Guernsey’s Royal Court reversed the blunder by Margaret Whittaker’s advisers to place shares in a “fundamentally flawed” tax-planning structure (Whittaker v Concept Fiduciaries Ltd, Guernsey Judgment 15/2017).
Inspired her own weight loss, Margaret Whittaker nee Miles-Bramwell founded Slimming World in Derbyshire in 1969 making her millions.
In 2008, the successful business woman took, what turned out to be, bad advice to transfer her shares in her companies into Guernsey remuneration trusts designed to cut her tax exposure.
Later, after hiring new advisers, they told her the earlier advice would in fact have severe tax implications.
As a result she applied to have earlier decision reversed or ‘set aside’ on the basis it was a mistake under the Trusts (Guernsey) Law 2007.
Complications
The case was complicated by the fact that the companies were incorporated in England, so the applicable law of mistake was of England and Wales.
The case followed the precedent set by among others Pitt v Holt.
In that and this case the court agreed the advisers acted ‘without due deliberation’ and ultimately decided that the Slimming World transfers could indeed be reversed.
The Crux
An important aspect of the case is the relevance of tax avoidance as a motive for rectifying mistakes.
Courts have indicated, following tough legislation into tax avoiders, that schemes might not be granted reversals on the basis they were mistakes if the scheme is deemed to be aggresively avoiding tax.
Implications
However, the Slimming World case implies that tax avoidance is not of itself a reason to refuse to set aside a transfer on the grounds of mistake.
The Royal Court distinguished the Slimming World arrangement from ‘artificial tax avoidance transactions’, which it said may justify refusal to grant the relief.
“The lieutenant bailiff (judge) noted that here there was a genuine transfer of the shares into the trusts, with a genuine trustee, following a remuneration trust structure that has been adopted by many businesses similar to Slimming World,” said Chris Duncan and Iona Mitchell of Mourant Ozannes, who have published a note on the case.
“The transfer had been made on the basis of incorrect professional advice, would not have been carried out had the applicant known the true position, and, if uncorrected, would have meant that the applicant had divested herself of her controlling shareholding in her companies for non-existent tax advantages.”
