In Barker v Baxendale Walker Solicitors (a firm) & Ors [2017] EWCA Civ 2056 the Court of Appeal found that the solicitors advising on an EBT structure were negligent in not warning their clients that the scheme could fail.

Baxendale Walker (BW) were the advisers in the Rangers case which involved an Employee Benefit Trust (EBT) structure to avoid income tax and NICs; here however the use of an EBT was designed to avoid capital gains tax and inheritance tax.

Transfers of shares to an EBT which meet the conditions at s86 IHTA 1984 can be IHT exempt under s28 IHTA 1984, however the trust must exclude (from benefitting from the trust):

  • The settlor where they are a participator in the company and
  • Any persons connected with him, such as family members and
  • This includes where connected persons are able to benefit after the settlor’s death (described in the case as the “post death exclusion construction”).  

Mr Barker was the majority shareholder in a private group of companies:

  • He was looking to sell the group and wanted to mitigate CGT and IHT.
  • After taking advice from BW he transferred his shares to an offshore EBT prior to sale.
  • The EBT excluded him and his wife and their children from benefitting during Mr and Mrs Barkers lives, but allowed the children and remoter descendants to benefit after their deaths.

HMRC issued assessments and challenged the validity of the EBT scheme on the basis of the post-death exclusion construction.

  • Mr Barker settled with HMRC paying over £11m in tax and interest.
  • He took steps to unravel the scheme and sought damages in negligence against  BW claiming:
  • BW should have specifically warned him of the risks that their interpretation of s28 could be incorrect and as a result the scheme could fail.  

The High Court judge found that BW were not negligent:

  • They had not failed any duty of care to provide a specific warning of the risk of the scheme failing.
  • Any careful and competent solicitor of appropriate expertise would not have given a specific warning.
  • They should have given a “general health warning” about the risks of implementing a tax avoidance scheme, and were in breach of duty for failing to do so but this would not have deterred Mr Barker and therefore this breach was not the cause of any loss.
  • He was in agreement with BW’s interpretation of s28 (which was contrary to HMRC’s).

Mr Barker appealed on the grounds that:

  • The judge was wrong to conclude that BW did not act in breach of their duty by failing to give a specific warning.
  • He placed too much reliance on HMRC’s GAAR guidance regarding the intention of the s28 exemption to support his decision.

The court of appeal overturned the High Court decision and upheld Mr Barkers appeal finding:

  • HMRC’s construction of s28 was very likely correct and the high court judge’s contrary view had affected his decision.
  • The GAAR guidance was of little help to determine whether there was a substantial risk in the circumstances here.


It’s unusual for the courts to find in favour of taxpayers implementing tax avoidance schemes, but in this case the court was able to agree with HMRC and at the same time uphold the taxpayers appeal. It is a reminder to advisers to spell out specific risks to their clients where aggressive planning is being entered into; in this case a blanket health warning simply wasn’t enough.

UPDATE: The Supreme Court has refused permission to appeal this case.


Barker v Baxendale Walker Solicitors (a firm) & Ors [2017] EWCA Civ 2056

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General Anti Abuse Rule (GAAR) 

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