Death duties : the Finance Act, 1894 (57 & 58 Vict. c. 30)

Preface

The Finance Act, 1894, is here presented entire, with short explanatory notes, and prefaced by an Introduction in which an attempt is made to explain the character of the important alterations which the Act has effected in the amount and incidence of the Death Duties.

The Introduction is followed by Tables showing the amounts and incidence of the various duties, and at pp. xiv — xx by the Instructions and a List of the Forms issued under the Act by the Inland Revenue Authorities.

A full Index has been prepared referring to the topics of chief importance, both by sections and by pages.

J. M. L.

W. F. C.

The Temple : August 1894.

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f\ii

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INTRODUCTOKY OUTLINE.

The Finance Act, 1894, which takes the place of the annual “Customs ■and Inland Revenue ” Acts of many former years, is divided into six parts. The first and most important imposes and regulates a completely ,new “ Estate Duty ” on the property which passes by the death of persons who died on or after the 2nd of August, 1894 ; the second increases the customs duties on beer and spirits ; the third increases the excise duties on beer and spirits ; the fourth increases the income-tax generally, but also increases exemptions and abatements ; the fifth contains two minute alterations of the Stamp Act of 1891 ; and the sixth alters the Imperial and Naval Defence Acts.

The last five parts may be left to speak for themselves. The first part may be considered under the heads of (1) The death duties before the Finance Act, and (2) the chief alterations effected by the Finance Act, and to these considerations will be subjoined short tables showing the duties as altered.

The Death Duties before the Finance Act.

The death duties have long been of many kinds. There has been the duty on the affidavits required from persons applying for probates of wills, and letters of administration, generally known by the single name of the probate duty ; the account duty; the legacy duty; the succession duty ; and the temporary estate duty.

The probate duty, dating from 1694, and always imposed on personal property only, has been chiefly regulated by the Stamp Act of 1815 (55 Geo. 3, c. 184). From that date till 1880 it was higher in the case of letters of administration than in the case of wills. The Customs and Inland Revenue Act of 1880 abolished this distinction, and the Customs and Inland Revenue Act of 1881 substituted a simple 3 per cent, duty for a complex scale rising generally by thousands in proportion to the estate of the deceased.

The account duty was first imposed by s. 38 of the Customs and Inland Revenue Act, 1881. It appears to have been devised for the purpose of subjecting to probate duty gifts or half-gifts made by living persons for the purpose of relieving the donees from probate or legacy ■duty. To this duty, which was at the same 3 per cent, rate as the probate duty, were charged —

Any donatio mortis causa, i.e., any gift made in anticipation of death, to take effect on death only, and completed by delivery (this kind of gift was, and still is, subject to legacy duty by 8 & 9 Viet. c. 76, s. 4).

A gift made within three months before the death of the deceased.

Any property voluntarily so transferred by the deceased to himself and another person that the interest herein passed by virtue of his death to such other person.

VI

Any property passing under voluntary settlement whereby a life interest therein was reserved to the settlor.

The three months were extended to twelve by s. 11 of the Customs and Inland Revenue Act, 1889 (52 & 53 Viet. c. 7), and the net for the duty was otherwise spread wider, as will appear from p. viii,, post, where sect. 38 of the Act of 1881 and sect. 11 of the Act of 1889 are set out at length.

The legacy duty, dating from 1780, bas been, and still is, chiefly regulated by the Legacy Duty Act, 1796 (36 Geo. 3, c. 52), but the amount of the duty, except as altered in 1881, was, and still is, as fixed by the Stamp Act, 1815 (55 Geo. 3, c. 184). This duty falls upon the legatees in proportion to the degree of their relationship to the testator, upon a scale varying from one per cent, on a legacy to any lineal ancestor, or to ten per cent, on a legacy to a very distant relation or descendant, to a charitable institution or other stranger in blood to the testator (pp. xi., xii., xiii.,pos^). Ancestors and descendants of the testator were released from this duty by s. 41 of the Customs and Inland Revenue Act, 1881 (45 Viet. c. 12), in all cases where probate duty had been paid — that is, in the great majority of cases in which legacies would be bequeathed, IS'either husband nor wife of the testator were subject to this duty.

The succession duty is comparatively new, having been first created in 1853, when it was imposed on all successors to real property (including leaseholds), whether for an absolute or limited interest, and on all successors to personal property, either for a limited interest or in succession to a person having had a limited interest. This duty fell (and still falls) upon the successors upon a consanguinity scale, depending on their relationship to the “predecessors” or settlors (not to the persons by whose deaths they succeeded), similar to that fixed for legacies (p. xiii.,, post). The 41st section of the Customs and Inland Revenue Act, 1881, gave a similar relief from it to ancestors and descendants to that given in the case of legacies ; and both the husband and the wife of the predecessor were exempted from the duty.

The succession duty has been twice increased in recent years. First in 1888, it was increased by half per cent, in the case of the successions of ancestors or descendants, and one and a half per cent, in the case of the successions of other persons, but this extra duty was not levied on leaseholds passing to the successor by will or devolution by law or on property subject to account duty. Secondly, in 1889 a further addition of one per cent, was imposed on successions exceeding ten thousand pounds in value.

The succession duty was levied, not on the whole value of the property succeeded to, but on the capitalized value of an annuity for the life of the successor equal to the annual value of the property, whether he succeeded to an absolute, or only to a limited, interest in the property. Tables showing the mode of valuation are scheduled to the Succession Duty Act, 1853.

The temporary estate duty was imposed by sects. 5 and 6 of the Customs and Inland Revenue Act, 1889, for a period ending on the 1st of June, 1896. It consisted of a further one per cent, on the probate and account duties, and likewise of a further one per cent, on the succession duties (as already stated), in cases where the property subject to the then existing duties exceeded £10,000 in value.

Finance Act, 1894. — Introductory Outline, vii

We have, therefore, prior to the Act of 1894 —

(а) 3 per cent, probate and account duties rising to 4 per cent, where the property chargeable exceeded £10,000 in value.

(б) Legacy duties at a percentage rising with distance of relationship to testator, and, as a general rule, not falling on his children, and never falling on husband or wife of testator.

(c) Succession duties also at a percentage rising with distance of relationship to predecessor, and also one per cent, in case of successions exceeding £10,000 in value, but frequently not chargeable where the successors were children of the predecessors, and in no case chargeable on the husband or wife of the predecessor.

The alterations effected hy the Finance Act affect only property passing on the death of persons dying on or after August 2nd, 1894.

They are mainly as follows': —

I. A completely new estate duty is created at a percentage rising from one to eight per cent, with the value o£ the property charged with it, and chargeable on all kinds of property, real as well as personal, settled as well as unsettled. The scale is set out in full at p. x. ; but it may be mentioned here that the rate is three per cent, on an estate exceeding £1,000 in value and not exceeding £10,000, and four per cent, on an estate exceeding £10,000 in value and not exceeding £25,000.

II. In this new estate duty are merged the probate and account duties, the additional succession duties of 1888, and the estate duties of 1889 on probates and successions exceeding £10,000 in value. All these duties are abolished in the case of the estates of persons dying on or after August 2nd, 1894.

III. Where estate duty is paid, children and other descendants and parents and other ancestors are entirely freed from both legacy and succession duties (s. 1, and sched. I.). Succession duties are also further assimilated to legacy duties (1) by the assessment of the duty, in the case of succession to an interest of which the successor is competent to dispose (see s. 22 (2) (a) ), upon the principal value of such interest instead of upon the capitalised value of an annuity for the life of the successor, and (2) by the charge of interest upon instalments (s. 18). Estates of £1,000 or less are relieved from both legacy and succession duties, as well as from “settlement estate duty ” (s. 16). With these exceptions legacy and succession duties remain as before.

IV. There is imposed 2, further “settlement estate duty ” at the rate of one per cent, on property passing by will or settlement for a life interest only, except where the only life interest is that of a wife or husband ; but this “ settlement estate duty ” is payable once only during the continuance of the settlement (s. 5, sub-s. 1 (b) ).

V. An executor or administrator is bound to disclose all he knows of any of the property, real as well as personal, which formed the estate of the deceased person whom he represents (s. 8 (3) ). He is bound to pay all estate duty chargeable on the personal property, and may, if he pleases and on request of the parties accountable, pay all estate duty chargeable on the real property (s. 6 (2)).

VI. The husband or wife of a deceased person may become newly chargeable with duty on all real estate devised to them. They neither viii Finance Act, 1894. — Introductory Outline.

were nor are liable to succession duty, but inasmuch as the estate duty on real property is borne by each of the parts into which such property is divided by devise, an estate devised to a wife or husband will become newly chargeable with duty under the name of estate duty (s. 8 (4)).

VII. A system of official valuation of property for the purposes of ' duty is set on foot by empowering the commissioners of inland revenue to have property valued by a person appointed by themselves (s. 7, sub-ss. 8, 9), and by requiring the county councils of each county to appoint valuers (s. 10 (6)).

Incidence of Estate Duty.

Estate duty is payable on all property 'passing on the death of any person dying on or after the 2nd of August, 1894, and the second section of the Act contains, with much incorporation by reference of enactments of 1881 and 1889, and a material alteration of those enactments, a list, under four heads, of property so passing as to be subject to the duty.

Under the first head is placed property at the absolute disposal of the deceased, and under the second property in which he or another had an interest ceasing on his death, “to the extent to which a benefit arises by the cesser of such interest,” exclusive, of course, of all official property, such as that of an incumbent in his ecclesiastical benefice. These two heads are, it is hoped, sufficiently explained in the notes to the section.

The third head is : —

(c) “ Property which would be required on the death of the deceased to be included in an account under section thirty-eight of the Customs and Inland Kevenue Act, 1881, as amended by section eleven of the Customs and Inland Eevenue Act, 1889, if those sections were herein enacted and extended to real property as well as personal property, and the words ‘voluntary’ and ‘voluntarily,’ and a reference to a ‘volunteer’ were •omitted therefrom.”

The second sub-section of the 38th section of the Customs and Inland Kevenue Act, 1881, thus incorporated, is as follows : —

The personal or 'moveable property to be included in an account shall be property of the following descriptions, viz : —

(а) Any property taken as a donatio mortis causa made by any person dying on or

after the (1st day of June, 1881), or taken under a (voluntary) disposition made by any person so dying, purporting to operate as an itn mediate gift iuter vivos whether by way of transfer, delivery, declaration of trust or otherwise which shall not have been bona fide made (three months) before the death of the deceased.

(б) Any property which a person dying on or after such day having been absolutely

entitled thereto has (voluntarily) caused, or may (voluntarily) cause to be transferred to or vested in himself or any other person jointly or whether by disposition or otherwise so that the beneficial interest therein or in some part thereof passes or accrues by survivorship on his death to such other person.

(c) Any property passing under any past or future (voluntary) settlement made by any person dying on or after such day by deed or any other instrument not taking effect as a will whereby an interest in such property for life or any other period determinable by reference to death is reserved either expressly or by implication to the settlor, or whereby the settlor may have reserved to himself the right by the exercise of any power, to restore to himself or to reclaim the absolute interest in such property.

The amending sub-s. 1 of s. 11 of the Customs and Inland Revenue Act, 1889, is as follows : —

Sub-section two of section 38 of the Customs and Inland Revenue Act, 1881, is hereby amended as follows : —

Fij^ance Act, 1894. — Introductory Outline.

IX

The description of property marked (ci) shall be read as if the word ‘^twelve’’ was ■substituted for the word “ three ” therein and the said description of property taken under any gift, whenever made, of which property bonS, fide possession and eujoyment shall not have been assumed by the donee upon the gift and thenceforward retained to the entire exclusion of the donor or of any benefit to him by contract or otherwise.

The description of property marked (6) shall be construed as if the expression “to be transferred to, or vested in himself and any other person” included also any purchase or investment effected by the person who was absolutely entitled to the property either by himself alone, or in concert or by arrangement with any other person.

The description of property marked (c) shall be construed as if the expression “ (voluntary) settlement ” included any trust whether expressed in widting or otherwise (in favour of a volunteer) and if contained in deed or other instrument effecting the settlement whether such deed or other instrument was made for valuable consideration or not as between the settlor or any other person and as if the expression “ such property ” wherever the same occurs included the proceeds of sale thereof.

The charge under the said section shall extend to money received under a policy of assurance effected by any person dying on or after the first day of June, 1889, on his life where the policy is wholly kept up by him for the benefit of a donee, whether nominee or assignee or a part of such money in proportion to the premiums paid by him where the policy is partially kept up by him for such benefit.

And sub-s. 3 of s. 2 of the Finance Act, 1894, is as follows ; —

Proper ty passing on the death of the deceased shall not be deemed to include property held by the deceased as trustee for another person under a disposition not made by the deceased, or under a disposition made by the deceased more than twelve months before his death, v/liere possession and enjoyment of the property was bona fide assumed by the beneficiary immediately upon the creation of the trust and thenceforward retained to the entire exclusion of the deceased or of any benefit to him by contract or otherwise.

The four enactments above set out, namely, sub-s. 2 of s. 38 of the Customs and Inland Revenue Act, 1881, sub-s. 1 of s. 11 of the Customs and Inland Revenue Act, 1889, sub-s. 1 (c) of s. 2 of the Finance Act, 1894, and sub-s. 3 of the same section are all aimed at the prevention of escape of an estate from death duty by gifts in one form or another by the owner during his lifetime. They are in jpari materid with .the eighth section of the Succession Duty Act, 1853 (16 & 17 Viet, c. 51), which provides as follows : —

Where any disposition of property shall purport to take effect presently, or unde? such circumstances as not to confer a succession, but by the effect or in consequence of any engagement, secret trust, or arrangement capable of being enforced in a Court of law or equity, the beneficial ownership of such property shall not bona fide pass according to such disposition, but shall yn fact devolve to any person on death, or at some period ascertainable only by reference to death, then such last-mentioned person shall be deemed to acquire the property so passing as a succession derived from the person making the disposition as the predecessor; and where any Court of competent jurisdiction shall declare any disposition to have been fraudulent and made for the purpose of ■evading the duty imposed by this Act, it shall be lawful for such Court to declaro%a succession to have been conferred on such person at such time and to such an extent as such Court shall think just; and such last-mentioned ]5erson shall be deemed to have taken a succession accordingly derived from the person making such disposition as predecessor.

The eighth section of the Finance Act, 1894, provides that the existing law relating to any of the duties now leviable on or with reference to death shall, subject to the provisions of that act and so far as the same are applicable, apply for the purposes of the collection, recovery, and repayment of estate duty. It may, joerhaps, be doubted whether the eighth section of the Succession Duty Act above set out is legally applicable within the meaning of the eighth section of the Finance Act, 1894, but is at any rate very clearly in pari materid, and very necessary to bear in mind in view of the numerous cases in which succession duty as w'ell as estate duty are primd facie payable.

X

The general result of the law on this subject appears to be that even out-and-out gifts, whether of real or personal property, made within twelve months of death are subject to an estate duty for which the donee will be accountable, and that the legality for revenue purposes of many of the transactions whereby an escape from duty is attempted within any period of time before death will be disputable on the ground that they are in effect tantamount to out-and-out gifts made within twelve months of death.

Rates of Estate Duty.

General Estate Duty (s. 17).

Where the principal value of the Estate

Estate duty is payable at the rate per cent, of

Exct-eds

100 and does not exceed 500 .

one pound.

^9

„ 1,000 .

two pounds.

1,000

„ 10,000 .

three pounds.

J >

10,000

„ 25,000 .

tour pounds.

25,000

„ 50,000 .

four pounds ten shillings.

50,000

„ 75,000 .

five pounds.

75,000

„ 100,000 .

five pounds ten shillings.

100,000

„ 150,000 .

six pounds.

150,000

„ 250,000 .

six pounds ten shillings.

250,000

„ 500,000 .

seven pounds.

J?

500,000

„ ■ 1,000,000 .

seven pounds ten shillings.

1,000,000 eight pounds.

Duty on fractional parts of ten pounds, over ten pounds or any multiple thereof, is payable at the rate per cent, for the full sum of ten pounds.

Wliere the only life interest under the settlement after the death of the deceased is that of the wife or husband of the deceased, no settlement estate duty is payable.

Duty on Small Estates (s. 16).

Where the gross value is under £100 nil.

Where the gross value (excluding property settled otherwise than by

the testator’s will) a fixed duty of

Exceeds £100 and does not exceed £300 30s.

Note. — The executor or successor has the o'ption of paying on the ad valorem scale (see 44 & 45 Viet. c. 12, s. 33, incorporated by s. 16).

Where the net value of the real and personal property on which estate duty is payable on the death of the deceased (exclusive of property settled otherwise than by his will) does not exceed £1,000, this property is not to be aggregated with the rest of the settled property, and the principal value (s. 7 (5)) of the property in question is subject to estate duty, but no legacy, succession or settlement duty is payable (s. 16 (3) ).

Settlement Estate Duty.

The further estate duty on settled property is chargeable at the fixed rate of one per cent, on the principal value of the settled property (s. 17).

Note. — This duty is payable when there is a tenant for life or other limited owner of the settled property and is payable only once during the

XL continuance of the settlement (s. 5). A limited owner who pays it is entitled to a charge on the property in respect of its amount, s. 9 (6).

^ . Deduction.

In the case of a settlement of money or securities the amount of the 5s. ad valorem stamp duty charged on the settlement in respect of the property under the Stamp Act, 1891, may be deducted from the settlement estate duty (s. 5 (4) ).

Exemptions from Estate Duty.

The most important exemption from the estate duty is that effected by section 21 (1), which exempts personal property settled by a will or disposition made by a person dying before the 2nd August, 1894, in respect of which the probate and account duties have been paid, or unless, the person, on whose death (after the 1st August, 1894) the property passed, was competent to dispose of the property at the time of his death, or had been so competent at any time after the will or disposition took effect..

Other exemptions are in favour of : — Settled property of every description in respect of which estate duty has been once paid since the date of the settlement. This exemption continues until the death of a person who was at the time of his death or at any time during the continuance of the settlement, competent to dispose of the property (ss. 5 (2), 22 (2) (a) )..

Property settled by one spouse on the other by a disposition taking effect before the 2nd August, 1894, and reverting to the survivor (s.21(5)).

Reversionary interests bona fide sold or mortgaged for full consideration (s. 21 (3)).

Property passing by virtue of bona fide purchase for full consideration (s. 3 (1)).

Property held by the deceased as trustee for another (a) under a disposition not made by the deceased, or (b) under a disposition made by the deceased more than twelve months before his death, where possession and enjoyment has been bona fide assumed by the beneficiary immediately upon the creation of the trust, and thenceforward retained to the entire exclusion of the deceased or of any benefit to him by contract or otherwise (s. 2 (3) ).

One survivorship annuity not exceeding £25 purchased or provided by the deceased (s. 15 (1)).

Pensions and annuities paid by the Indian government to the widows and children of its officials (s. 15 (3) ).

Church patronage not sold (s. 15 (4)).

Books, pictures, or scientific collections bequeathed for national or municipal purposes, or to an university, provided that they appear to the treasury to be of national, scientific or historic interest (s. 15 (2) ).

Estates of common seamen, marines, or soldiers dying in the service of her majesty (s. 8 (1)).

Rates of Legacy Duty.

Duty upon legacies, and successions to personal estate (other than leaseholds) or moveable estate, upon intestacy (55 Geo. 3, c. 184, sched. pt. iii.).

XU

(1) For every legacy, specific or pecuniary, or of any other • description given by any will or testamentary instrument of any person either out of his personal or moveable estate, or charged upon his real or heritable estate, or out of moneys to arise by sale, mortgage or other disposition of his real or heritable estate, or any part thereof.

(2) For the clear residue (when devolving to one person) and for every share of the clear residue (when devolving upon two or more persons) of the personal or moveable estate of any person (after deducting debts, funeral expenses, legacies and ■other charges first payable thereout), whether the title to such residue accrues by virtue of a testamentary disposition or upon a particular total intestacy.

(3) Also for the clear residue (when given to one person) and Rate per for every share of the clear residue (when given to two or more amount persons) of the moneys to arise from the sale, mortgage or other or value disposition of any real or heritable estate directed to be sold, mortgaged or otherwise disposed of by any will or testamentary instrument of any person who shall have died after 5th day

of April, 1895 (after deducting debts, funeral expenses, legacies and other charges first made payable thereout if any).

\_WJiere any ouch legacy or residue or any share of such residue shall have been given to or have devolved to or for the benefit of a child of the deceased or any descendant of a child of the deceased or to or for the benefit of the father or mother or any

lineal ancestor of the deceased . . . . . . .£10 0]

\_For the most abrogated. See pp vi., 2, 32.]

Where any such legacy or residue or any share of such residue shall have been given to or shall have devolved to or for the benefit of a brother or sister of the deceased or any descendant of a brother or sister of the deceased. . . . £3 0 0

Where any such legacy or residue or share of such residue .shall have been given or shall devolve to or for the benefit of a brother or sister of the father or mother of the deceased or any descendant of a brother or sister of the father or mother of the deceased . . . . . . . .£500

Where any such legacy or residue or any share of such residue shall have been given or have devolved to or for the benefit of a brother or sister of a grandfather or grandmother of the deceased or any descendant of a brother or sister of a grandfather or grandmother of the deceased .... £6 0 0 Where any such legacy or residue or any share of such residue shall have been given or have devolved to or for the benefit of any person or any other degree of collateral consanguinity to the deceased than is above described, or to or for the benefit of any stranger in blood to the deceased .... £10 0 0

Grifts of annuities or by way of annuity of any such estate or effects as aforesaid are to be deemed legacies within the intent and meaning of the schedule.

Donations mortis causd^ and charges on property which the deceased

Finance Act, 1894. — Introductory Outline. xiii

has a right to burden, charge, or affect with payment of money, are also subject to the legacy duties (8 & 9 Viet. c. 76, s. 4).

Where a legacy is left or dutiable property devolves to a person whose husband or wife is of nearer consangainity than himself or herself to the deceased the duty payable shall be the same as if the legacy had been left, or the property had devolved, to such husband or wife (16 & 17 Viet. c. 51, s. 11).

Exemptions from Legacy Duty.

1. Legacies and residues or shares of residue of any such estate or effects as aforesaid given or devolving to or for the benefit of the husband or wife of the deceased, or to or for the benefit of any of the royal family.

3. Legacies and residues or shares of residue of a.ny such estate or effects as aforesaid upon which duty would he payable at the rate of one per cent.y where the estate duty under the Finance Act, 1894, has been paid on the property out of which the legacies or residue or share of residue are given or devolve (57 & 58 Viet. c. 30, s. 1, sched. I.).