Payne & Anor v Tyler & Anor

A voluntary disposition may be rescinded for mistake where there is a distinct causative mistake of sufficient gravity, assessed objectively by reference to whether it would be unconscionable or unjust to leave the mistake uncorrected. Carelessness does not of itself prevent relief, unless the circumstances show that the donor deliberately ran, or must be taken to have run, the risk of being wrong. Tax consequences may establish the seriousness of a mistake, even where the tax issue is not basic to the transaction. Relief is not barred merely because its practical effect is to save tax, provided there is a genuine issue capable of determination between the parties.

The claimants, trustees of the P G Mallett Will Trust, sought rescission of a deed of appointment dated 6 April 2012. The deed granted Sally Elizabeth Alston an irrevocable life interest in trust property.

The appointment was made after mistaken tax advice. The trustees believed that the appointment would not cause the trust property to be treated as part of Mrs Alston’s estate for inheritance tax purposes. Following her death, it became apparent that Inheritance Tax Act 1984, section 144 treated the arrangement as creating an immediate post-death interest. The resulting additional tax liability was estimated at £112,000.

The issue was whether the mistake satisfied the equitable test for rescission of a voluntary disposition.

1. Rescission granted. The deed of appointment was rescinded on the ground of mistake.
2. The court applied the framework adopted by Lord Walker in Pitt v Holt [2013] UKSC 26: there must be a mistake, it must be of the relevant type, and it must be sufficiently serious to make it unjust or unconscionable for the recipient to retain the property. The assessment is evaluative and objective, with close attention to the particular facts.
3. The mistake was not mere ignorance, inadvertence or misprediction. Mr Payne had identified the precise inheritance tax question and sought specialist advice. Although the advice was careless, the trustees had not deliberately assumed the risk of being wrong.
4. The mistake went to the core of the deed. The trust had been established to keep the property outside Mrs Alston’s taxable estate, and the trustees would not have made the appointment, or would have delayed it, had they received correct advice.
5. The mistake was sufficiently serious. The additional tax was substantial, representing about 40 per cent of the trust fund, and the mistake completely defeated the inheritance tax planning achieved by the deed of variation. The court treated the case as analogous to Pitt v Holt in this respect.
6. The fact that rescission would save inheritance tax did not preclude relief. Rescission would restore the parties to the position permitted by section 142 of the Inheritance Tax Act 1984, and there was a genuine issue because Mrs Alston’s estate would become liable to repay sums received under the deed.