Hassans announces a new legal precedent for setting Gibraltar trusts aside on the grounds of a mistake

Hassans International Law Firm has announced that a judgment on the 20th March 2015 from the Supreme Court of Gibraltar has established a legal precedent for setting Gibraltar trusts aside on the grounds of mistake.

The Claimants sought to persuade the Court that their Gibraltar Trust should be set aside on the basis that they entered into the Deed of Settlement on the 26th September 2003, following a mistake relying on statements made by the First Defendant, and that this had resulted in an unnecessary tax liability being incurred. The First Defendant was a financial institution in Gibraltar and the Channel Islands which offer private banking, wealth management and professional trustee services and had been trustees of the Trust.

Whilst the First Defendant admitted that the Claimants had entered into the Deed of Settlement with a mistaken understanding of the relevant tax implications, the Defendants denied that they had acted in any advisory capacity in matters of United Kingdom inheritance tax or matters of taxation generally.

The Court, upon hearing all of the evidence, determined that it found it hard to believe that professional trustees could establish a trust for its clients without first carrying out the relevant discussions with either the clients themselves or their advisors.

Furthermore, the Court was persuaded that a significant tax liability had been incurred as a result of a discretionary trust being settled rather than an interest in possession trust. The judgment of the court was that it would be unjust to leave the mistake uncorrected and that the appropriate relief would be for the Deed of Settlement to be set aside. It explained that the circumstances of this case were such that if the Trust was not set aside its underlying assets would effectively be taxed twice. The Court went on to note that the Trust had been a legitimate way to mitigate tax given the Claimant’s circumstances rather than being an artificial tax avoidance arrangement. The Court also ordered that the First Defendant pay all of the Claimants’ legal costs. Daniel Feetham, Partner at Hassans and a specialist in commercial and trust litigation, acted on behalf of the Claimants (the Settlors of the Gibraltar Trust).

Angela White, Tax Consultant at Hassans, who also provided evidence on behalf of the claimants, commented on the precedent stating:

“In light of the judgment, Hassans’ wishes to take this opportunity to impress on its clients the importance of obtaining suitable tax advice before entering into a Deed of Settlement, and that should they have any concerns in respect of any existing trusts or settlements, they should contact a member of Hassans’ highly experienced Tax & Overseas Property Team.”