Estate Duty. For purposes of the national revenue in the United Kingdom, the Finance Act 1894 imposed on all property passing by death after the 1st of August 1894 a duty called estate duty, in lieu of certain other duties previously payable. The objects of the act were—(1) simplification of the death duties and equalization as between real and personal property, and (2) aggregation of all the property passing on a death, and taxation at rates graduated according to the value of the whole. Before the act a duty (probate duty) was taken on the free personal property of deceased persons in the hands of the executor or administrator, without regard to the subsequent distribution. The legacy and succession duties were levied on distribution of the property passing on the death, from the persons taking any property under the will or intestacy of the deceased, or under settlement, or by devolution of title on his death. These two latter duties were mutually exclusive, and together covered practically all property passing by death. They were levied at rates graduated according to consanguinity. In 1888 an attempt was made to equalize the rates of the death duties as between property which paid the probate and legacy duties, and property which paid succession duty only. But the Finance Act 1894 replaced the probate duty by a duty extending to all property real or personal passing on or by reference to death, whether by disposition of the deceased or not, without regard to its tenure or destination. The Finance Acts of 1907 and 1909-1910 increased the scale of duties laid down in 1894.
For this purpose all property passing on a death is aggregated to form one estate, on the capital value of which the duty is charged, at rates graduated from 1 to 15% according to the aggregate value. Besides the property of which the deceased was competent to dispose at his death, the aggregated estate includes property in which he had an interest ceasing on his death, from the cesser of which a benefit accrues, or which was disposed of by him within twelve months of death, or at any time, with reservation of an interest to himself. The extent to which property is deemed to pass on the cesser of a limited interest is measured by the proportion of the income to which the interest extended, without regard to the tenure of the deceased or his successor. Property may therefore be included in the aggregate estate at its capital value owing to the passing of a life-interest only, the property being settled so that the absolute ownership does not pass at all. But when the duty has once been paid on property passing under a settlement, the property does not again become chargeable until it passes on the death of a person who is or has been competent to dispose of it. To compensate for this advantage, when property passing under a settlement made after the act pays the estate duty, a further duty of 2% (settlement estate duty) is taken, except where the only subsequent life-interest is that of the wife or husband of the deceased.
The rate of duty being fixed according to the aggregate capital value of the whole estate, the charge is distributed according to the different modes of disposition of the property comprised in the estate. The duty on the personalty which passes to the executor as such is paid by him, as the probate duty was, and comes out of the general estate. For the other property passing, trustees, or any person to whom it passes for a beneficial interest in possession, are made accountable, and are required to bring in an account of the property and pay the duty. The duty is a first charge on such property, and, when it is paid by a person having a life-interest only, he may charge the corpus of the property with it. The duty on real property included in an account is payable by eight yearly or sixteen half-yearly instalments, becoming due twelve months after the death, and bearing interest at 3% from that date. On other property, except in a few special cases, the duty bears interest at 3% from the date of the death. When the estate duty has been paid no further duty is chargeable on property comprised in the estate which passes to lineal relations of the deceased. But on property passing to collaterals or strangers legacy or succession duty, as the case may be, is payable by the devisees or successors, at a rate (which is the same whichever duty be payable) fixed according to consanguinity.
For a detailed account of the provisions of the act of 1894 and subsequent amending acts, and of the practical working of the duty, reference is made to Austen-Cartmell, Finance Acts (1894-1907); Hanson, Death Duties (London, 1904); Soward, Handbook to the Estate Duty (4th ed., London, 1900); and to the reports of the commissioners of Inland Revenue for 1894-1895 and subsequent years.
