Summary

The claimants were entitled to have a reversionary lease set aside since they executed it under a serious mistake as to its legal effect which gave rise to an equity to set it aside.

Facts

The claimants (W), who were husband and wife, applied to set aside a reversionary lease granted by them to their two daughters as part of an inheritance tax saving scheme, applied for a declaration as to whether that lease was held on the trusts of a certain settlement, and, so far as necessary, applied for an order setting aside that settlement. The applications were made on the basis that the transactions were voluntary ones of which W had had insufficient understanding or that they laboured under a serious mistake as to their effect. W owned a property in London. They were introduced to a solicitor (K) who had implemented an inheritance tax saving scheme for a friend. They were warned that the scheme might not work. The scheme involved a reversionary lease of the house in favour of the two daughters. The scheme documents executed by W were a 1997 lease for a term of 125 years starting in June 2017 at a yearly peppercorn rent (if demanded) and a trust deed which proceeded on the basis that the lease had been transferred to the settlement by W when in fact it had been granted to the daughters. W subsequently came to appreciate that from June 2017 they would have no right to stay in the house and would be at the mercy of their daughters or their successors in title to the lease. If the daughters allowed them to stay on free of charge then the tax implications would be likely to deprive the scheme of its inheritance tax saving features since W would be receiving a benefit. W claimed that they did not understand the effect of the lease and that it was not fully explained to them by K. Further that they would not have entered into the lease if they had been aware of the implications. W's application to set aside the lease and, if necessary, the trust deed was not opposed by the trustees or children.

Held

(1) When they entered into the lease W did not know that the effect of the lease was to deprive them of their right to occupy the property in 2017. They would not have entered into the transaction if its effect on their rights of residence had been pointed out to them. (2) The trust deed was manifestly defective and did not coincide with W's intentions since it gave the daughters interests in income only and W intended them to have access to capital. W would not have entered into a scheme which did not provide for that. (3) W intended to give away an interest to their daughters but there were limits to that gift. It was to take effect in the future and was not to deprive them of the rights of occupation they had enjoyed hitherto. They made a significant mistake as to the legal effect of the lease and were entitled to have it set aside, Gibbon v Mitchell & Ors (1990) 1 WLR 1304 applied. (Obiter) the setting aside of the lease meant that there was no asset in the trust. If necessary the trust deed would have been set aside for the same reason as the lease. In any event there was no real prospect of establishing that the lease was held for the trust as a trust asset.

Applications granted.