|Guernsey Court Refuses to Void Mistake That Triggered Huge Tax Charge|
Guernsey's Royal Court has declined to set aside a pension fund trustee's decision to pay the beneficiary GBP1.4 million, though it was clearly a mistake that landed the beneficiary with a half-million-pound tax charge.
The beneficiary, Mr. Gresh, had obtained professional tax advice that a distribution to him from his RBC Guernsey pension fund would be tax-free provided that the distribution was not remitted to the UK. He thus requested a withdrawal of GBP1.4 million from the fund. It later transpired that his advice was wrong and the distribution was subject to a 40 percent income tax liability in the UK.
Using the Hastings-Bass doctrine of trustee mistake, as clarified by the UK Supreme Court in the 2013 cases of Pitt v Holt and Futter v HMRC (2013 UKSC 26), he applied to the Guernsey court to have the distribution set aside. The Pitt and Futter rulings restricted the scope of Hastings-Bass to cases where allowing the trustee's mistake to stand would be 'unconscionable' – that is clearly unjust or unfair.
The Pitt and Futter rulings are not binding in Guernsey; they are, however, highly persuasive.
In the event, the court decided to leave the mistake unrectified, largely because only one beneficiary was affected by it. 'By contrast, in other cases of this nature where relief has been granted by the courts, including Pitt v Holt, there have been multiple parties, such as family members, whose interests were also affected', commented law firm Collas Crill. The Guernsey court found that it was not unconscionable that Gresh should have to retain the proceeds of the distribution made by the trustee to him (Gresh v RBC Trust Company and HMRC).
Collas Crill contrasts the Gresh case with the Jersey case of S Trust and T Trust (2015 JRC 259), where the Jersey Royal Court did agree to rectify the trustee's mistake. In any case, Jersey has amended its trust law to neutralise the effect of the Pitt and Futter decisions.
Gresh may yet appeal the Guernsey Royal Court's decision.
The opinions expressed do not constitute investment advice and specialist advice should be sought about your specific circumstances.
Published on our website on Mar.15, 2016