children of Admiral and Mrs Seymour Brand, and (iii) the annuity to

Mdlle Marie Guillaume. What the exact purpose was which the testator had in mind in giving one annuity of £5,000 to Mrs Joshua for her life and a separate

annuity of the same amount to her daughters after her death instead of carrying the same annuity to successive interests may be open to question, but in my

opinion he could scarcely have effected the purpose by plainer language than that which he actually used.

On this view of the matter, counsel for the Attorney General says that the case falls precisely within the language of the Finance Act, 1894, s 2(1)(b),

which provides:

‘2(1) Property passing on the death of the deceased shall be deemed to include … (b) Property in which the deceased or any other person had an

interest ceasing on the death of the deceased, to the extent to which a benefit accrues or arises by the cesser of such interest … ’

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Mrs Joshua, says counsel for the Attorney General, had an annuity for £5,000 (payable out of residue) which ceased upon her death and duty is accordingly

payable by reason of such cesser of interest. Counsel for certain infant defendants who are interested in residue was not disposed seriously to challenge that,

as a mere question of construction, the annuity bequeathed to Mrs Joshua’s children is different from that bequeathed to Mrs Joshua herself. He contends,

however, that what one has to consider is the substance of the matter and that, for present purposes, the language in which the annuities were bequeathed is of

little or no materiality. The foundation of the case of counsel for those interested in residue is a practice which has grown up, and now apparently prevails, in

the Estate Duty Office with regard to joint or successive interests in what I may describe as a single annuity. The practice may be illustrated in the following

way: If an annuity of £x a year is bequeathed to A for life, then to B for life, then to C for life, on the death of A (B and C surviving) estate duty is charged as

on the passing of property (viz, a share of the annuity) and not as on the cesser of an interest. The same principle would be applied on the death of B, leaving

C surviving, and estate duty would not be levied on a cesser of interest (ie, on a capital value basis) until the 􀂭 34􀀉 death of C. The same practice is adopted

where joint beneficial interests are created in one annuity. Thus, in a letter from the Estate Duty Office which is in evidence in the present case, it is stated

that, as the official practice now stands, the interests of Mrs Joshua’s two daughters, which arose upon the death of their mother, would be treated as being in

one annuity.

This practice evidently did not prevail at the time of Re Palmer, for, had it done so, duty would not have been charged on the death of Ronald Palmer on

a cesser of interest basis so far as the £3,000 annuity there under consideration was concerned. It may have sprung up as a result of some of the observations

which fell from the Court of Appeal in that case. Be that as it may, counsel for those interested in residue relies on the fact that the practice does prevail now

and says that, if it is to be applied on the death of one of several successive takers in a single annuity, there is no rational ground for not applying it to the

position which arose on the death of Mrs Joshua. He says that the idea underlying the practice is that an annuity given to successive takers is a single item of

property which subsists over a period, viz, the period between its commencement and the death of the last taker, and that there is a passing of a proportionate

part of this item of property upon the death of successive takers, with a cesser of interest on the death of the last. He questions whether this conception

accords with strict legal theory, on the ground that every annuity (except a perpetual annuity) given to successive takers is in reality not one annuity but

several successive annuities; but he suggests that its adoption is justified as avoiding the hardship which the old practice would, and did, involve. He then

proceeds to the conclusion that this conception is and must be equally applicable to every case in which the substance of the matter is that an annual sum of the

same amount is payable, without intermission, to successive takers, and that such is the substance of the matter in the present case.

Now, inasmuch as the burden on the testator’s estate does not differ in any respect from what it would have been had a so-called single annuity of £5,000

a year been bequeathed to Mrs Joshua for life and after her death to her two daughters, it certainly does seem to be a matter of some hardship that the estate

should be saddled with a burden from which it would or might have been free had the provision for Mrs Joshua and her daughters taken that form. Whether or

not the present practice of the Estate Duty Office to which I have referred is legally correct or not, I do not propose to determine. Certain it is that it tends to

avoid hardship and I should, therefore, be reluctant to cast doubts upon its legitimacy in a case in which, as I see it, it is not necessary for my decision that I

should express an opinion either way. But the conception of one single annuity with successive takers as a separate item of property, having a definite period

of existence, and as such capable of passing under sect 1 of the 1894 Act, which (whether right or wrong) seems to me to be quite an intelligible conception

and which is the foundation of the principle, has, in my judgment, no application to a case in which the beneficiaries cannot in any sense be said to be

successive takers in one item of property, but are separate proprietors of different and independent interests. It is true that the burden on the paying hand is the

same in the one case as in the other. The difference, however, between the interests which are bequeathed to Mrs Joshua and her daughters respectively is by

no means merely a matter of form, but is a matter of real substance. Not only is the annuity bequeathed to the daughters not the same as the annuity

bequeathed to their mother, but it is wholly apart from it and altogether independent of its fate. If investments had been appropriated to answer Mrs Joshua’s

annuity, their depreciation or loss during her lifetime would have resulted in a disadvantage common to herself and her daughters, had the latter inherited in

succession to their mother, but, having regard to the form in which the testator has bequeathed their beneficial interests, such loss or depreciation, had it

occurred, would not have affected in the slightest degree the claim of her daughters to the payment of £5,000 a year in full from the moment of their mother’s

death.

As I find (a) that Mrs Joshua was entitled to a life annuity of £5,000 payable out of residue, (b) that that annuity has ceased to be payable by reason of her

death, and (c) that a position has accordingly arisen which is precisely within the language of the Finance Act, 1894, s 2(1)(b), I have no right to say that that

provision does not apply merely because a disposition differently worded but 􀂭 35􀀉 identical in effect might have led to a different result. In my judgment,

sect 2(1)(b) does apply and I will make a declaration to that effect.

Declaration accordingly.

Solicitors: Norton, Rose, Greenwell & Co (for the trustees); Solicitor of Inland Revenue (for the Crown); Lewis & Lewis and Gisborne & Co (for Mrs Joshua’s

daughters); Cooper, Bake, Fettes, Roche & Wade (for the other annuitants); Vertue, Son & Churcher (for the residuary legatees).

F Guttman Esq Barrister.

[1946] 1 All ER 36