Estate duty valuation of a ceased life interest: section 40(b) does not support simple proportionate principal value treatment.

On the cesser of a deceased's life interest in trust property, the valuation for estate duty was examined under section 7 and section 40 of the Estate Duty Act. The court noted that section 40 draws a distinction between an interest extending to the whole income of property and one extending to less than the whole income. For the latter, clause (b) does not require a simple proportionate taking of the trust property's principal value; it refers instead to the principal value of an addition to the property equal to the income to which the interest extended. On that construction, the Department's valuation method was not supported, and the question was answered in favour of the accountable person.

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Issues: Whether, on the cesser of the deceased's life interest in trust property, the value passing under the Estate Duty Act was to be taken at the full proportionate share of the principal value of the trust property or by reference to the value adopted in the wealth-tax assessment.

Analysis: The deceased's life interest admittedly ceased on death within section 7 of the Estate Duty Act. Section 40 distinguishes between an interest extending to the whole income of the property and an interest extending to less than the whole income. Clause (b) does not provide for a simple proportionate taking of the principal value of the trust property; instead, it speaks of the principal value of an addition to the property equal to the income to which the interest extended. The language of clause (b) therefore does not support the Department's method of valuation.

Conclusion: The question was answered in the affirmative and in favour of the accountable person.

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