Trusts and Estates

Setting aside tax avoidance schemes

Bhaur v Equity First Trustees [2023] EWCA Civ 534

In Pitt v Holt [2013] UKSC 26, the Supreme Court confirmed that where a settlor is mistaken as to the tax consequences of their trust, it is open to a court to relieve the settlor of their mistake by setting aside the trust. Trusts exist in a complex tax environment, and it is relatively easy for a settlor to trigger an unforeseen Inheritance Tax (IHT) or Capital Gains Tax (CGT) charge. It would be unjust to refuse relief in all such cases simply because the mistake relates to the fiscal consequences of the trust. As such, tax mistakes can be remedied by rescission of the trust on the grounds of "equitable mistake". However, in giving his judgment in the case, Lord Walker warned, at para 135, that there may be other cases involving tax avoidance schemes where it would be inappropriate for the court to assist a settlor:

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