Inland Revenue Commissioners v Executors of the estate of Dr Robert Richards
[1971] 1 All ER 785(Judgment by: Lord Guest)
Between: Inland Revenue Commissioners v
And: Executors of the estate of Dr Robert Richards
Judges:
Lord Reid
Lord Morris of Borth-Y-Gest
Lord GuestLord Donovan
Subject References:
TAXATION
CAPITAL GAINS TAX
ASSESSMENT
Deductions from consideration on sale
Expenditure wholly and exclusively incurred in establishing, preserving or defending title to asset
Executors of estate
Expenditure incurred by executors in obtaining valuations and procuring confirmation of title
Valuations necessary for purpose of satisfying Revenue's claim to estate duty
Satisfying claim an essential step before executors could obtain title by confirmation and deal with assets
Sale of assets realising capital gain
Whether cost of obtaining valuations expenditure wholly and exclusively incurred by executors in establishing title to assets
Legislative References:
Finance Act 1965 - Sch 6, para 4(1)(b)
Judgment date: 4 February 1971
Judgment by:
Lord Guest
My Lords, this appeal is concerned with a narrow point on the construction of para 4 of Part I of Sch 6 to the Finance Act 1965. It arises in this way Part III of the Finance Act 1965 imposed a capital gains tax on the disposal of any asset. Section 24(1) provides that on the death of an individual all the assets of which he was competent to dispose are for the purposes of Part III of the Act deemed to be disposed of by him at the date of death and acquired by his personal representatives for a consideration equal to the market value at the date of death. Part I of Sch 6 to the Act of 1965 provides for the deductions which are allowable from the consideration in the computation of the capital gains accruing to a person from the disposal of an asset.
According to the provisions of the Probate and Legacy Duty Act 1808 executors of a deceased person are obliged before disposing of any part of the estate and before being confirmed as executors to exhibit to the appropriate Commissary Court a sworn affidavit containing a full inventory of all the movable estate and effects of the deceased together with the deceased's testamentary disposition relating to the disposal of the estate. The inventory is then recorded in the books of the Commissary Court. Further provisions regarding the payment of estate duty are contained in s 6 of the Finance Act 1894. Duty is payable by the executors according to the value of the estate set forth in the Inland Revenue affidavit.
Dr Richards died on 18 November 1965 and the respondents are his executors under his settlement. He left total estate in Scotland and England amounting to £93,861 including stocks and shares. The respondents, through their solicitors, made such investigation and obtained such valuations as were necessary to enable them to ascertain the particulars and value of the estate of the deceased in order to complete Inland Revenue form A-1, the affidavit referred to in s 38 of the Probate and Legacy Duty Act 1808 and s 8(7) of the Finance Act 1894. The form was then sent to the Estate Duty Office, Edinburgh, with a remittance in payment of the estate duty. Thereafter, the inventory was sent by the respondents, along with the deceased's settlement, to the Commissary Clerk of Aberdeenshire and in due course the Commissary Court granted confirmation in favour of the respondents who subsequently had the confirmation resealed in London. On obtaining confirmation they were then entitled to intromit with the deceased's estate.
The respondents maintained that the expenses paid by them to their solicitors on the investigation and valuation of the deceased's stocks and shares were allowable deductions under para 4(1)(b) of Part I of Sch 6 to the Finance Act 1965. These were apportioned by the inspector under s 21(4) as referable to the stocks and shares at a figure of £242 16s 1d. The General Commissioners found that the main purpose of the work involved was to provide the respondents with a title to deal with the deceased's estate and that payment of estate duty was incidental thereto, and that a proportion of the outlays applicable to the stocks and shares, ie £242 16s 1d, was an allowable deduction. The First Division of the Court of Session [F9] unanimously affirmed their decision. Paragraph 4 of Part I of Sch 6 to the Act of 1965 is in the following terms:
- '4.-(1)
- Subject to the following provisions of this Schedule, the sums allowable as a deduction from the consideration in the computation under this Schedule of the gain accruing to a person on the disposal of an asset shall be restricted to-(a) the amount or value of the consideration, in money or money's worth, given by him or on his behalf wholly and exclusively for the acquisition of the asset, together with the incidental costs to him of the acquisition or, if the asset was not acquired by him, any expenditure wholly and exclusively incurred by him in providing the asset, (b) the amount of any expenditure wholly and exclusively incurred on the asset by him or on his behalf for the purpose of enhancing the value of the asset, being expenditure reflected in the state or nature of the asset at the time of the disposal, and any expenditure wholly and exclusively incurred by him in establishing, preserving or defending his title to, or to a right over, the asset, (c) the incidental costs to him of making the disposal.
- '(2)
- For the purposes of this paragraph and for the purposes of all other provisions of this Part of this Act the incidental costs to the person making the disposal of the acquisition of the asset or of its disposal shall consist of expenditure wholly and exclusively incurred by him for the purposes of the acquisition or, as the case may be, the disposal, being fees, commission or remuneration paid for the professional services of any surveyor or valuer, or auctioneer, or accountant, or agent or legal adviser and costs of transfer or conveyance (including stamp duty) together ... '
The judges of the First Division [F10] held that the decision of the General Commissioners was a finding of fact and that as there was material on which they were entitled so to find the court would not interfere. I am unable to agree with this view. In my opinion, the question whether the expenditure was wholly and exclusively incurred in establishing the respondents' title to the stocks and shares is a question of law for the court.
The Crown did not dispute that the actual expenses of confirmation, if they could be separated, would be within para 4(1)(b) but contended that the valuation of the stocks and shares was for the dual purpose of satisfying the Revenue's claim to estate duty and also for obtaining title by confirmation. It was said that the expenditure could not have been wholly and exclusively incurred in obtaining title if in fact it was also incurred for the purpose of paying estate duty. I am not satisfied of the soundness of this 'dual purpose' argument. It depends for its success on a very strict reading of the words of para 4(1)(b). In order to obtain their title to the estate by confirmation the respondents had to complete the Inland Revenue affidavit. To do this accurately so that the amount of estate duty could be ascertained it was necessary for a valuation of the stocks and shares to be made at market value. This valuation, which necessitated expenditure to their solicitor, was also the measure of the respondents' liability to capital gains tax under Part III of the 1965 Act. Until the respondents had satisfied the Revenue's claim to estate duty they could not obtain confirmation which would have given them a title to intromit with the deceased's estate I am satisfied that the whole operation of obtaining confirmation was a composite transaction as envisaged by s 38 of the Probate and Legacy Duty Act 1808. This involved the valuation of the stocks and shares for the purpose of satisfying the Revenue as to the amount of estate duty. The ultimate result obtained was confirmation, and the ascertainment of estate duty was incidental thereto. It is said that the respondents' argument involves that the amount of estate duty itself would be an allowable deduction. That question is not raised in this case, and it may be unwise to express a considered view, but I cannot think that the legislature intended that estate duty at its present rate would be an allowable deduction under para 4.
As against the strict construction of para 4(1)(b) contended for by the Crown it is to be observed that para 21(4) of Sch 6 provides that, for the purpose of any computation under the Schedule, any necessary apportionment of any expenditure is to be made, and the method of apportionment adopted is such method as appears to the inspector or on appeal to the commissioners to be just and reasonable. In fact an apportionment was made in this case agreed by the Revenue so as to arrive at the proportion of expenditure applicable to the stocks and shares, namely £242 16s. 1d. Paragraph 21(4) suggests that the words 'wholly and exclusively incurred' cannot have such a restricted meaning as contended for by the Revenue. Apportionment is not consistent with the idea of expenditure 'wholly and exclusively incurred'. A further point was made by the respondents that under para 4(2) of Sch 6 incidental costs may consist of expenditure wholly and exclusively incurred for certain purposes. This again indicates that 'wholly and exclusively' cannot be read in its strict and literal sense. On the whole matter I am satisfied that the expenditure in question was wholly and exclusively incurred by the respondents in obtaining their title to the assets in question and that the General Commissioners arrived at a correct conclusion.
I would for these reasons dismiss the appeal.