Settled property — Interest in possession — Scheme created to save inheritance tax — Reversionary lease and settlement in favour of children and remoter issue — Mistake as to effect of lease and settlement — Whether lease should be set aside for mistake — Application granted
The claimants were the freeholders of a house. As part of an inheritance tax-saving scheme, they created a reversionary lease of the property in favour of the first and second defendants, their two daughters, for a term of 125 years from in June 2017. They also entered into a trust deed purporting to create a settlement in favour of their daughters.
The claimants subsequently contended that they did not know that the lease would deprive them of their right to occupy the property ias from July 2017. Moreover, they had not intended that their daughters should have interest in income only, which was the effect of the settlement. They had intended them to have access to capital, which the trust deed did not give them.
The claimants applied, inter alia, to set aside the reversionary lease. The basis of their application was that they had had insufficient understanding of the consequences of the voluntary transactions or, alternatively, that they had laboured under a serious mistake as to their effect. The defendants did not seek to defend the action.
Held: The application was granted.
The lease fell to be set aside since the claimants had entered into it as voluntary settlors under a mistake as to its effect, namely that the lease did not affect their right to live in the house for as long as they wished, and that the settlement gave the daughters an interest in capital.
In the case of a voluntary transaction whereby one party intended to confer a bounty on another, the deed would be set aside if the court was satisfied that the disponor did not intend the transaction to have the effect that it did. A transaction would be set aside for mistake whether it was a mistake of law or of fact, so long as the mistake concerned the effect of the transaction and not merely its consequences or the advantages to be gained by entering into it: Gibbon v Mitchell [1990] 1 WLR 1304 applied; AMP (UK) plc v Barker [2001] Pens LR 77 considered.
In the present case, the claimants’ mistake fell on the right side of the line. It was a significant mistake as to the legal effects of the transaction and it was sufficiently serious to give rise to the equity of setting it aside.
David Brownbill (instructed by Bircham Dyson Bell) appeared for the claimants; Michael Nield (instructed by Bircham Dyson Bell) appeared for the fourth to sixth defendants (by their litigation friends).
Eileen O’Grady, barrister
