1957 (7) TMI 35 - HC - Income Tax

House of Lords: No New Beneficial Interest on Settlor's Death

WESTMINSTER BANK LTD. Versus IRC, WRIGHTSON

WESTMINSTER BANK LTD. Versus IRC, WRIGHTSON - [1959] 36 ITR (E. D.) 3 (HL) Issues Involved:1. Liability for estate duty under section 2(1)(d) of the Finance Act, 1894.2. Determination of whether policies of assurance constitute 'any annuity or other interest' under the said section.3. Accrual or arising of a beneficial interest on the death of the settlor.Issue-wise Detailed Analysis:1. Liability for Estate Duty under Section 2(1)(d) of the Finance Act, 1894:The primary issue was whether estate duty became payable on the death of the settlor in respect of the life interest of the beneficiaries in the proceeds of the life assurance policies. The Court of Appeal had reversed the decision of Harman J., holding that estate duty was payable. The House of Lords had to determine if the beneficial interests in the policies or their proceeds had accrued or arisen on the death of the settlor.2. Determination of Whether Policies of Assurance Constitute 'Any Annuity or Other Interest':The House of Lords examined whether the policies of assurance fell within the meaning of 'any annuity or other interest' under section 2(1)(d) of the Finance Act, 1894. Despite initial doubts, it was held that the policies did fall within this definition. The decision in Attorney-General v. Murray, which had stood unquestioned for over 50 years, was upheld, and it was concluded that policies of assurance could be considered as 'other interest' provided by the settlor.3. Accrual or Arising of a Beneficial Interest on the Death of the Settlor:The crucial question was whether a new beneficial interest in the property provided by the settlor accrued or arose to the beneficiaries on the death of the settlor. The House of Lords referred to the case of D' Avigdor-Goldsmid v. Inland Revenue Commissioners, where it was held that no new beneficial interest arose on the death of the settlor if the beneficiary already had a vested interest in the policy. The House of Lords found that in both the Westminster Bank case and the Wrightson case, the beneficiaries had vested life interests in the policies before the settlor's death. Thus, no new beneficial interest accrued or arose on the death of the settlor.Separate Judgments:Lord Morton of Henryton:Lord Morton held that the settlor had provided the policies and the proceeds, and no new beneficial interest arose on the death of the settlor. He emphasized the principle of 'stare decisis' and upheld the decision in Attorney-General v. Murray. He concluded that James Barbour's life interest in the policies did not change in quality upon the settlor's death.Lord Reid:Lord Reid agreed that the policies fell within section 2(1)(d) and that the settlor provided the policies and their proceeds. He found that no new beneficial interest accrued or arose on the settlor's death, as the beneficiaries already had vested life interests in the policies.Lord Radcliffe:Lord Radcliffe dissented, arguing that the beneficial interests of the sons changed significantly upon the settlor's death. He believed that the sons acquired new rights to require the trustees to collect the policy proceeds and pay the income, which constituted a new beneficial interest arising on the settlor's death.Lord Keith of Avonholm:Lord Keith agreed with the majority, holding that the beneficial interests in the policies and their proceeds did not change in quality upon the settlor's death. He found that the life tenants had vested interests from the date of the settlement, and no new beneficial interest arose on the death of the settlor.Conclusion:The House of Lords allowed the appeals, holding that no new beneficial interest accrued or arose on the death of the settlor in both the Westminster Bank case and the Wrightson case. The beneficiaries had vested life interests in the policies from the date of the settlement, and these interests did not change in quality upon the settlor's death.