Settlement set aside for mistake despite HMRC opposition

Clare Stanley QC acted for the claimant in a successful application to set aside a settlement on the grounds of equitable mistake.  Judith Bryant and Jonathan Davey represented the beneficiaries of the settlement in supporting the application.

The mistake made by the claimant in creating the settlement was that she did not appreciate that there would be charges to inheritance tax associated with the settlement, and that as a consequence of those charges she would be unable to repay a loan made to her by her father as had been agreed.  HMRC argued that the claimant’s mistake was not sufficient to set aside the settlement because it arose from ignorance of the tax position rather than any conscious belief, or tacit assumption in relation to the tax consequences.  HMRC also argued that the mistake was not sufficiently serious to justify setting aside the settlement.

Proudman J reviewed the law on mistake, and the decision in Pitt v Holt in particular, and decided that the claimant had made a distinct and serious mistake and that, taking the matter in the round, it would be unconscionable for the donees to profit from that mistake and insist on their rights under the settlement.