Vaughan-Jones & Anor v Vaughan-Jones & Ors

Rectification of a deed of variation is available where convincing evidence establishes that the document fails to give effect to the parties’ specific common intention. A mere failure to obtain an anticipated fiscal advantage, or a mistaken understanding of tax consequences, is insufficient.

For a deed executed by several beneficiaries, the relevant intention may include that of each beneficiary whose rights are altered. The court must also identify a real issue between the parties which rectification will resolve. Rectification was granted for the omission of the Inheritance Tax reading-back statement, but refused for the corresponding Capital Gains Tax statement because the necessary intention was not proved.

The claimants, two executors of an estate, sought rectification of a 2009 deed of variation under which the deceased’s residuary estate was redirected to his widow. The deed omitted statements required for the tax reading-back provisions.

The defendants did not contest the claim. HMRC declined to join but contended that the deed might also be ineffective under section 142(3) of the Inheritance Tax Act 1984 because the variation may have been made for consideration. The issues were whether the deed should be rectified and whether the court should determine the section 142(3) issue.

1. Rectification. The claimants established, albeit only just, the convincing evidence required to prove a mistake by all relevant parties. The mistake was internal to the deed: it failed to include the machinery necessary to give effect to the parties’ intention that the variation should operate for Inheritance Tax purposes.

2. The relevant intention was not confined to the three sons who gave up their interests. In light of sections 142(1) and (2) of the Inheritance Tax Act 1984, the widow’s intention was also relevant. The executors’ intentions were not material because their participation was unnecessary to the variation.

3. A court cannot rectify a document merely because it fails to achieve a desired fiscal result. The parties’ specific intention as to the legal means by which that result was to be achieved must be proved. There must also be a real issue capable of being contested between the parties, even if all parties consent to rectification. Here, rectification would affect substantial Inheritance Tax liabilities and the parties’ respective positions, so that requirement was satisfied.

4. The evidence did not establish any relevant intention to include the statement required by section 62(7) of the Taxation of Chargeable Gains Act 1992. Rectification was therefore limited to the Inheritance Tax statement.

5. The possible application of section 142(3) of the Inheritance Tax Act 1984 was a matter for the First-tier Tribunal. The court could properly rectify the deed while expressing no opinion on whether the rectified deed satisfied section 142(3). The order included that qualification.

6. Rectification was ordered in relation to the Inheritance Tax reading-back statement. There was no order as to costs between the parties; the draftsman’s insurers were to bear the reasonable costs, including the cost of obtaining a transcript.

First-instance decision. No prior appellate decision is stated in the judgment.