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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):

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

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

The High Court judge found that BW were not negligent:

Mr Barker appealed on the grounds that:

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

Comment:

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.

Links: 

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

Disguised remuneration 

General Anti Abuse Rule (GAAR) 

Top tips: avoiding negligence claims

 


 

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