JTC Employer Solutions Trustee Limited & Ors v William Garnett & Anor

A voluntary disposition may be rescinded for a sufficiently serious mistake about its tax consequences. The mistake must be distinct and causative, and relief is granted where leaving the disposition uncorrected would be unconscionable or unjust. Carelessness does not itself bar relief unless the disponor deliberately, or must be taken to have, run the relevant risk. The court may proceed on the basis that a tax authority’s cogent and properly arguable position is correct where determining the tax issue is unnecessary to the rescission claim. Relief is not confined to cases involving a change in beneficial ownership, provided there is a genuinely contestable issue between the parties or affected beneficiaries. Public-policy objections and alleged prejudice to taxpayers generally require proper participation and evidence from the relevant public authority.

The claimants sought rescission of sub-trust appointments and Member’s Account Appointments made under two employee benefit trusts. The appointments had been made for individual employees and their families. The claimants and beneficiaries had proceeded on the assumption that the assets would retain the inheritance-tax treatment available under Inheritance Tax Act 1984, section 86.

HM Revenue and Customs indicated that the appointments removed the assets from that treatment, creating potential inheritance-tax liabilities of approximately £7 million. HMRC was not joined and raised objections by letter concerning tax avoidance, delay, public policy, the absence of restitution and the proposed administration of the trusts after rescission. The central issues were whether there was an operative mistake, whether it was sufficiently grave, and whether relief would operate unjustly.

1. Relief granted. The various deeds of appointment under the HFBT and EFRBS were set aside. The claim was allowed.
2. The court applied the principles restated in Kennedy v Kennedy. There was a distinct and operative mistake: those responsible consciously believed, or tacitly assumed, that the appointed assets would continue to benefit from section 86 treatment. The court was entitled to proceed on the footing that HMRC’s position was correct, or at least that the asserted tax consequence represented a real and properly arguable risk.
3. The mistake was sufficiently grave to make it unconscionable to leave the dispositions in place. The potential liability was substantial, the assumed tax treatment was basic to the arrangements, and the trusts could have been administered without the appointments and without artificiality or abuse. Carelessness was not established as a deliberate assumption of the relevant risk.
4. A tax consequence can be sufficiently serious even where the mistake relates exclusively to tax. Rescission was not barred because the appointments were revocable, because historic distributions and loans would not be unwound, or because the trustee intended to maintain notional allocations for beneficiaries. The underlying trustee powers remained available and the relevant subsequent transactions did not themselves require rescission.
5. There remained a contestable issue as to the allocation of any inheritance-tax liability among the trustee and beneficiaries. Rescission was therefore not merely an attempt to obtain a fiscal benefit without affecting rights between the parties.
6. HMRC’s objections based on taxpayer prejudice and public policy were not determined. If HMRC wished to rely on those matters, it should be joined and file evidence. A late letter could not properly raise such issues through correspondence alone.
7. The defendants were ordered under CPR r 19.8 to represent the affected beneficiary classes. They had the same interest as those represented, and no relevant conflict arose at the stage of deciding rescission.

First-instance decision. The claim was allowed and the deeds of appointment were set aside.