Trustees Must Take Professional Tax Advice

If you act as a trustee it is important that you are aware of a recent decision increasing your exposure to risk and overturning the law for the first time in 40 years.

The rule in Hastings-Bass used to be a "get out of jail free" card for trustees who had made decisions with unwelcome and unexpected consequences and wished to reverse them. However, the Court of Appeal has now overturned the use of this rule which had been in place since the 1970s.

Trustees had become used to relying on the rule in Hastings-Bass to escape tax liabilities resulting from their unwise actions. In this recent case, however, the Revenue strongly objected, as they would be the ultimate losers if the applications succeeded.

The Court of Appeal refused to allow the trustees to reverse their decisions. The leading judge made it clear that if trustees have taken and relied upon professional tax advice which turns out to be wrong, then the trustees’ actions cannot be undone simply because the actions resulted in a surprise tax liability for the trust. The trustees and beneficiaries who have suffered a large tax bill must bring a claim against the tax advisers for their negligent advice. The Revenue must be allowed to keep their tax.

Trustees can now only rely on the rule in Hastings-Bass to pretend they never took actions in the first place if the beneficiaries successfully show that the trustees have acted in breach of trust by not taking appropriate advice. That means the trustees will still be personally liable to beneficiaries for potentially expensive legal costs even if they are able to claw the tax back from the Revenue under Hastings-Bass.

The best option for any sensible trustee is to take professional tax advice at the outset. Then at least the buck stops with the tax advisers.

For more information, please contact Andrew Goldstone +44 (0)207 440 7205 or by e-mail, or Tony Morton-Hooper +44 (0)207 440 7030 or by e-mail