In re R - The Waking Of Leviathan

The former Bailiff of Jersey, Sir Philip Bailhache has recently delivered a judgment in In re R [2011] JRC 117 which declines to follow the English Court of Appeal's test for mistake established in Pitt v Holt¹. The judgment has significant implications for the future of mistake applications for settlors trying to avoid adverse tax consequences from negligent tax advice. The judgment may also mean that HMRC are afforded only a pyrrhic victory from the decision in Pitt v Holt.

The facts

The facts of R were not unusual in mistake applications. On the basis of tax advice the settlor had transferred to B Limited, a Jersey company, shares in a French company. B Limited in its capacity as trustee settled the shares on trust. The beneficiaries were the settlor's children and grandchildren and any future issue. At the time of the transfer the settlor was domiciled in England and as a result significant IHT arose in the sum of £1,943,689. Rather unusually the IHT charge was