Contingent tax liability in estate duty valuation must be allowed for where the statutory obligation already exists.

For estate duty valuation, the text explains that shares in a controlled company must be valued by reference to net assets, with liabilities allowed under section 50(1) of the Finance Act 1940. It distinguishes a contingent liability, which depends on a future uncertain event and is estimated reasonably, from a merely prospective liability. The balancing-charge tax exposure was treated as arising from an existing statutory framework once capital allowances had been claimed, even though enforceability depended on later sale. The open-market-value rule in section 7(5) was described as a valuation method, not a deeming sale. On that approach, the contingent balancing-charge liability had to be taken into account in the share valuation.

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Issues: Whether the liability to income tax and profits tax arising on a balancing charge under the capital allowances provisions was a contingent liability within section 50(1) of the Finance Act, 1940, so as to be deductible in valuing the shares for estate duty purposes, and whether section 7(5) of the Finance Act, 1894 required a notional sale bringing that liability into account.

Analysis: Section 55 of the Finance Act, 1940 directed valuation of the controlled company's shares by reference to the net value of the assets, with allowance for liabilities under section 50(1). That provision distinguishes between liabilities not yet matured and contingent liabilities, the latter being liabilities dependent on a future uncertain event and to be estimated reasonably by the Commissioners. The majority treated the balancing charge liability as arising from an existing statutory framework once capital allowances had been accepted, even though the liability would become enforceable only if the ships were later sold for more than the written-down value. The open-market-value rule in section 7(5) was held to be a valuation method and not a deeming provision requiring a notional sale. The dissenting speeches treated the liability as too prospective and contingent only in a commercial sense, not as an existing legal liability at the death.

Conclusion: The balancing charge liability was a contingent liability within section 50(1), and it had to be taken into account on a reasonable estimation in valuing the shares for estate duty.

Final Conclusion: The appeal succeeded, and the valuation had to be reconsidered by the Commissioners after allowing for the contingent balancing-charge liability.

Ratio Decidendi: A statutory obligation to pay tax on the occurrence of a future uncertain event can amount to a contingent liability for estate duty valuation if the underlying obligation already exists at the valuation date and only its enforceability depends on the contingency.

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