Three siblings, orphaned after losing both their father and mother between 2010 and 2016, have won a High Court ruling which will protect £112,000 of their trust from the clutches of inheritance tax.
Following the death of her husband in 2010, Sally Elizabeth Alston set aside £250,000 in the form of a trust which would be passed on, tax free, to her three children upon her death.
However, in 2012, two years after the money was placed into a trust, Mrs Alston required some additional funds and looked to release some of the capital from her children’s trust.
After consulting a solicitor and tax expert, the money was released and the family continued thinking the remaining funds in the trust were protected in the same way they were in 2010.
Unfortunately, counsel from the solicitor and tax expert was factually inaccurate and the tax protections originally enforced when the trust was set up were lost when the trust was amended in 2012.
Furthermore, this error was not spotted until after Mrs Alston died in 2016 when her children were liable to pay £112,000 from the trust in inheritance tax.
During a recent High Court hearing, the presiding judge, Master Clarke, commented that “It would be unconscionable to leave the mistake uncorrected,” given the fact that Mrs Alston had consulted with the appropriate experts and should not be punished for poor advice offered on an extremely complicated tax system.
As a result, Master Clarke reversed the changes to the trust and overruled the inheritance tax liability that triggered as a consequence of the amendments made in 2012.
Rachael Griffin, of wealth advisers Quilter, said:
“In this case professionals took a misstep in this fiendishly complex system and the result was a tax bill of over a hundred thousand pounds.
“It is promising the courts are pragmatic about the complexity of the tax system and people get a fair hearing if they have the means to get in front of a judge to argue their case that the tax bill is undeserved.”
Will this decision open the floodgates for similar decisions which have left estates paying unexpected inheritance tax?
