SUPREME COURT

Dominion, Volume 9, Issue 2708, 1 March 1916, Page 9

SUPREME COURT

PROBLEM OF ESTATE DUTIES

INTRICATE QUESTIONS

In the Supremo Court yesterday. Mr. Justice Chapman commenced the hearing of an aotion taken by the Crown for the recovery of estate duty under the Death Duties Act, of 1909. Tho claim was made upon the executors of Mrs. Jo3sio Begg, deceased. The amount claimed under the writ was £6811 18s. od., together with a statutory interest of £340. Since tho writ was issued defendants have paid £209 14s. 9d., which has to be deducted from tho 'sum now claimed. , _ The Solictor-General (Mr. J. W. Salmond), who, with Mr. V. R. Meredith, appeared for tho Crown, stated what ho considered to ho tho facts of the case. Ho said that Mrs. Begg was the widow of Mr. Charles Begg, who died in 1874. Mrs. Begg died in January, 1914, leasing a comparatively small estate, worth between £0000 and £6000. In 1908, however, she was possessed of considerable means. She was then by far the biggest shareholder in .Charles Begg and Co., Ltd., owning 23,396 of the total 31,65-5 shares in the company. At lior death she owned none of tho shares, having completely disposed of them. He eont-ended that in 1908 sho gavo away her whole interest in tho company to her' six children, and reaerred to herself a benefit in tho form of :m annuity of £500 per year. Tho precise motive, or tho dominant motivo, which animated her in getting rid of her interest, was unknown to the Crown, but it was beyond dispute, ho contended, that the method sho adopts ed was adopted for the very purpose of avoiding payment of gift duty upon tho property so transferred. In 1908 a gift was not dutiable unless it was made in writing; tho present law was not established until 190!). Mrs. Begg. with the aid of her legal advisers, devised an ingonious and elaborate ' scheme whereby she was enabled to got rid of tho whole of her interests in the company without anything appearing in writing. Had tho law remained unaltered, the scheme would havo been entirely successful, and Mrs. Begg, who in 1908 was a- wealthy womrtn, would have died in .1914 showing herself possessed of little, and paying no death duties. "The Scheme." Mr. Salmond then outlined what he called "the scheme." The company went into voluntary liquidation, and a new private company was established, with the same name. The old company sold all its assots to the ndw company lin consideration of 70,000 £1 paid-up shares. These shares were to be allotted by tho new company to tho nomi> nees of tho liquidator of the old com* pany, who was Mrs. Begg'. She then allotted her own shares to the children. His Honour: What did sho do with tho children's shares? ' Mr. Salmond: She allotted them back to tho children. Continuing, Mr. Salmond said there was no allotment in writing. At the same timo that this arrangement was carried into effect, the children agreed to pay Mrs. Begg out of. the dividends of the shares, an annuity of ' £500, which annuity had been duly paid. That annuity would have done. the. schema no harm under the old law, but it was retrospectively provided against in the new Act. He added that the contentions of Mia defenoe wero three in number: 1. That the shares held by Mrs. Begg were held as trustee for the children. 2. That tho annuity had nothing to do with the 'gift of the shares. 3. That the- shares were not of tho value alleged by the Crown. The Defenoe. In stating the case for the defence, Sir John Findlay, K.C., said that the sale from one company to the other had beon sanctioned by tho late Sir Joshua Williams.. Thf children took shares in the company to the value of tho father's estate at that date (£8259). Tho accumulated profits at that time (1908) amounted to £23,396, and Mrs. Begg regarded, that amount as morally belonging to tho childron. _ She did not take that view with the idea of defeat* ing the Death Duties Act. In 190S\ she decided .to give the children the 1 shares held by her in the company then formed. Thero was no question of granting her an annuity, as she had independent means, and she never, drew one penny of the £500 a year, which had at her death accumulated to about £3000. The transaction was really and in fact a disposition of shares of which Mrs. Begg considered herself to be trustee on behalf of her children; Sho reserved to herself no interest in tho shares, the disposition of the shares not accompanied by any benefit to herself, and tho beneficiaries held the shares.for three years before her death, and without her receiving any benefit. To make tUe gift of tho shares dutiablo tho reservation of an annuity must be enforceable, but it was not enforceable; it was entirely voluntary, and thferefore the gift was not dutiable. Both giftsshares and annuity—wero entirely voluntary and independent of each other. The case is not concluded.