St. Aubyn and Others v. Attorney-General

Property is retained to the entire exclusion of a donor for estate duty purposes where the donee fully enjoys the beneficial interest actually given. The donor may retain a separate interest which was never included in the gift. Liability may arise where a retained benefit is attributable to, or encumbers, the interest given.

The statutory conversion of a company into a hypothetical trust does not merge legally distinct interests. Under the Finance Act 1940, an associated non-fiduciary disposition may constitute a deemed transfer even where another operation transferred the same property in a fiduciary capacity. A cash subscription for shares may be such a transfer. Periodical advances by way of loan may constitute benefits accruing from the company.

Lord St. Levan and a co-holder exercised an overriding power of appointment as part of arrangements under which settled property was sold to a company. The trustees received ordinary shares and deferred purchase money. Lord St. Levan acquired preference shares and the deferred debt absolutely, while his life interest in the ordinary shares was extinguished.

After his death, the Crown claimed estate duty on the ordinary shares under sections 43 and 56 of the Finance Act 1940. Alternatively, it claimed duty against the company under section 46 by reference to property transferred to the company and benefits received from it.

Croom-Johnson J dismissed both claims. The Court of Appeal allowed the Crown's appeal on the ordinary shares but made no order on the alternative claim. The trustees appealed, and the Crown cross-appealed. The central questions concerned entire exclusion from the property given, the statutory company-as-trustee hypothesis, deemed transfers, fiduciary capacity and whether company loans were statutory benefits.

1. Appeal allowed unanimously. Per Lord Simonds and Lord Radcliffe, with Lord Normand, Lord Oaksey and Lord Tucker agreeing in the result, the ordinary shares were possessed and enjoyed to the entire exclusion of Lord St. Levan. Section 43 of the Finance Act 1940 concerns the beneficial interest actually given. A donor does not fail the exclusion requirement merely by retaining another distinct interest which was never given. The result might differ where a bargain secures a benefit attributable to, or encumbering, the surrendered interest.
2. Per Lord Simonds and Lord Radcliffe, the section 56 hypothesis did not alter that conclusion. Treating the company as trustee converted the instalment debt, preference shares and ordinary shares into corresponding equitable interests in a common fund. It did not cease to make them distinguishable interests. Lord St. Levan retained no benefit in the equitable interest corresponding to the ordinary shares.
3. Per Lord Simonds and Lord Radcliffe, on a point accepted throughout the House, a tenant for life may direct the variation of authorised investments under sections 73 and 75 of the Settled Land Act 1925. Lord St. Levan's direction transferring the investments was therefore made in a fiduciary capacity imposed by statute.
4. Cross-appeal allowed in part by a majority. Lord Radcliffe, Lord Normand and Lord Tucker held that the investments and equitable interests were deemed transferred by Lord St. Levan within sections 46 and 58. Although his direction as tenant for life was fiduciary, the non-fiduciary appointment of 23 March 1927 was independently an associated operation by whose effect the property entered the company's resources. A taxpayer could not select the fiduciary route and disregard the independently sufficient non-fiduciary route.
5. Lord Radcliffe, Lord Normand and Lord Tucker also held that the £100,000 subscription for preference shares constituted a transfer of property to the company. Lord Simonds and Lord Oaksey dissented on that point, regarding such a payment as outside the natural meaning of a transfer of property.
6. By a different majority comprising Lord Simonds, Lord Oaksey and Lord Tucker, the transfer of the settled land remained a transfer made solely in a fiduciary capacity. The deeming provision did not displace the real conveyance. Lord Radcliffe and Lord Normand dissented.
7. All five Law Lords concluded that the periodical advances made to Lord St. Levan were benefits accruing from the company. The obligation to repay did not prevent his receipt and beneficial use of the money from constituting a benefit. The Crown was accordingly entitled to declarations concerning the investments, equitable interests, share-subscription money and loans, but not the settled land.

1. House of Lords: The trustees' appeal was allowed unanimously. The Crown's cross-appeal was allowed in part by a majority. The section 43 claim concerning the ordinary shares failed, while the section 46 claim succeeded in respect of the investments, equitable interests and share-subscription money, but not the settled land.
2. Court of Appeal: The Crown's appeal on the section 43 claim was allowed. No order was made on the alternative section 46 claim because the claims were treated as strictly alternative.
3. High Court: Croom-Johnson J dismissed the Crown's information in respect of both claims on 20 May 1949.