Holmden's Settlement Trusts, Re Holmden's Settlement, Re [1967] UKHL 7

House of Lords
Between
Holmden's Settlement Trusts, Re Holmden's Settlement, ReAppellant
Before
Lord ReidLord Morris of Borthy-GestLord HodsonLord GuestLord Wilberforce

LORD GUEST

My Lords,It has long been notorious that the Estate Duty legislation can cause great injustice or hardship in many cases. An individual who is well advised can often take action during his life which will diminish tax liability on his death. But before 1958 no such action was possible with regard to trust funds, except in the unlikely case where all who had vested or contingent rights were of full age: then they could combine to require immediate payment of the fund or alter the trust purposes. By the Variation of Trusts Act 1958 it became possible to make application to the Court. Generally all of full age combined to put forward an arrangement and, if it was otherwise unobjectionable, the Court could approve the arrangement on behalf of minor beneficiaries and of unborn persons who might become beneficiaries if the arrangement was for their benefit. And an arrangement which would avoid large payments of estate duty could hardly fail to be for the benefit of such infant and potential beneficiaries.In the present case an arrangement was approved by the Court in 1960. The original settlement was made by the settlor Sir G. Holmden, in 1927. He died in 1945, survived by his widow and two children. The position after his death was that the trustees had power during the life of the widow to pay or apply the whole or such part of the income of the trust fund as they should in their uncontrolled discretion think fit for the benefit of the widow, the children and any grandchildren or any of them. A provision in the settlement for the accumulation of any surplus income not so paid or applied came to an end at the death of the settlor and thereafter any surplus was not disposed of by the settlement but belonged to the settlor's estate. On the death of the widow the discretionary trust came to an end and, subject to a power of appointment given to the widow, half of the fund was to be held in trust for each child and his or her family.It was obvious that, if no alteration was made, estate duty would be pay- able on the death of the widow. It is not disputed that the purpose of the arrangement was to alter the trust purposes so that there should be no passing of the property on the death of the widow. The arrangement provided that as from 12th January 1960, the date of the Order of the Court, the discretionary trusts of income should have effect during the life of the widow or the period of twenty-one years from that date whichever should be the longer. The arrangement also altered the rights of the children and grandchildren to receive the capital at the end of the twenty-one-year period. The widow died in 1962.Estate duty is claimed on the ground that as regards rights to income the arrangement did not come into operation until the death of the widow. But in my opinion the whole arrangement did come into operation in 1960. I can see no ground at all for the Appellants' argument that until the death of the widow the original settlement continued unaltered: the plain meaning of the arrangement is that the whole of it came into operation at once. So the discretionary trust set out in the arrangement came into operation in 1960 and continued in operation until after the widow's death. The only change at the widow's death was that one of the objects of the discretionary trust dropped out and admittedly such a change does not involve any liability for estate duty.But the Appellants also found on section 43 of the Finance Act 1940. Sub- section (1) is as follows:" (1) Subject to the provisions of this section, where an interest limited " to cease on a death has been disposed of or has determined, whether " by surrender, assurance, divesting, forfeiture or in any other manner " except by the expiration of a fixed period at the expiration of which " the interest was limited to cease), whether wholly or partly, and whether2" for value or not, after becoming an interest in possession, and the dis- " position or determination (or any of them if there are more than one) " is not excepted by sub-section (2) of this section then—" (a) if, had there been no disposition or determination as afore- " said of that interest and no disposition of any interest expectant " upon or subject to that interest, the property in which the interest " subsisted would have passed on the death under section 1 of the " Finance Act, 1894, that property shall be deemed by virtue of this " section to be included as to the whole thereof in the property passing " on the death ; or
" (b) if, had there been no disposition or determination as aforesaid " of that interest and no disposition of any interest expectant upon or " subject to that interest, the property in which the interest subsisted " would have been deemed by virtue of paragraph (b) of sub-section " (1) of section 2 of the said Act to be included to a particular extent " in the property passing on the death, the property in which the " interest subsisted shall be deemed by virtue of this section to be " included to that extent in the property passing on the death."
Let me assume for the moment that the rights under the Settlement of the objects of the discretionary trust were interests or an interest in possession within the meaning of this section. The question then is whether such interests were " determined " by the coming into operation of the arrange- ment. If they were and the other express or implied requirements of the section are satisfied then the trust fund must be deemed to have passed on the death of the widow.There are two ways of looking at the effect of the arrangement. One is that it merely amended or varied the original settlement by writing in to clause 2 (a) the alternative period of twenty-one years from 1960: other- wise that clause remained unaltered. If that is an adequate statement of the effect of the arrangement then there was no determination of the clause or of the " interest limited to cease " on the death of the widow which it contained. All that happened was that an alternative period of duration of the interest was added, and in the event which happened, the death of the widow within the twenty-one years, the alternative period prevailed.The other way of looking at the effect of the arrangement raises the ques- tion what was the true nature of the arrangement. Under the variation of Trusts Act the Court does not itself amend or vary the trusts of the original settlement. The beneficiaries are not bound by variations because the Court has made the variation. Each beneficiary is bound because he has consented to the variation. If he was not of full age when the arrangement was made he is bound because the Court was authorised by the Act to approve of it on his behalf and did so by making an order. If he was of full age and did not in fact consent he is not affected by the Order of the Court and he is not bound. So the arrangement must be regarded as an arrangement made by the beneficiaries themselves. The Court merely acted on behalf of or as representing those beneficiaries who were not in a position to give their own consent and approval.So we have an alteration of the settlement which was not made by the settlor or by the Court as being empowered to make it, but which was made by the beneficiaries quite independently of the settlor or of any power, express or implied, given or deemed to have been given by him. Is it possible in those circumstances to say that, when the agreement of the beneficiaries alters the settlement, it merely amends the settlement? Or is the true position that, in so far as the arrangement alters the provisions of the settlement, it brings to an end or " determines " those provisions and substitutes for them new provisions arranged by the beneficiaries? Here the settlor gave interests limited to cease on his widow's death: the bene- ficiaries substituted interests which probably would not and in fact did not cease on her death. I do not find the point at all easy but I have come to be of opinion that the effect of the arrangement was to determine the interest3provided by the settlor which was limited to cease on the widow's death and to substitute a different interest which was so limited that it might or might not cease on her death.But that is not an end of the matter. It is said that there cannot be a determination within the meaning of this section unless those who previously had the interests which have been determined lose something by reason of the determination. If I had to decide this point I would not find it easy. There are arguments both ways. But in my view the point was decided by this House in In re Ralli's Settlements v. C.I.R. [1966] A.C. 483. Lord Upjohn said (at page 509) with regard to section 43:
" Subsection (2) of that " section makes it clear beyond doubt there must be a determination or " disposal in favour of some other party for the section to have any " effect and here there was none"
. That interpretation was accepted by the majority of the noble Lords engaged in the case, and I see no good reason for re-opening the question. In the present case none of the beneficiaries whose interests were determined lost anything thereby and the determination was not in favour of any other person. So section 43 has no application and therefore I am of opinion that this appeal should be dismissed.

Lord Morris of Borth-y-Gest

My Lords,By the Order of the Court made on the 12th January, 1960, approval was given to the arrangement which was scheduled to the Order. The approval of the Court was given on behalf of all infant and unborn persons interested under the trusts of the settlement. Those parties to the Originating Summons before the Court who were not under any incapacity expressed their consent to the arrangement. The Court gave its approval on behalf of the infant and unborn persons by virtue of the power given to the Court by the Variation of Trusts Act, 1958. That was " An Act to extend the jurisdiction " of courts of law to vary trusts in the interests of beneficiaries and sanction " dealings with trust property ". The power may be exercised in respect of any arrangement varying or revoking all or any of the trusts arising under any will, settlement or other disposition or enlarging the powers of the trustees of managing or administering any of the property subject to the trusts.The first question now arising concerns the effect of the arrangement which was made and approved. This I regard as a question of construction. In my view, the effect of Clauses 2 and 3 of the arrangement was that as from the 12th January, 1960, the provisions of Clause 2(d) of the Settlement were varied in one respect. The period of the discretionary trusts was varied. Those trusts were to have had effect (as was then known) during the life of Lady Holmden. The variation was that they were to have effect during the life of Lady Holmden or until the 12th January, 1981, whichever of those periods should be the longer. In my view, the result was that there was one single discretionary trust which would have effect (subject to Clause 6) during the trust period as varied. The variation became effective as from the date of the Order of the Court. The destination of any income which, after the death of the settlor, was not applied among the discretionary objects, was not affected. No new discretionary trusts were to begin on Lady Holmden's death. As from the 12th January, 1960, it was arranged that the discretionary trusts would continue during the newly agreed period. Lady Holmden was one of the objects of the discretionary trust but her death (when it occurred on the 22nd December, 1962.) was no more than the dropping of one of the lives within the discretionary class and did not result in a passing of property under the provisions of the Finance Act, 1894.The question then arises whether the provisions of section 43 of the Finance Act, 1940. are applicable. Was there an " interest" (or were there interests) limited to cease on a death which had been disposed of or had determined? Was such " interest" (or were such interests) " in " possession "?4Even if it could be said that there was an interest in possession limited to cease on a death I cannot think that there is any ground for saying that the interest of the discretionary class under the settlement trusts had been "disposed of". There was nothing like an assignment. There was no new receiving hand. The effect of the arrangement was not to get rid of the discretionary trust but to preserve it for a longer period. This circumstance makes it equally difficult to say that the discretionary trust was in some manner (either by surrender, assurance, divesting, forfeiture or in some other manner) " determined ". The arrangement of the 12th January, 1960, did not bring about the ending of the discretionary trust; it brought about its prolongation. In my opinion, the arrangement did not either dispose of or determine an interest limited to cease on a death, even if it be assumed that there was such an interest within the meaning of section 43. Furthermore, I consider that in the context of the section what is contemplated is a disposi- tion or determination in favour of some other party. Though subsection (2) is an exception subsection, the references in (a) to " the person becoming " entitled by virtue of or upon the disposition or determination " and to " the " person who immediately before the disposition or determination had the " interest " seem to me to be references to the kind of disposition or determina- tion with which the section as a whole is dealing. Being of this opinion I find it unnecessary to express a view in this case on the question whether there was an interest in possession limited to cease on a death.I would dismiss the appeal.

Lord Hodson

My Lords,The questions argued on this appeal were two.First: Was the trust fund—which passed on the death of Lady Holmden liable to estate duty under section 2 (l) (b) of the Finance Act, 1894?Second: Since the trust fund was property in which the beneficiaries under the discretionary trust declared by clause 2 (a) of the Settlement of the 28th December, 1927, made by the late Sir Osborn Holmden, had an interest limited to cease on the death of Lady Holmden, was it disposed of or determined by the Arrangement made on the 12th January, 1960, so as to make estate duty exigible under section 43(1) of the Finance Act, 1940, as amended?The first question depends on the construction of the Arrangement and in particular of clause 3 thereof which reads:
" 3. The discretionary trusts of income declared by clause 2 (a) of " the Settlement shall have effect during the life of Lady Holmden or the " period of 21 years from the Operative Date whichever shall be the " longer. . . ."
The operative date was the date of the approval of the Arrangement by the Court pursuant on the provisions of the Variation of Trusts Act, 1958, viz. the 12th January, 1960.The contention of the Crown is that on the true construction of the Order the Settlement trusts continued until the death of the widow and were then succeeded by new trusts under the 1960 Arrangement so that there was a passing of property under section 2(1) (b) of the Act of 1894 as in In re Kirkwood [1966]A.C. 520.In my opinion, the effect of the Arrangement varying the Settlement was, as Harman L.J. pointed out, to re-write the Settlement from the date of the Order in the terms proposed and approved by the Court. Clause 2(a) of the Settlement which sets up the discretionary trust must then be read as taking effect, not only during the life of the widow, but from twenty-one years from the date of the Order, if she died before that period expired, as she did. There was no passing within the meaning of section 2(1)(b) on Lady Holmden's death for that was only the dropping of one of the lives in the discretionary trust, this interest being of no ascertainable value under section 7(7) of the Finance Act, 1894.5Second: If section 2(1) (b) is out of the picture, is duty payable under section 43 of the Act of 1940? In order to bring this section into operation there must be a disposition or determination of an interest. I am, again, in agreement with Harman, L. J., of opinion that the effect of the Order was neither to dispose of nor to determine the discretionary trust. The Order enlarged or extended the trust and did not bring it to an end.The scheme of the Variation of Trusts Act, 1958. provides for the continua- tion of the old settlement as if the original settlor were himself a living party and the giving effect to proposals by whomsoever made " varying or revoking " all or any of the trusts, or enlarging the powers of the trustees of managing " or administering any of the property subject to the trusts ". (See section 1(1) of the Variation of Trusts Act, 1958.)The intervention of the Court under the Variation of Trusts Act approving the Arrangement which had been proposed did not prevent the continued existence of the Settlement made by the settlor notwithstanding the variations which flow from the Arrangement. As counsel for the Respondents puts it in his argument, the settlor in making the Settlement made it subject to any legislative hazards. This particular Act is only one example of such a hazard.There is a further difficulty in the way of the application of section 43 of the Act of 1940 which, in my opinion, is conclusive. Assuming that there is a relevant interest the whole language of subsection (1) of section 43 is consis- tent with a shifting of the interest to another person for the benefit of that other, rather than with the adding to that interest some additional benefit derived from the same source. Here none of the beneficiaries lost anything and the disposal was not in favour of any other person. I appreciate the force of the opinion expressed by the Master of the Rolls that this is a charging section and is not necessarily to be controlled in its interpretation by the exceptions which are contained in the succeeding subsection, namely, 43(2); nevertheless I think that the taxpayer is supported in his argument by the undoubted fact that the exceptions are all dealing with determination or disposal in favour of some other person. I conclude that this was the kind of determination or disposal with which the whole section is concerned and that the language of section 43(1) by itself does not carry with it the claim for duty for which the Crown contends. In other words " dispose " and " determine " have the same meaning in both subsections.It would appear that in the case of the owner of a life interest acquiring an absolute interest in remainder expectant on his life interest in property no duty is in practice claimed by the Crown. I cannot understand the reason for this unless the construction of the subsection contended for by the tax- payer is correct; for I do not accept the Crown's contention that in such a case there is a sublimation of the life interest into one interest without a merger in the sense of a drowning of one interest in the other.This construction of section 43 was adopted by Russell, L.J., in the case of In re Ralli's Settlement [1965] Ch. 286 and by my noble and learned friend, Lord Upjohn, with whom three of your Lordships agreed in the House in the same case as reported in [1966] AC. 483 at pages 509 and 510. Whether the opinion expressed was necessary to the decision of that case or not, I would adhere to it after hearing the argument addressed to your Lordships in this case.I would dismiss the appeal.

Lord Guest

My Lords,By a Settlement made on 28th December, 1927, the Settlor, Sir George Holmden, appointed discretionary trusts (by clause 2 (a) of the Settlement) in relation to the income of the trust fund during the lives of the settlor and of his wife and the life of the survivor in favour of Lady Holmden, his son and daughter and their issue, with a direction to accumulate the surplus income which might be distributed among the discretionary objects and, so far as not distributed, to be added to capital. The settlor died on 16th April, 1945.6An Order was made under the Variation of Trusts Act, 1958, on 29 th October, 1959, by Danckwerts, J., in the Chancery Division approving of an Arrangement varying the trusts of the Settlement. The parties to the application included all the living beneficiaries under the Settlement and the Trustees. Clauses 2 and 3 of the Arrangement were in the following terms: " 2. As from the Operative Date the Settlement shall have effect " subject to the variations which are hereinafter set forth." 3. The discretionary trusts of income declared by clause 2 (a) of the " Settlement shall have effect during the life of Lady Holmden or the " period of 21 years from the Operative Date whichever shall be the " longer (hereinafter called ' the Trust period ') ".It is not necessary for the present purpose to refer to the other provisions in the Arrangement varying the Settlement. Lady Holmden died on the 12th December, 1962.Upon an Originating Summons in the Chancery Division Pennycuick, J., held that the trust fund did not become liable to estate duty upon the death of Lady Holmden. The Court of Appeal by a majority (Lord Denning, M.R., dissenting) confirmed that decision.It is not necessary to refer to the opinion of Pennycuick, J., as his decision has been overtaken by the judgment of this House in Ralli and In re Kirkwood [1966] A.C. 483 and 520. The opinions of the House were not available at the time the judgment was given.The argument for the Crown was presented in the form of a dilemma. It was said that upon the death of Lady Holmden the discretionary trust of the Settlement came to an end and was succeeded by a new discretionary trust under the Arrangement until 12th January, 1981 ; in which case it was said that estate duty was payable on the death of Lady Holmden under section 1 or section 2(1) (b) of the Finance Act, 1894. If that was not the effect of the Arrangement, then it was argued that the old discretionary trust determined on 12th January, 1960, the date of the Order approving the Arrangement, and a new discretionary trust arose ; in which case it was said that the trust fund was liable to estate duty under section 43 of the Finance Act, 1940.The argument for the Crown depends upon the proper construction of the Settlement and of the Deed of Arrangement. I have no doubt that the majority of the Court of Appeal were right in holding that as from the operative date in the Arrangement, 12th January, 1960, the old settlement was varied so far as affecting this case to the effect that the term of the discretionary trust extended until the date of Lady Holmden's death or until 12th January, 1981, whichever was the later, just as if the original settlement had contained the variation. There was not, as Lord Denning held, a continuance of the old settlement until Lady Holmden's death to be succeeded on her death by a new discretionary trust. There was, at the date of Lady Holmden's death, a single discretionary trust operating from the date of the Settlement until 12th January, 1981. Upon the death of Lady Holmden the only change which took place was the dropping of one life from the class of discretionary objects ; otherwise the trust continued unimpaired, the fund was the same and the beneficiaries were the same.The Crown argued that the effect of the Settlement and of the Arrange- ment was to create a charge to duty as occurred In re Kirkwood [1966] A.C. 520, but in that case the reversioner was the only party to the variation and he could only assign his interest after his mother's death. He could not assign any income prior to his mother's death which was dealt with by the settlement. The effect was that a different interest arose upon the death resulting in a passing under section 1 of the Finance Act, 1894. In the present case all the beneficiaries were parties to the Arrangement either by themselves or through the approval of the Court under section 1 of the Variation of Trusts Act, 1958. At the date of the Arrangement they could competently deal with the whole income in which they were beneficially interested. Under the Arrangement the income was dealt with in such a way that on the death of Lady Holmden the same trusts continued, the only7difference being the dropping of one life. If this be so, the case is within the ratio of the concession by the Crown that the dropping of one life from the objects of a discretionary trust does not result in a passing under section 1 (see Attorney-General of Ceylon v. Chettiar [1957] AC 513 ).I turn now to what has been described as the other horn of the dilemma. The dilemma argument is seldom a satisfactory ground of decision and, in my view, in this case there is no true dilemma. To enable the Crown to succeed upon this point they must bring this case within section 43 of the Finance Act, 1940, which is in the following terms:"43.—(1) Subject to the provisions of this section, where an interest " limited to cease on a death has been disposed of or has determined, " whether by surrender, assurance, divesting, forfeiture or in any " other manner (except by the expiration of a fixed period at the " expiration of which the interest was limited to cease), whether wholly " or partly, and whether for value or not, after becoming an interest in " possessing, and the disposition or determination (or any of them if " there are more than one) is not excepted by subsection (2) of this " section, then—" (a) if, had there been no disposition or determination as aforesaid " of that interest and no disppsition of any interest expectant upon " or subject to that interest, the property in which the interest subsisted " would have passed on the death under section one of the Finance " Act, 1894, that property shall be deemed by virtue of this section " to be included as to the whole thereof in the property passing on " the death ; or
" (b) if, had there been no disposition or determination as aforesaid " of that interest and no disposition of any interest expectant upon or " subject to that interest, the property in which the interest subsisted " would have been deemed by virtue of paragraph (b) of subsection (1) " of section two of the said Act to be included to a particular extent " in the property passing on the death, the property in which the interest " subsisted shall be deemed by virtue of this section to be included to " that extent in the property passing on the death."
The Crown argued that as from the operative date, 12th January, 1960, the life interest under the Settlement determined after becoming an interest in possession and that the trust fund was deemed to pass under section 1 of the Finance Act, 1894.Before dealing with this argument, it is necessary to dispose of one preliminary point. This involves the proper construction of the Variation of Trusts Act, 1958. This Act of which the long title reads " An Act to " extend the jurisdiction of course of law to vary trusts in the interests of " beneficiaries and sanction dealings with trust property " provides as follows:" 1.—(1) Where property, whether real or personal, is held on trusts " arising, whether before or after the passing of this Act, under any " will, settlement or other disposition, the court may if it thinks fit " by order approve on behalf of—" (a) any person having directly or indirectly, an interest, whether " vested or contingent, under the trusts who by reason of infancy " of other incapacity is incapable of assenting, or
" (c) any person unborn,
" any arrangement (by whomsoever proposed, and whether or not there " is any other person beneficially interested who is capable of assenting " thereto) varying or revoking all or any of the trusts, or enlarging " the powers of the trustees of managing or administering any of the " property subject to the trusts:
" Provided that except by virtue of paragraph (d) of this subsection " the court shall not approve an arrangement on behalf of any person " unless the carrying out thereof would be for the benefit of that " person."
8The Act followed closely upon a decision of the House in Chapman v. Chapman [1954] AC 429 , where the House refused to extend the jurisdiction of the Chancery Division in varying settlements beyond the cases mentioned by Lord Asquith of Bishopstone at page 469. The power of the Court under the 1958 Act is to approve of an arrangement inter alia " varying or revoking " the trusts ". It must be a matter of construction in each case whether the arrangement in question varies or revokes the trusts. While there may be cases where an arrangement revokes the trust, I have no doubt in the present case that the arrangement merely varied the original trust by inserting an extended terminal date for the exercise of the discretionary powers. The question thus arises whether this variation was, within the meaning of section 43, a determination of the life interest of the discretionay beneficiaries under the Settlement. A variation might have the effect of determining the life interests, but, with respect to those who hold the opposite view, I do not consider that the approval by the Court of an arrangement under the 1958 Act necessarily determines any pre-existing life interest. It was argued that because the Order of the Court was the approval of an Arrangement by the beneficiaries, this was a new trust and that the previous beneficial interests were determined. In other words, the Arrangement was contractual, effecting a compromise by the beneficiaries, approved of by the Court for a re-settlement of the trust fund. But, in my view, the arrangement merely varies the trusts to the extent already stated. Section 1 of the Act enabled the Court to give approval to an Arrangement on behalf of such persons as were unable by incapacity or otherwise to give their approval. The Court thus supplied the capacity which the incapax lacked. This Arrangement did not, in my view, create a new trust, but merely varied the old settlement.Turning next to the construction of section 43, the effect of the Arrangement was not, in my view, to determine the life interests but to enlarge them so that the terminal date was extended. It would be a misuse of language to say that the interest " determined " when all that happened was that the beneficial interests were increased. The life interests under the settlement did not come to an end or cease to exist after 12th January, 1960. They continued for a period up to 12th January, 1981, if Lady Holmden pre- deceased that date. This must be the only logical justification for the view of the Crown that where the life tenant acquires the reversion there is no charge to duty under section 43. Alternative justifications put forward by the Crown for the alleged concession were, in my view, not substantiated. It is no concession at all ; it is the logal result of a proper construction of section 43.If the beneficial interest did not determine under section 43 it is unnecessary to consider the further point which was raised in Ralli's Settlement [1966] A.C. 483 by Lord Upjohn at page 509 where he said:
" Section 43 of the Finance Act, 1940, can have no possible applica- " tion, for, as I have already said, as a matter of construction the life " interest under the 1895 settlement continued until Mrs. Ralli's death " and was never determined or disposed of. Subsection (2) of that " section makes it clear beyond doubt that there must be a determination " or disposal in favour of some other party for the section to have any " effect and here there was none."
A majority of their Lordships, of which I was one, concurred in his opinion. I remain of the same opinion. To elaborate on Lord Upjohn's opinion, it is only necessary to state that "determination" in subsection (1) and subsection (2) must be used in the same sense. If a determination under subsection (2) requires a determination in favour of some other person then a determination under subsection (1) must equally be in favour of another person. As in this case there was no determination or disposition in favour of another person, section 43 has, in my opinion, no application.In view of my opinion as to the construction of section 43, it is unnecessary to deal with the question whether the interests of the discretionary beneficiaries had become in this case " interests in possession " within the meaning of section 43. Both parties appeared to leave this question upon the decision9of the case of Gartside v. C.I.R. but as the terms of the two settlements arc dissimilar I prefer to reserve my opinion upon this point.Upon the whole matter I would dismiss the appeal.

Lord Wilberforce

My Lords,In this case the Crown claims estate duty on the death of Lady Holmden under section 43 of the Finance Act, 1940: This case has some similarity with those previously considered in this House In re Kirkwood ([1966] A.C. 520) and In re Ralli's Settlements ([1966] A.C. 483).The trusts by virtue of which the property would have passed, if certain transactions in 1960 had not taken place, were established by a Settlement dated 28th December, 1927, made by Sir Osborn George Holmden, Bt. whose widow Lady Holmden was. Under this settlement a trust fund was, before those transactions, held upon discretionary trusts during Lady Holmden's life for a class which comprised Lady Holmden, her children and their issue. The Trustees had a discretion as to the amount (if any) of income they might distribute in any year to any one beneficiary or to the class as a whole. Any surplus not distributed was to be accumulated. The capital was to be held after Lady Holmden's death, subject to a special power of appointment exercisable by Lady Holmden, upon trusts under which each of her two children George and Mary took life interests in one half with remainders to their respective children. At the relevant date both George and Mary were living; George Holmden had three children, two of whom were infants ; Mary Shearer had two, both of full age.The period of permissible accumulation, as regards surplus income, came to an end on 16th April, 1945, when the settlor, Sir O. G. Holmden died, and thereafter any surplus income not distributed under the discretionary trust became payable to his legal personal representatives as part of his estate. It appears that the persons interested in this estate were Lady Holmden, George Holmden, Mary Shearer and her children.On 29th October, 1959, an originating summons was taken out in the Chancery Division seeking the approval of the Court to a variation of the trusts of the Settlement under the Variation of Trusts Act, 1958. The application was made by Lady Holmden, and the Respondents included all living beneficiaries under the settlement and the Trustees. On 12th January, 1960, an Order was made by which the Court approved the Arrangement on behalf of all infant and unborn persons interested under the trusts of the Settlement. It was recited in the Order that all adult beneficiaries had consented to it.The Arrangement was scheduled to the Order. After defining " the opera- tive date " as the date of the Order, the Arrangement provided in paragraphs (2) and (3) as follows—" 2. As from the Operative Date the Settlement shall have effect " subject to the variations which are hereinafter set forth." 3. The discretionary trusts of income declared by clause 2 (a) of the " Settlement shall have effect during the life of Lady Holmden or the " period of 21 years from the Operative Date whichever shall be the " longer (hereinafter called ' the Trust Period ') ".Paragraphs 4 and 5 of the Arrangement contained provisions varying the trusts as to capital, the details of which are not material. Paragraph 6 conferred power on the Trustees at any time after Lady Holmden's death by deed to bring the Trust period to an end and the trusts as to capital into operation. The remaining paragraphs contained provisions as to other trusts and administrative matters which have no relevance on the present appeal.Lady Holmden died on 22nd December, 1962, i.e. during the currency of the Trust Period and the question is whether estate duty falls to be paid on her death in respect of the settled funds. The claim for duty is put on two alternative grounds: either that the settlement funds must be deemed to pass under section 2(l) (b) of the Finance Act, 1894, on the basis that.10notwithstanding the Arrangement of 1960 there was a cesser of an interest or interests limited to cease on Lady Holmden's death; or alternatively that, if that is not so, there must have been a disposition or determination of such interest(s) by the arrangement of 1960 so that section 43 of the Finance Act, 1940, comes into play. The Crown's main argument was that the taxpayer was faced with a dilemma: either the original limited interest continued to exist after 1960, in which case section 2(1) (b) applies; or, if it did not continue to exist, it must have been disposed of or determined so as to attract section 43.My Lords,I cannot accept this method of reasoning. A man is not to be taxed by a dilemma: he must be taxed by positive provision under which the Crown can satisfactorily show that he is fairly and squarely taxed. There is no presumption in taxing law that two sections, however comple- mentary they appear, are exhaustive: there may always be a no man's land between them which the subject does not have to define but on which he can take his stand. In the present case, and I suspect that this is generally true, at any rate in the field of taxation, the supposed dilemma is not a true one. The original limited interest may not be in existence at the relevant death, and yet it may not have been either disposed of or determined within the meaning of the taxing section. That I believe to be the case here.I proceed, as I venture to think one must, by considering the first limb of the Crown's argument. Did the interest limited to cease on Lady Holmden's death by the Settlement continue in existence after the 1960 Arrangement? I use the word " interest " in the present discussion to describe the trusts declared by the Settlement during Lady Holmden's life, so that the question relates to those trusts.On this question the rival views are as follows. The Crown contend that all that was done in 1960 was to add to the existing trusts declared during Lady Holmden's life fresh trusts to operate for an additional period. If this is right, it is clear that this case is indistinguishable in result from In re Kirkwood, and that the Crown must succeed. The Respondents contend that the effect of the Arrangement was to bring into existence a new single discretionary trust of income terminating on the death of Lady Holmden or on 12th January, 1981, which date should be the later, in which case, on the principle accepted in Attorney General of Ceylon v. Chettiar ([1957] A.C. 513) no duty would be payable.I can deal with this issue shortly because I am in complete agreement, as to it, with the majority of the Court of Appeal. If all the beneficiaries under the Settlement had been sui juris, they could, in my opinion, have joined together with the Trustees and declared different trusts which would supersede those originally contained in the Settlement. Those new trusts would operate proprio vigore, by virtue of a self-contained instrument—namely, the Deed of Arrangement or variation. The original Settlement would have lost any force or relevance. The effect of an Order made under the Variation of Trusts Act, 1958, is to make good by act of the Court any want of capacity to enter into a binding arrangement of any beneficiary not capable of binding himself and of any beneficiary unborn: the nature and effect of any arrangement so sanctioned is the same as that I have described. So far there is really no dispute: the difference between the Crown and the Respondents and between the two views in the Court of Appeal is on the question whether this is in fact what the Arrangement has done. I have set out Clauses 2 and 3 above: to my mind, they cannot be read as an affirmation of the trusts of the settlement plus an addition: they can only be read as a true " variation " —the substitution by binding agreement of a new period (the Trust Period) for the old. One may test this by asking what the trusts as to income were after the Arrangement and before Lady Holmden's death: were they the same as before, or were they different? In my opinion, they were clearly different: the Trustees, after 1960, could and should have exercised their discretion as to distribution of income on the basis (theretofore not existing) that the discretion might continue (at least) till 1981—a basis which might materially affect the policy they chose11to adopt. I reach the conclusion on this point that a new single trust was created in 1960, extending the previous limited "interest", which therefore did not cease on Lady Holmden's death. In this case, the parties have been able, with the assistance of the Court, to do what the reversioner alone could not do in the case of In re Kirkwood, so that they succeed where he failed.The second question is whether the Arrangement of 1960 brought about, or was, a disposition or determination of the previous limited interest within the meaning which those expressions have in section 43 of the Finance Act, 1940.It now becomes relevant to ask whether there was an " interest" in the statutory sense to be disposed of or determined. I find some difficulty in answering this question. The argument in this appeal took place after the argument was completed in Gartside v. Commissioners of Inland Revenue but before the decision was given in that appeal, so that Counsel were unaware of the manner in which the meaning of " interest" was to be dealt with in this House. The trusts of income in the Holmden settlement are not identical with those with which the Gartside case was concerned, because in the present case the trust for accumulation had come to an end and any surplus income had to be distributed to ascertained persons. This circum- stance possibly distinguishes the present case from Gartside's, but your Lordships heard no argument on the point. Being as I am of opinion that the Crown's case under section 43 fails on other grounds, I prefer to leave the question undecided.The argument that, even assuming that there was a relevant " interest" here, section 43 of the Finance Act, 1940, has no application can be put in two ways. The first, which may for convenience be described as that based on commonsense (I am not using this as an argument for its adoption) is to say that the subsection, when dealing with " dispositions " or " determina- " tions " must surely contemplate a transaction by which the owner of the limited interest gives up or is deprived of something: it cannot have been intended to impose a charge where he acquires something more than he had, or where his " limited " interest is enlarged. The second, directed perhaps to more sophisticated minds, is to suggest that the section as a whole only deals with cases where there is a disposition or determination in favour of some other person: this argument is supported by reference to section 43 (2).In discussion of these arguments reference was made by both sides to the fact that in practice no duty is claimed under the words we are dealing with when the owner of a life interest acquires the absolute interest in remainder, expectant on his life interest. The taxpayer says that this practice can only be justified if the legal position is as it suggested above. The Crown seeks to find some other and more special support for it which does not involve acceptance of the taxpayer's argument.My Lords,I find myself persuaded by the two submissions of the taxpayer: these seem to me interrelated and mutually supporting. I think that they justify and that they alone can justify the practice I have mentioned. Purely on subsection (1) and considering the whole of its language ("disposed of " or has determined, whether by surrender, assurance, divesting, forfeiture " or in any other manner . . . whether for value or not ") I find it hard to believe that a duty was to be imposed in cases where the owner of the limited interest acquires, and adds to that interest, a further interest in the property. I am not in this influenced by technical considerations as to merger, nor by the use of metaphorical expressions such as " drowning ", or " sub- " limation " or the recently criticised " enlargement": I find it more helpful to consider the purpose of this enactment. That seems to me fairly clearly to be to bring within the charge cases where a limited interest, on the cesser of which a charge would otherwise arise, has been got rid of. The width of the language used in subsection (1), which I have quoted, finds sufficient justification in the variety of mechanisms which might be employed in order to achieve this end without making it necessary to give up this basic con- ception. That is, moreover, to my mind, confirmed by the presence of sub- section (2) which applies the familiar five-year rule accompanied by total12exclusion, fitting enough if the conception is that of parting with or depriva- tion of an interest, but inappropriate by reference to transactions of acquisi- tion. The language, too, of that subsection, by mentioning " the person " seems to show that it rests upon the assumption that, in a transaction to which subsection (1) applies, there is a person who becomes entitled by virtue of or upon the disposal or determination.It was forcefully pointed out, and this argument is reflected in the judg- ment of Lord Denning M.R., that subsection (2) takes the form of an exception to subsection (1). It is said that it is faulty reasoning to construe a rule by an exception to it: the presence of an exception in favour of broadly gifts to another made outside five years does not mean that subsection (1) is confined to this case: it shows at most that the sub- section includes it.With the general proposition I would certainly agree: there is no presump- tion that an exception and a rule cover the same ground. But after the full examination which was made in argument of the antecedents of this legis- lation, I am persuaded that in this case the exception does do this.I shall not weary your Lordships with an enumeration of the various sections which preceded the Finance Act, 1940. The original provision was section 38(2) (a) of the Customs and Inland Revenue Act, 1881: then, after certain decisions, surrenders of life interests were dealt with by the Finance Act, 1900. In section 11 of that Act the charge and the exception were united in the same subsection: the charge only arose, as did the exception, where there was a disposition lo or for the benefit of a person entitled to remainder or reversion. Later, cases involving dispositions to com- panies were covered by the Finance Act, 1930: this, too, in section 35, referred to dispositions to or for the benefit of a company, and the (then) three-year exemption mentioned the company, evidently the company to which the disposition had been made. So it appears that up to this time the legislation invariably contemplated a disposition to someone and that the exemption covered part of the same ground. In the Finance Act, 1940, there was a further expansion of the type of disposition etc. covered, notably by addition of " forfeiture " ; the language was generalised so as to include not only persons entitled in remainder or reversion but companies or individuals who at the time of the disposition had no interest in the property, and the exemption was segregated in a distinct subsection. It is always possible that changes of this character are designed to effect changes in substance, but it is for the Crown either to show that the language used clearly achieves this, or, at least, to demonstrate some mischief as revealed in previous decisions, which Parliament must have intended to correct. It did not convince me of either. I think that, as before, subsection (1) deals with dispositions and determinations which result in some other person (or company) becoming entitled and that subsection (2), as before, exempts those dispositions or determinations if the stated conditions are complied with.Lastly there is the practice I have referred to above: the best that the Crown could do to explain it was to say that, when the reversion is acquired by a life tenant, the life interest is not determined because otherwise there would be no basis on which the life tenant would remain entitled to the income during his life. But there is no precision in this proposition unless one adds to it the word " only ", in which case the failure of the argument at once appears. On the other hand, not only does the interpretation of subsections (1) and (2), which the Respondents suggest give ample sense and justification for the practice, but the practice itself, so supported, seem to fit logically into the legislative scheme.I would add that the opinion I have just expressed coincides entirely with that which, as I understand it, was accepted after argument by their Lordships in the Ralli case and with that both originated and (correctly) followed by Russell L.J. in the Court of Appeal.I would dismiss the appeal.(305332) Dd. 196999 180 12/67 St.S.