Damages claim for negligent IHT advice in 2009 not time-barred, says High Court

A claim for damages against a firm for negligent tax advice relating to inheritance tax (IHT) in 2009 is not time-barred, the England and Wales High Court has ruled.

Stephane Etroy, a non-domiciled UK resident, has brought the claim alongside a trust and company service provider from Jersey, RBC Trust Company (Jersey) Ltd, against Speechly Bircham LLP.

Etroy set up a Jersey interest-in-possession trust in 2002 to hold assets over £1 million in value under the excluded property for inheritance tax (IHT) regime.

With non-domiciled residents expected to be brought closer to the UK’s own tax regime by 2009 and the Finance Act 2006 having altered the tax regime for trusts, Etroy sought advice from Speechly Bircham on the creation of a new discretionary trust into which his interests could be transferred while still non-domiciled.

This would’ve avoided his interest in possession stemming from the Jersey trust being affected if he became UK-domiciled and therefore becoming subject to inheritance tax on his or his wife’s demise.

Etroy subsequently transferred the assets into a discretionary trust in the Cayman Islands jurisdiction with RBC as the trustee.

However, the advice did not account for the fact that the Jersey trust held UK-situs assets that would be liable for IHT. Upon consulting their tax accountants, Etroy and RBC found they were indeed liable for over £1 million in IHT under sections 1 and 64 of the Inheritance Act 1984.

The claim

Along with RBC, Etroy claimed professional negligence against Speechly Bircham as well as claiming legal costs exceeding £500,000, which included fees they originally paid to the firm. Crucially, however, this claim was not issued until My 2021 upon the completion of the accountancy firm’s investigations.

Speechly Bircham admitted a breach of its duty to Etroy in failing to consider the UK-situs assets and the resulting IHT charges. However, they insisted the claim would be time-barred because the negligence occurred more than six years prior.

Claimants Etroy and RBC maintained the breach was not time-barred the Limitation Act 1980 starts the six-year clock at “the earliest date on which the plaintiff […] had the knowledge required for bringing his action”, which they represented as being 28th September 2018.

Though the claimants were aware of the IHT charges over a year before this date, deputy High Court judge Clare Ambrose said in Etroy & Anor v Speechly Bircham LLP [2023] EWHC 386 (Ch) the claimants’ knowledge “fell short of what would have justified them taking legal advice and embarking on the preliminaries to making a claim, including sending a letter before action”.

It was therefore concluded that sufficient knowledge was not obtained until September 2018 when the accountants said an IHT charge following the firm’s advice was likely. It was therefore ruled that the claim could go ahead.

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