Green & Anor v Inland Revenue

For inheritance tax, liabilities are deducted from the property legally answerable for them. An insolvent personal estate cannot generate a further negative value which reduces settled property brought into the deceased’s estate under section 49(1) of the Inheritance Tax Act 1984. Section 5(3) requires liabilities to be taken into account, but does not require a mechanistic deduction from the aggregate of all property. The statutory scheme treats the deceased’s personal property net of liabilities as the property aggregated with settled property. The same construction follows from the principle in Re Barnes, that debts cannot be allowed beyond the assets available to meet them.

The trustees of two settlements appealed under section 222 of the Inheritance Tax Act 1984 against a determination by the Commissioners of Inland Revenue. The deceased had died with a substantial deficiency in his personal estate but with life interests in securities and a house held under settlements. The trustees claimed that the personal deficiency could be deducted from the settled assets included in the inheritance-tax estate. The central issue was whether section 5(3) permitted liabilities exceeding the personal assets to reduce the value of settled property aggregated under sections 5(1) and 49(1).

1. The appeal was dismissed. The trustees could not deduct the excess of the deceased’s personal liabilities from the value of the settled assets for inheritance-tax purposes.

2. The modern approach to taxing statutes is the ordinary purposive approach to statutory construction. The court rejected the suggestion that a special restrictive approach prevented that method.

3. Under sections 4, 5(1) and 49(1) of the Inheritance Tax Act 1984, property subject to a life interest is treated as property to which the deceased was beneficially entitled and is aggregated with his personal property. The word property carries the notion of property net of liabilities. Accordingly, the personal estate is brought into the aggregation after deduction of liabilities properly chargeable against it.

4. Section 5(3), which provides that liabilities shall be taken into account, is principally confirmatory and is qualified by the words except as otherwise provided by the Act. It does not require a second deduction of the same liabilities from the aggregate estate. Once the personal assets have been reduced to nil, further personal liabilities have no assets against which they can be offset.

5. Alternatively, section 5(3) is construed by reference to the natural meaning of taking liabilities into account. Liabilities are deducted from assets legally answerable for them, and not beyond those assets. The reasoning in Re Barnes was applicable despite differences between estate duty and inheritance tax, because both schemes aggregate property interests and require liabilities to be dealt with within that framework.

6. The alleged difficulty of apportioning the deficiency between several settlements was not persuasive and was not relied upon as a decisive reason.

The judgment does not state any earlier judicial decision in the same proceedings. It records an appeal under section 222 of the Inheritance Tax Act 1984 against a determination by the Commissioners of Inland Revenue.