Two recent High Court cases have considered the principles underpinning the Court’s power to set aside or rescind a voluntary disposition on the grounds of mistake. In the cases of Hartogs v Sequent (Schweiz) and Payne v Tyler, the Court exercised its discretion to set aside the dispositions in question where there had been a mistake as to their tax consequences.
In Pitt v Holt  UKSC 26, the Supreme Court outlined a three-stage test for determining whether a voluntary disposition can be rescinded on the grounds of mistake.
If these three requirements are met then the Court must ask itself whether, in all the circumstances, viewed objectively, it would be unconscionable to allow the mistake to go uncorrected. This will be assessed by a close examination of the facts, including the circumstances of the mistake, its centrality to the transaction in question and the seriousness of its consequences.
The Claimant sought to rescind two voluntary transfers into non-UK trusts which had been made on the basis of erroneous professional advice that these structures would provide a tax efficient means of holding his assets. In fact, the advice failed to take into account that the Claimant had lost his non-domicile status and therefore the transfers resulted in immediate adverse inheritance tax consequences.
The Court allowed the claim after considering the principles in Pitt v Holt, bearing in mind the following factors:
The Court also highlighted that there is no reason why a mistake as to tax consequences should be treated differently to any other mistake.
However, the Court was keen to stress that this should not be viewed as a “get out of jail free” card, which might be invoked whenever a taxpayer found themselves with a charge to tax they had not anticipated. There were strict limits on the circumstances in which a transaction might be set aside on the grounds of mistake.
Trustees had executed a deed of appointment on the basis of specialist tax advice that had stated that there would be no adverse tax consequences as result of the appointment. This advice was incorrect and the trustees sought to rescind the appointment on the grounds of mistake.
Again, the Court allowed the rescission on the following basis:
Both cases provide valuable clarification as to the principles to be applied when seeking to rescind or set aside a voluntary disposition on the grounds of mistake, especially in the context of incorrect tax advice.
Mistakes as to tax consequences are clearly capable of being relieved. It also does not matter if granting relief would serve no practical purpose other than saving tax. Potential claimants should, however, be aware that making a claim in mistake is not a “catch all” solution to an unexpected tax bill: the criteria in Pitt v Holt must still be met.
Payne and another v Tyler and another  EWHC 2347 (Ch.)
Hartogs v Sequent (Schweiz) AG and others  EWHC 1915 (Ch)
This document provides a general summary and is for information/educational purposes only. It is not intended to be comprehensive, nor does it constitute legal advice. Specific legal advice should always be sought before taking or refraining from taking any action.