Analysis
By his will the deceased, who died in November 2010, left his estate as to one half to his widow. She, by a deed of variation complying with s142 Inheritance Tax Act 1984 ( ‘IHTA ‘) ,varied the will in order to settle her half share on a discretionary trust of which the beneficiaries were herself, her children and remoter issue. The trust included a power of appointment in favour of the beneficiaries.
In 2012, the widow was in need of additional income. The trustees proposed making an appointment to the widow giving her an irrevocable life interest in the trust fund. The trustees were advised that so long as the appointment did not contain a statement that it was intended to be subject to s142(2) IHTA, the appointment would not cause the fund to be treated as part of her chargeable estate upon her death for the purposes of inheritance tax. Accordingly, the appointment was made in April 2012.
However, because the appointment was made within two years of the testator ‘s death, it was to be treated as giving rise to an immediate post-death interest, pursuant to s144(3)
IHTA.
The widow died in 2016. The trustees accepted that the effect of s144(3) was that inheritance tax was chargeable on the value of the appointed fund, in the sum of approximately £112,000.
The trustees applied to rescind the appointment on the grounds of mistake. HMRC declined to be joined to the proceedings.
The issue before the court was whether there was a mistake of the relevant kind, and whether the court should exercise its discretion.
Held
- 1) The trustees had made a mistake. They had been mis-advised, which resulted in their exercising their power of appointment on a mistaken basis. This was not a mistake as to the character of the transaction, but one which went to the core of the deed of appointment, since the trust existed solely to cause the property to fall outside the widow ‘s estate for inheritance tax purposes.
- 2) The mistake was also serious; it gave rise to an unintended and avoidable tax liability of £112,000 and completely negated the effect of the deed of variation.
Judgment accordingly.
Comment: This judgment appears to consider the 2012 appointment – made pursuant to the trustees ‘ discretionary powers – as a voluntary disposition. It is clear from Pitt v Holt [2013] 2 AC 108 that whereas voluntary dispositions may be set aside on the ground of mistake as detailed in the judgment, exercises of trustees ‘ fiduciary powers may only be set aside where the trustees have acted in breach of duty, and not where they have competently relied upon mistaken advice. No explanation is given in the judgment for treating the 2012 appointment as falling within the first, rather than the second, category.
JUDGMENT MASTER CLARK: [1] This is a part 8 claim seeking to rescind, on the grounds of mistake, a deed of appointment dated 6 April 2012 (“the DoA”) in favour of Sally Elizabeth Alston, who died on 8 November 2016. Parties and the background [2] The claimants are the trustees of a discretionary settlement created …Continue reading "Payne & anr v Tyler & anr [2019] WTLR 1221"