Northampton based chartered accountants Harris & Co highlighted a landmark Supreme Court judgment looks set to have a major impact on family trusts and pension schemes.
The outcome of the Pitt and Futter v HMRC cases ( UKSC 26 - on appeal from  EWCA Civ 197) has been closely followed by tax advisers following the launch of an appeal when HMRC won a significant 2011 victory when the Court of Appeal made it much harder for trustees to unwind decisions which turned out to have adverse tax consequences.
Stuart Pickford, partner and co-head of pensions litigation at law firm Mayer Brown, said yesterday’s key decision – where both cases were dismissed - ‘has been awaited with interest by trustees’ advisers and their insurers for obvious reasons’.
‘The fact that the Supreme Court has agreed with the Court of Appeal’s narrowing of the courts’ jurisdiction to declare trustees’ decisions invalid is unlikely to be welcomed by them. Interestingly, the Supreme Court reached this decision even though, unlike the Court of Appeal, it did not feel confident that trustees would be able to look to their advisers for redress. It expressly recognised that claims against advisers are by no means straightforward and an unforeseen consequence will not always translate into a good claim.’
‘Although these cases are concerned with tax liabilities for private trusts, the underlying principles are of much wider application, extending from small family trusts right through to major occupational pension schemes.’
But the Supreme Court’s decision on recission had still left a degree of uncertainty, as Pickford explains:
‘The debate on where the distinction lies between a transaction’s effect and its consequences when considering rescission on the grounds of mistake dates back over a century. Whilst the Supreme Court’s decision provides some further clarity on this issue, its view that each case must be considered with an intense focus on its facts means that trustees and their advisers will still have little certainty as to the circumstances in which rescission may be granted.’
‘However, trustees will welcome the fact that, given the Supreme Court’s decision to approve the Court of Appeal’s reformulation of the rules about when a trustee decision can be set aside, rescission on the grounds of mistake offers them a possible alternative means of correcting a decision which has had unforeseen results.’
As far as the Pitt case is concerned, Pickford said that Mrs Pitt – who had to deal with the damages claim following her husband’s catastrophic injury and the further litigation regarding the tax implications of how those damages were invested – will ‘no doubt be delighted to have resolved the issue without the prospect of further litigation against her tax advisers as the only possible remedy’.