§ As a consequence of these increases, added to the increases made in the higher steps of the estate duty scale two years ago, it becomes necessary to deal with the settlement estate duty, which has remained unaltered since its original imposition in 1894. Non-settled property is chargeable with estate duty according to scale every time the interest in the property passes on death upon the full corpus 513 of the property. Settled property, on the other hand, if settled by will, is so chargeable only upon the death of the testator, or, if settled otherwise than by will, only upon the death of the first tenant for life, and, unless a subsequent life tenant is competent to dispose, escapes any further payment of estate duty until the expiry of the settlement, however many life tenants may intervene. For example, a non-settled estate left to a son, by him to a brother, and by the brother to his son would pay estate duty three times, whereas, if it took the same course under a settlement made by the will of the original testator, it would pay once only—at the original testator's death. By way of set-off to this preferential treatment of the settled estate it was provided by the Finance Act of 1894 that an additional rate of 1 per cent., called settlement estate duty, should be paid in addition to the estate duty, at the rate appropriate to the estate, on the first occasion of its passing at death under the settlement. The duty must therefore be regarded as a sort of composition for future payments of estate duty to which the property would become subject in the absence of a settlement. Sir William Harcourt's intention, as expressed in the Budget speech of 1894, was to secure by means of this duty absolute equality of treatment as between settled and non-settled property. "In this manner," he said, "we levy the same amount from the estate as if it were left absolutely, but each beneficiary will contribute according to the extent of his interest by the reduction of his income resulting from the original diminution of the capital."
§ The proposition that an immediate payment at the rate of 1 per cent. is an adequate composition for a future payment, or possibly several future payments, according to the character of the disposition and the course of events, at rates varying from 1 to 8 per cent. (the then limits of the Estate Duty Scale) is at first sight somewhat startling. On the other hand, when we remember that the expedient of settling a whole estate is often adopted as an alternative to dividing it in the first instance, that the average age at which a life tenant succeeds is probably much higher than that of the average beneficiary taking free property, and last, but not least, that the difference in value between the fee simple of the property and the life interest or life interests of the tenant or tenants for life passes, in theory at any rate, directly from the settler to the 514 remainderman, it is not unreasonable that a substantial abatement should be made from the present value (calculated on a strictly actuarial basis) of what would probably be the future liability in respect of estate duty, in the event of the whole estate being charged in full every time it passed upon death under the settlement. When, however, every allowance has been made for difference of circumstances, I think there can be no doubt, especially when regard is had to the fact that settlement estate duty is not chargeable where the only life interest is that of a spouse, that the 1 per cent. additional duty was not, even in 1894, when the average rate of estate duty was approximately 5 per cent., anything like the full equivalent for the immunity from further charge enjoyed by the property during the remainder of the settlement. The alterations in the estate duty scale made in 1907 and those which I now propose will together have the effect of raising the average rate of estate duty from about 5 to approximately 7 per cent., and the charge of only 1 per cent. settlement estate duty, which was not in fact a full equivalent for the privilege granted even on the basis of the 1894 rates, clearly cannot be defended in conjunction with the new scale. I propose, therefore, to increase the rate from 1 to 2 per cent. Although the effect of this alteration will ultimately be to double the yield of the present 1 per cent. duty (about £500,000) I can only reckon on £50,000 extra revenue from this source in 1909–10 and £375,000 in 1910–11, since these duties are in most cases not collected until some time after the death.