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Less Tax For Landlords: Mistake and the Unintended Tax Consequences

Since November 2023, Elysium Law have been taking enquiries from current/former Less Tax for Landlords clients.

We have previously canvassed the idea of bringing an action under CPR Part 8 for equitable mistake. However, given HMRC’s prevarication, this action has not previously been open to LT4L Clients.

HMRC have now announced that the Letter of Trust which transferred the beneficial interest to the corporate partner in the LLP had Stamp Duty Land Tax liability.  

As a result, landlords that have implemented Less Tax For Landlords’ planning (including those who implemented the planning via Chris Bailey directly) are facing significant and unintended tax consequences.

This will potentially give rise to a claim in professional negligence, but the priority must be to mitigate the losses. One option available is an application to the Court to set aside the arrangements on the grounds of mistake.

We have been approached by a large number of LT4L victims to advise, together with Tax Counsel as to the prospects of bringing this claim.

Should you be the victim of unintended tax consequences, the equitable doctrine of mistake may be open to you

In Bhaur and others v Equity First Trustees (Nevis) Ltd and others [2023] EWCA Civ 53 (Bhaur) the Court of Appeal provided helpful guidance on when a court will set aside a transaction and  unwind adverse tax consequences. In summary, this was a tax avoidance scheme using the (abusive) EBT arrangements, to avoid IHT which the court refused to unwind. In this case the presentation of the trust to HMRC was dishonest and was tantamount to tax evasion.

Having lost in the High Court, the Appellants first ground of appeal was that the Judge should have allowed the transaction to be unwound in that the Appellants belief that they would incur no tax consequences was not a misprediction, but a mistake.

The first instance Judgment contains an extended analysis of the law on the setting aside of voluntary dispositions for mistake. The leading authority in the area is the decision of the Supreme Court in Pitt v Holt [2013] 2 AC 108.

In Pitt v Holt, at [103], Lord Walker adopted, the approach of Lloyd LJ in the Court of Appeal ([2011] EWCA Civ 197 at [210]-[211]), setting down three principles which would lay the groundwork for the exercise of the equitable jurisdiction to set aside a voluntary disposition, namely;

  1. A mistake, which is;
  2. Of the relevant type; and
  3. Is sufficiently serious so as to render it unjust or unconscionable on the part of the donee to retain the property given to him.

Misprediction or Mistake – the difference

Misprediction

In Pitt v Holt the Court said a misprediction relates to some possible future event, whereas a legally significant mistake normally relates to some past or present matter of fact or law.

In Dextra Bank & Trust v Bank of Jamaica[2001] UKPC 50[2002] 1 All ER (Comm) 193 at [29], the court said “… to act on the basis of a prediction is to accept the risk of disappointment. If you then complain of having been mistaken you are merely asking to be relieved of a risk knowingly run …”

Mistake

This is a different consideration. The courts and lawyers generally deal with mistakes as to the consequences of a transaction.

For many years, a distinction was drawn between a mistake as to the effect of a transaction and its consequences. However, the modern approach is that providing the court is satisfied that there is a causative mistake of sufficient gravity; and as additional guidance to judges in finding and evaluating the facts of any particular case, that the test will normally be satisfied only when there is a mistake either as to the legal character or nature of a transaction, or as to some matter of fact or law which is basic to the transaction.

The gravity of the causative mistake is relevant to an assessment of injustice or unconscionability. The court said that the injustice (or unconscionability) of leaving a mistaken disposition uncorrected must be evaluated objectively, but with an “intense focus” on the facts of the case including the circumstances of the mistake and its consequences for the person who made the disposition.

An evaluation – what are the merits of the case?

The court will look at the surrounding circumstances and the (in) justice done to the person making the disposition. The doctrine of mistake applies to unintended tax consequences. In Pitt, the court rejected any suggestion that mistake could not apply to tax issues. However, the court added the following when referring to previous cases and in particular Futter v Futter where the doctrine of mistake was not raised by the (Plaintiff). Lord Walker in Pitt said;

“Had mistake been raised in Futter v Futter there would have been an issue of some importance as to whether the court should assist in extricating claimants from a tax avoidance scheme which had gone wrong. The scheme adopted by Mr Futter was by no means at the extreme of artificiality (compare for instance, that in Abacus Trust Co (Isle of Man) v NSPCC [2001] STC 1344) but it was hardly an exercise in good citizenship. In some cases of artificial tax avoidance, the court might think it right to refuse relief…”

Why you need advice on the scheme

Lawyers and students alike will recognise the maxim ‘He who seeks Equity must do Equity’, but effectively any refusal now is based on public policy consideration. An example of this can be found in the case Dukeries Healthcare Limited v Bay Trust International Limited [2021] EWHC 2086 (Ch), with Deputy Master Marsh holding that, whilst the doctrine of mistake applied, it was refused nevertheless on the grounds that the whole transaction amounted to an artificial tax avoidance scheme.

Anyone affected needs independent advice, considering the degree of risk and any artificiality of the scheme, given that unintended tax consequences are an issue. This should be advised upon by an independent law firm such as Elysium Law and will involve review of the documentation, any advice provided to the Claimant at the time and what it was that was that the Claimant hoped would be achieved.

Should you be the victim of unintended tax consequences, the equitable doctrine of mistake may be open to you.

Elysium Law have been approached by a large number of LT4L victims to advise, together with Tax Counsel as to the prospects of bringing this claim.

For further advice, or if you wish to join the group, please contact us at Elysium-law

Keeping your business running in the face of a winding up petition: Validation Orders in Compulsory Liquidation

Introduction

A validation order is a court order that approves transactions made by a company after a winding-up petition has been filed against it.

In this article, we discuss the purpose of these orders, why they are necessary, the application process, and the potential risks for businesses and directors if they fail to obtain validation orders where necessary.

This article draws upon our recent experience attending upon a client at the Rolls Building to obtain a validation order to allow the payment of a debt to the creditor following company bank accounts being frozen.

What is Compulsory Liquidation?

Compulsory liquidation is a court-ordered process that results in the winding up of a company, meaning business must cease and the company assets are distributed to its creditors. This process is governed by the Insolvency Act 1986.

Various parties, including creditors, shareholders, and even the company itself, can petition the court for a compulsory winding-up order.

Once the winding-up petition is presented to the court, the company’s assets are frozen, and either the Official Receiver (an officer of the court) or an insolvency practitioner appointed by the court as liquidator takes control of the company’s affairs.

The company effectively loses the ability to conduct business, any transactions undertaken require scrutiny and, in most cases, court approval.

The Role of Validation Orders in Compulsory Liquidation

Section 127 of the Insolvency Act 1986 sets out that:

(1) In a winding up by the court, any disposition of the company’s property, and any transfer of shares, or alteration in the status of the company’s members, made after the commencement of the winding up is, unless the court otherwise orders, void

This section effectively creates a freeze on the company’s ability to freely dispose of its assets or enter into certain transactions.

A transaction will not be void under section 127(1) of the Insolvency Act 1986 if the court makes an order validating the transaction. Validation orders are therefore the process by which court approval is obtained for necessary transactions that a company enters into after a winding-up petition has been filed against it.

Without a validation order, transactions conducted after the filing of a winding-up are void unless the court orders otherwise, meaning they are unenforceable and the parties involved may need to reverse the transaction.

The main reason behind the requirement to obtain court approval is to protect the interests of all creditors by preventing the dissipation or unfair distribution of company assets once a winding-up petition is on the table.

A validation order may either validate a disposition as part of a specific transaction such as the sale of a particular asset or payment of a particular debt, or alternatively permit a particular type of disposition, such as all dispositions by the company in the ordinary course of its business.

When Are Validation Orders Required?

It is vital to understand that once a winding-up petition is filed, virtually all transactions the company wishes to undertake require validation by the court – even if the transaction was initiated or agreed upon before the petition was filed but completed afterward.

In theory, it is not necessary for a liquidator to apply to court for a declaration that a transaction has been made void by the operation of section 127 of the Insolvency Act 1986. A transaction within the scope of section 127 of the Insolvency Act 1986 will be automatically void unless the court orders otherwise – making obtaining a validation order a vital step.

Some examples of circumstances that typically necessitate a validation order are:

  • Selling major assets – including property, significant stock holdings, or any asset that represents a substantial portion of the company’s value.
  • Paying debts –  as keeping the company operational may require paying wages, utility bills, rent, or other essential expenses. Any payment to a creditor, even if it was due before the petition, needs court approval to ensure equitable treatment of all creditors.
  • Continuing essential business operations – a validation order may be required to authorise limited ongoing operations that are necessary for the winding-up process or beneficial to maximize the value of the company’s assets.

The Application Process

The procedure on an application for a validation order is set out in the Practice Direction on Insolvency Proceedings at Paragraph 9.11.

First, you must gather the necessary information and evidence to support the application. This should demonstrate the need for the transaction, information as to the company’s financial position in order to assess solvency, the benefit the transaction provides to the company (and potentially creditors) and its compliance with the overall objectives of the winding-up process.

Paragraph 9.11.2 of the Practice Direction sets out that:

Save in exceptional circumstances, notice of the making of the application should be given to: (a) the petitioning creditor; (b) any person entitled to receive a copy of the petition pursuant to rule 7.9; (c) any creditor who has given notice to the petitioner of their intention to appear on the hearing of the petition pursuant to rule 7.14; and (d) any creditor who has been substituted as petitioner pursuant to rule 7.17. Failure to do so is likely to lead to an adjournment of the application or dismissal.

The Court Hearing

The application for a validation order is typically heard at the Court dealing with the winding up petition. At the hearing, the applicant (via their legal representative) must present their case and justify the need for the validation order.

The court will consider the evidence presented and may:

  • Grant the order: approving the transaction and allowing it to proceed;
  • Refuse the order: denying the transaction; or
  • Modify the order: such as approving the transaction with specific conditions.

What factors the Court considers when granting a Validation Order

When deciding whether to grant a validation order, the court considers the following factors:

  • Benefit to creditors: The court must protect creditors’ interests. The court will assess whether the proposed transaction will benefit creditors or, at the very least, not cause them prejudice.
  • Company solvency: The court considers the company’s financial position, whether it is able to pay its debts as they fall due or alternatively whether the transaction will further deteriorate its solvency.
  • Nature of the transaction: The court will look at whether the transaction is part of the company’s ordinary business operations or a special deal that may benefit certain parties over others.
  • Prejudice to creditors: The court must ensure that the transaction does not unfairly prefer one creditor over another, upholding the principle of pari passu distribution of assets.
  • Case law: The court will consider existing case law on validation orders to ensure consistency and fairness in its decision-making process.

Risks if you do not obtain a Validation Order

When a company has gone into compulsory liquidation, the liquidator may seek to recover any property that was the subject of a void disposition under section 127(1) of the Insolvency Act 1986

Conducting transactions without obtaining a necessary validation order is therefore risky and can lead to the following:

  • Transactions voided: the transaction is automatically void, requiring the unwinding of the transaction. A third party may therefore insist on a validation order to prevent the receipt of property subsequently being void.
  • Challenges by creditors: Creditors can challenge unauthorised transactions, leading to further disputes and delays in the liquidation process.
  • Personal liability for directors: Directors who authorise or participate in transactions without securing a validation order may face personal liability for breaching their fiduciary duties to the company and its creditors.

Why seek representation?

Given the complexity and potential risk associated with validation orders, seeking professional legal advice is strongly recommended.

Elysium Law can assist you with the following:

  • Preparing evidence that supports the need for the validation order and demonstrates that the transaction is in the best interests of the company and its creditors.
  • Advising on procedure and ensuring compliance with all relevant rules and regulations.
  • Representing the company in court hearings and addressing any challenges from creditors or other stakeholders.
  • Liaising with liquidators and negotiating on behalf of the company.

Conclusion

Validation orders play a critical role in the administration of companies facing compulsory liquidation as they provide a mechanism for companies to conduct necessary transactions while protecting the interests of creditors and ensuring the orderly winding up of the company’s affairs.

It is vital that companies and their directors understand the significance of validation orders and seek professional legal advice when facing a winding-up petition.

Failure to obtain necessary validation orders can lead to severe legal and financial consequences, including rendering transactions void and potential personal liability for directors.

If your business is facing a winding-up petition or you require guidance on validation orders, CONTACT our team today for a free consultation to discuss your specific circumstances and see how we may assist.

Churchill v Merthyr Tydfil: the Court’s Power to Order ADR

The recent Court of Appeal decision in Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416 has had a profound impact on litigators, given the Court now has the power to compel parties to engage in Alternative Dispute Resolution (ADR).

In this article Ruby Keeler-Williams looks at the background of the matter, considers the decision and looks at the implications going forward.

Background

The case involved a property dispute between Mr Churchill, the Claimant, and Merthyr Tydfil County Borough Council, the Defendant. Mr. Churchill alleged that Japanese knotweed had spread from the Council’s land onto his property, causing damage and diminishing its value. He initiated a nuisance claim against the Council.

However, the Council countered that Mr. Churchill was obligated to make use of their internal complaints procedure before pursuing litigation. They sought a stay of proceedings, aiming to enforce use of this process.

Initial Decision and Appeal

In the first instance, the judge dismissed the Council’s stay application, citing Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576, in which it was suggested that the court compelling ADR could obstruct a party’s right to access the court system. However, this decision was successfully appealed by the Council.

The Court clarified that the relevant passage from Halsey which stated that compelling ADR would impose ‘an unacceptable obstruction on their right of access to the court’ was, according to the Court of Appeal, not a ‘necessary step’ in Lord Justice Dyson’s conclusion and therefore was ‘obiter’ and not binding. This was because the issue of whether or not the court had the power to compel ADR was only raised in Halsey during oral argument.

The court went on to clarify that Dyson LJ, in Halsey, was primarily focused on providing guidance on how to assess whether a party acted unreasonably in refusing ADR in the context of a costs order, rather than definitively ruling on the court’s power to mandate ADR

Court can Direct Parties

It was subsequently decided that the Court possesses the power to order parties to engage in ADR, including issuing a stay of proceedings to facilitate such processes.

This authority stemmed from CPR Part 1 and in particular:

  • CPR 1.4(1) – which sets out the Court’s duty to “further the overriding objective by actively managing cases”
  • CPR 1.4(2)(3) – which set out that the Court’s active case management included encouraging parties to use ADR if the court considers that ‘appropriate’

The Court’s decision is in keeping with the broader objectives of the Civil Procedure Rules (CPR) and the overriding objective to ensure cases are dealt with justly and at proportionate cost.

In encouraging ADR, the Court is achieving these aims by offering litigants a potentially faster and less expensive alternative to traditional court proceedings.

The Right to a Fair Trial

It is important to note that the Court’s power to compel ADR is not an absolute power. Any order for ADR must respect a party’s right to a fair trial under Article 6 of the European Convention on Human Rights (ECHR).

The precedents considered in coming to this decision included: Ashingdane v United Kingdom, Tolstoy Miloslavsky v United Kingdom and Momcilovic and others v Croatia.

The Court stressed that any limitation on the right to trial must:

  • Not impair the essence of the right to a fair trial, meaning the ADR process should not unfairly disadvantage or prejudice any party.
  • Pursue a legitimate aim, meaning the decision to order ADR must be driven by a valid objective, such as promoting a fair, efficient, and cost-effective resolution.
  • Be proportionate, meaning the benefits of ordering ADR, such as the potential for settlement, must outweigh any potential drawbacks, such as delays or costs.

This approach demonstrates that the Court is under a duty to exercise its authority judiciously.

Broader Implications

Despite Churchill being focussed on the Council’s internal complaints procedure, the decision has much broader implications.

The judgment suggests that courts could order stays for various forms of ADR, such as mediation, early neutral evaluation, or even informal negotiation, as long as the chosen process holds the potential to resolve the dispute.

This reflects the Courts’ growing recognition of the benefits of a move away from a rigid, adversarial approach to litigation towards a more flexible and solution-oriented system.

Practical Guidance for Litigators

Following this decision, litigators need to adopt a more strategic approach to ADR at a pre-action stage.

My recommendations are as follows:

  • Consider ADR Early – Litigators should advise their clients to explore ADR options before filing proceedings. This should include a consideration of the different ADR methods possible, including any relevant internal complaints procedures where applicable.
  • Have a robust explanation if you choose to refuse ADR – If your client chooses to refuse ADR, you must be prepared to provide the court with compelling reasons, as such decisions will be scrutinised, especially when parties are legally represented or there is a discrepancy in the parties respective resources.
  • Understand that the Court does have a discretion – The application of this decision will be fact dependant. The Court will consider factors such as the nature of the dispute, the stage of the litigation, the parties’ conduct, and the specific method of ADR proposed.

Conclusion

Churchill v Merthyr Tydfil County Borough Council signifies a potential turning point, as the Court of Appeal’s decision signals a clear shift toward the Court’s promoting ADR.

If you would like more information regarding ADR, have a dispute you’d like advice upon, or wish to book Richard Gray, our qualified mediator, please contact us.

Professional Indemnity Insurance in Professional Negligence Claims

Introduction

Professional indemnity insurance (PII) is a type of liability insurance held by professionals, which covers them in relation to negligent acts or omissions.

For Claimants, the existence of PII can be the difference between a successful financial recovery and a pyrrhic victory, as without PII the professional may lack the resources to personally satisfy the judgment.

In this article I will set out the importance of PII in professional negligence claims, examining how it influences the litigation process, impacts settlements, and what Claimants should be aware of when dealing with insured professionals.

What is Professional Indemnity Insurance?

Professional indemnity insurance is a type of liability insurance designed to protect professionals against claims made by their Clients for damages arising from any negligent acts, errors, or omissions. This insurance is particularly important in professions where mistakes can lead to significant financial loss for clients, such as law or accounting.

In many professions, PII is a regulatory requirement. Solicitors in England and Wales must maintain a minimum level of PII under the SRA Indemnity Insurance Rules. At the time of writing, these limits are at least £3 million where the insured firm is a relevant recognised body or a relevant licensed body, and in all other cases, at least £2 million.

Other professional bodies also impose the requirement of PII upon professionals, including accountants, financial consultants, surveyors, engineers and healthcare professionals. The reason for this is to protect the public by ensuring that professionals can cover the cost of any claim.

The Impact of PII on Professional Negligence Claims

Whether or not a professional holds PII can influence the viability of a professional negligence claim. For Claimants, PII offers financial certainty as it ensures that, even if the professional themselves are unable to meet the claim from their own resources, the insurer will step in to cover the liability. This is particularly important in high-value claims, where the potential damages could far exceed the professional’s personal assets – without PII, this would result in a pyrrhic victory for the Claimant.

Furthermore, the existence of PII often facilitates quicker and more efficient settlements. Insurers, who are commercial entities and can be keen to avoid the costs and uncertainties associated with litigation, may be more inclined to settle claims early, given they can objectively assess the events that have led to the litigation and the commercial merits of challenging the claim – provided they believe the claim is justified and falls within the terms of the policy. This can lead to a more streamlined process, sparing both parties the time, expense, and stress of a court trial.

The Role of Insurers in Litigation

Insurers often play a key role in the defence of professional negligence claims. Once a claim is made, it is typically the insurer who assumes control of the defence, appointing solicitors and experts to investigate the claim and determine the best course of action. This means that the claim is typically run by a party that was not involved in the events that have led to the action. This can significantly shape the litigation strategy, as insurers will often seek to objectively assess the merits of the claim with a view to minimising their exposure to adverse costs.

Insurers may also influence whether a case goes to trial or is settled out of court. Their decision will often be the result of assessing strength of the evidence, the potential costs of litigation, and the terms of the insurance policy. In some cases, insurers may push for settlement to avoid the unpredictability of a court judgment and the risk of adverse costs, while in others, they may choose to litigate if they believe the claim lacks merit.

The involvement of insurers can be seen in the case of Standard Life Assurance Limited v Oak Dedicated Limited and others [2008] EWHC 222 (COMM), which demonstrates the insurer’s right to control the defence and settlement of a claim. It was held that an insurer is not obliged to cover a settlement made by the insured without the insurer’s consent. This case demonstrates the importance for insured professionals to obtain insurer approval before settling, as failure to do so can lead to a denial of coverage and personal liability. Claimants should be aware of this when conducting settlement negotiations.

Disclosure of Insurance Details During Proceedings

A key strategic consideration for litigators running professional negligence claims is the disclosure of insurance details. For certain professions, there may be a duty to disclose detail. An example of this is Solicitors are required under Rule 9.2 of the SRA Indemnity Insurance Rules to provide to a Claimant or any other person with a legitimate interest: the name of their participating insurer, the policy number and the address and contact details of the insurer.

Additionally, in relation to insolvent Defendants only, it is possible to obtain information regarding a policy via the Third Parties (Rights against Insurers) Act 2010.

Outside of these provisions, it can be a challenge to force disclosure of information. In the case of Peel Port Shareholder Finance Company Ltd v Dornoch Limited, it was held that the court should only consider ordering disclosure of a solvent insured’s insurance details in exceptional circumstances. This can lead to difficulties in obtaining disclosure of the insurance details at a pre-action stage (such as via an application under CPR 31.16 as in this case), which creates uncertainty for the Claimant.

While there is no general obligation for a Defendant to disclose their limit of indemnity, there are situations where such disclosure may be advantageous. For example, if a Claimant knows that a Defendant is insured, it can provide reassurance that any judgment will be satisfied, potentially leading to a more aggressive approach to the litigation strategy or a higher settlement demand. In contrast, disclosure of a limit that is substantially below the value of the claim may lead to the merits of pursuing a claim being re-assessed, which could be advantageous for the Defendant/insurer.

In practice, disclosure of insurance details might be volunteered to encourage a Claimant to accept a reasonable offer, knowing that the insurer has the funds to pay the settlement and to pursue the litigation. However, there are also risks in disclosing such information, as it may lead to inflated demands. Ultimately, the approach differs between different insurance companies.

The Consequences of pursuing Uninsured Professionals

Making a claim against an underinsured or uninsured professional is one of the most significant risks for Claimants in cases of professional negligence. In the event that a professional does not have sufficient insurance, the Claimant may be successful in getting a judgement only to discover that there are insufficient or no assets to cover the award. This can be particularly damaging because it effectively renders the judgement financially meaningless.

To mitigate this risk, Claimants should conduct thorough due diligence before pursuing a claim. This involves requesting confirmation of the insurance coverage or checking with professional regulatory bodies that may hold relevant information. However, as discussed above, the insurer does not always have to disclose the limit of indemnity.

Policy Exclusions and Limitations

While PII provides protection, it is not a guarantee of coverage. PII policies often contain exclusions and limitations that can significantly affect recoverability. Common exclusions include acts of fraud, criminal behaviour, and deliberate breaches of professional codes of conduct. Additionally, some policies may exclude coverage for claims arising from certain high-risk activities or may impose sub-limits on specific types of claims.

It is vital that Claimants understand these exclusions, as they establish the extent of coverage and the likelihood of a favourable outcome. The terms of the PII policy must be thoroughly reviewed in order to identify any potential obstacles to recovery. As this can result in drawn-out legal disputes over the interpretation of policy terms, this review is particularly crucial in cases where the insurer raises exclusions as a defence against liability.

In the case of Zurich Professional Ltd v Karim [2006] EWCH 3355 (QB), the insurer Claimant obtained a declaration that the claims made under the Defendant solicitors’ professional indemnity policy arose “from dishonest or fraudulent acts or omissions committed or condoned by the insured” and accordingly they were not obliged to indemnify the insured.

Insurers’ Right of Subrogation

Subrogation is a fundamental principle that allows an insurer to step into the shoes of the insured after payment of a claim and pursue recovery from third parties who may be responsible for the loss. In professional negligence, subrogation rights can be particularly relevant when multiple professionals are involved in a matter, and one professional’s negligence contributes to the loss.

For example, if an insurer pays a claim on behalf of a negligent solicitor, they may seek to recover those funds from another party, such as a barrister who advised, as they may be liable for the same loss. Subrogation ensures that the loss falls on the party responsible for the negligence, rather than reverting to the insurer or the insured professional.

Conclusion

Professional indemnity insurance is an important consideration in any professional negligence. For professionals, PII offers protection against the financial consequences of a negligence claim, while for Claimants, it provides a source of funds to satisfy a judgment or settlement. However, the presence of PII also creates difficulty for litigators, including issues related to policy exclusions, the role of insurers in litigation, and the strategic considerations surrounding disclosure and settlement. Understanding these factors is crucial in any case.

If you are considering or are involved in a professional negligence claim, understanding the role of professional indemnity insurance is essential. Our experienced team is here to guide you through the complexities of PII and provide tailored advice for your specific case. Contact us today.

Contractors – Received a Demand from West 28th Street Limited? Here’s Why You Shouldn’t Pay Yet

Elysium Law has been approached by an insolvency practitioner who has received enquiries regarding demands made by West 28th Street for repayment of loans from various Employee Benefits Trusts (EBTs).

Elysium Law has engaged with West 28 Street on behalf of over 650 clients. The alleged debts (the Loans) were assigned from Felicitas, a specially formed company in the Isle of Man, one of whose directors was Adrian Sacco. Mr Sacco has been disqualified from being a director in England and Wales and also in the Isle of Man. We’ve linked the Insolvency Service publication which demonstrates specifically his behaviour which gave rise to the disqualification. Felicitas attempted to serve demand letters and, in some cases, Statutory Demands for Bankruptcy. Elysium Law, acting in Our Clients’ interests, resisted those demands, which were all subsequently withdrawn.

Following a Mediation and our Letter of Response, Felicitas Solutions Limited (the Isle of Man Company) was dissolved after the debts were purportedly assigned to West 28th Street Limited.

Upon being further contacted, Elysium law sent the Letter of Response to West 28th Street for them to consider – Elysium Law has received no substantial response and nor have our clients.

Our Position in relation to the Demands of West 28th Street

There is a claim in breach of trust for equitable and other relief. The Defendant purports to have purchased and/or been assigned the Trust Assets and has sought to enforce a loan as between the beneficiary who is a contractor (“Beneficiary”) and the original Trust Company (“the Loans”), this was a marketed tax avoidance scheme.

The significance of the purported assignment to Felicitas, and the current purported assignment to West 28th Street, is that they were made for an improper purpose against the interests of the Beneficiaries and with a view to enabling fees to be recovered for the transfers in favour of the Trustees and secondly, recoveries under the Loans in favour of the purported assignees. Accordingly, the assignments were detrimental to the best interests of the Beneficiaries.

They were also contrary to the terms of certain oral collateral undertakings provided by or on behalf of the employers, to the effect that the Loans would not have to be repaid and were the means by which the tax avoidance scheme could operate.

On behalf of its clients, who are Beneficiaries under the various Trusts, Elysium Law contend that any assignments or transfers were for an improper purpose and are void in equity. Any beneficial interest has remained as the property of the Beneficiaries and has not been transferred or assigned. Any purported transfer or assignment is void or otherwise liable to be set aside.

The repeated assignments were in breach of an implied term of the trust relating to the proper exercise of its powers and were unlawful because they were carried out for an improper purpose (also known as a fraud on the power).

The Constructive Trust

The position as set out in FS Capital is that no interest, or right to the Trust Assets have been transferred by the various assignments because they are void. To the extent required, the Beneficiaries will contend that any trust assets alleged to have been assigned by the various assignments are held by the Defendants by means of a Constructive Trust for the benefit of the Beneficiaries. The imposition of the constructive trust arises by operation of law and imposes upon any purported assignee or transferee, the fiduciary principles of a Trustee with regard to the preservation of Trust Assets and the protection of the interests of the Beneficiaries.

The Position

In short, we think the position is as follows:

  1. The assignments were void;
  2. The loans are not enforceable;
  3. Those beneficiaries who have already come to an arrangement must be paid their money back; and
  4. West 28th Street hold all of the assets on trust for Our Clients and all Beneficiaries under the Trust.

Elysium Law are currently acting for a group of 650 Clients who are contesting this claim.

If you wish to join the claim, or are an insolvency practitioner who have been approached by West 28th Street or a firm called Fiscus Management in relation to Your Clients, then please Contact Us.

Mistake and the Unintended Tax Consequences

Elysium Law have received enquiries from taxpayers who have received large CGT assessments from HMRC which have been raised as a result of the Trust document used by Property 118 and Cotswold Barristers.

HMRC’s position is that incorporation relief provided by Section 162 of the Taxation of Chargeable Gains Act 1992 is not available as a result of a clause used in the purported Deed of Trust which creates a power of revocation, allowing the Trustees to vest the property in themselves absolutely and bring the trust to an end. HMRC’s position is that this future right to receive the property creates a separate contingent beneficial interest, which is not transferred to the company. As a consequence, the whole of the assets of the business are not transferred to the company and the relief is not available.

As a result, landlords that have implemented Property 118 or and Cotswold Barrister are facing significant and unintended tax consequences.

This will potentially give rise to a claim in professional negligence, but the losses must be mitigated. One option available is an application to the Court to set aside the arrangements on the grounds of mistake.

Should you be the victim of unintended tax consequences, the equitable doctrine of mistake may be open to you

In Bhaur and others v Equity First Trustees (Nevis) Ltd and others [2023] EWCA Civ 53 (Bhaur) the Court of Appeal provided helpful guidance on when a court will set aside a transaction and  unwind adverse tax consequences. In summary, this was a tax avoidance scheme using the (abusive) EBT arrangements, to avoid IHT which the court refused to unwind. In this case the presentation of the trust to HMRC was dishonest and was tantamount to tax evasion.

Having lost in the High Court, the Appellants first ground of appeal was that the Judge should have allowed the transaction to be unwound in that the Appellants belief that they would incur no tax consequences was not a misprediction, but a mistake.

The first instance Judgment contains an extended analysis of the law on the setting aside of voluntary dispositions for mistake. The leading authority in the area is the decision of the Supreme Court in Pitt v Holt [2013] 2 AC 108.

In Pitt v Holt, at [103], Lord Walker adopted, the approach of Lloyd LJ in the Court of Appeal ([2011] EWCA Civ 197 at [210]-[211]), setting down three principles which would lay the groundwork for the exercise of the equitable jurisdiction to set aside a voluntary disposition , namely;

  1. A mistake, which is;
  2. Of the relevant type; and
  3. Is sufficiently serious so as to render it unjust or unconscionable on the part of the donee to retain the property given to him.

Misprediction or Mistake – the difference

Misprediction

In Pitt v Holt the Court said a misprediction relates to some possible future event, whereas a legally significant mistake normally relates to some past or present matter of fact or law.

In Dextra Bank & Trust v Bank of Jamaica [2001] UKPC 50[2002] 1 All ER (Comm) 193 at [29], the court said “… to act on the basis of a prediction is to accept the risk of disappointment. If you then complain of having been mistaken you are merely asking to be relieved of a risk knowingly run …”

Mistake

This is a different consideration. The courts and lawyers generally deal with mistakes as to the consequences of a transaction.

For many years, a distinction was drawn between a mistake as to the effect of a transaction and its consequences. However, the modern approach is that providing the court is satisfied that there is a causative mistake of sufficient gravity; and as additional guidance to judges in finding and evaluating the facts of any particular case, that the test will normally be satisfied only when there is a mistake either as to the legal character or nature of a transaction, or as to some matter of fact or law which is basic to the transaction.

The gravity of the causative mistake is relevant to an assessment of injustice or unconscionability. The court said that the injustice (or unconscionability) of leaving a mistaken disposition uncorrected must be evaluated objectively, but with an “intense focus” on the facts of the case including the circumstances of the mistake and its consequences for the person who made the disposition.

An evaluation – what are the merits of the case?

The court will look at the surrounding circumstances and the (in) justice done to the person making the disposition. The doctrine of mistake applies to unintended tax consequences. In Pitt, the court rejected any suggestion that mistake could not apply to tax issues. However, the court added the following when referring to previous cases and in particular Futter v Futter where the doctrine of mistake was not raised by the (Plaintiff). Lord Walker in Pitt said;

“Had mistake been raised in Futter v Futter there would have been an issue of some importance as to whether the court should assist in extricating claimants from a tax avoidance scheme which had gone wrong. The scheme adopted by Mr Futter was by no means at the extreme of artificiality (compare for instance, that in Abacus Trust Co (Isle of Man) v NSPCC [2001] STC 1344) but it was hardly an exercise in good citizenship. In some cases of artificial tax avoidance, the court might think it right to refuse relief…”

Why you need advice on the scheme

Lawyers and students alike will recognise the maxim ‘He who seeks Equity must do Equity’, but effectively any refusal now is based on public policy consideration. An example of this can be found in the case Dukeries Healthcare Limited v Bay Trust International Limited [2021] EWHC 2086 (Ch), with Deputy Master Marsh holding that, whilst the doctrine of mistake applied, it was refused nevertheless on the grounds that the whole transaction amounted to an artificial tax avoidance scheme.

Anyone affected needs independent advice, considering the degree of risk and any artificiality of the scheme, given that unintended tax consequences are an issue. This should be advised upon by an independent law firm such as Elysium Law and will involve review of the documentation, any advice provided to the Claimant at the time and what it was that was that the Claimant hoped would be achieved.

Should you be the victim of unintended tax consequences, the equitable doctrine of mistake may be open to you.

Elysium Law has been approached to consider bringing such a claim.

For further advice please contact us at Elysium-law

Understanding the Procedural Steps: the Pre-Action Protocol for Professional Negligence

The Protocol

Our team has extensive experience in claims for professional negligence, including claims against solicitors, accountants, surveyors, trustees and other professionals and we have been successful in obtaining many multi-million-pound recoveries for Our Clients.

The Pre-Action Protocol for Professional Negligence applies to these claims and covers claims for negligence against all professionals, except those in the construction or healthcare sectors, or those concerning defamation.

The primary purpose of the Protocol is to promote the settlement of claims by ensuring that both parties fully understand the nature of the claim alleged, the evidence supporting the claim, and the defences of the Defendants. By encouraging this early exchange of information, the Protocol aims to reduce the number of disputes that escalate to court, saving time and costs for all involved.

Importance of Complying with the Pre-Action Protocol

Before looking at the Protocol itself, it is important to set out why it is vital that parties comply. Compliance with the Pre-Action Protocol for Professional Negligence is crucial because it establishes the standards that the courts consider the normal and reasonable approach for handling professional negligence claims.

Paragraph 3.1 of the Protocol sets out that, if court proceedings are initiated, the court will determine whether to impose sanctions for substantial non-compliance with it. This guidance is aligned with that set out in the Practice Direction for Pre-Action Conduct and Protocols, which suggests that while the court is likely to disregard minor or technical breaches, substantial non-compliance can lead to significant sanctions against the offending party.

Paragraph 3.2 expands the scope of the Protocol by setting out that the parties are expected to act reasonably when operating the timetable and exchanging information during the Protocol period. This means that even if the Protocol does not explicitly address a specific issue, parties should abide by its spirit by acting reasonably and cooperatively.

Preliminary Notice of Claim

The first step in the Protocol process is for the Claimant to notify the Defendant in writing once there are reasonable grounds for a claim. Paragraph 6.1 of the Protocol sets out that this preliminary notice should:

  • Identify the Claimant and any other parties.
  • Contain a brief outline of the Claimant’s grievance.
  • Provide a general indication of the financial value of the claim, if possible.
  • Ask the Defendant to inform their professional indemnity insurers immediately.

The Defendant is required to acknowledge receipt of this letter within 21 days, as stipulated in paragraph 6.2 of the Protocol.

Letter of Claim

When the Claimant decides there are sufficient grounds for a claim, a detailed Letter of Claim should be sent to the Defendant in accordance with paragraph 6.3 of the Protocol. This letter must:

  • Identify any other parties involved in the dispute;
  • Include a clear chronological summary of the facts, along with copies of any key documents;
  • Specify the details of the alleged negligent act or omission and what the professional should have done differently;
  • Set out how the act or omission caused the loss suffered, setting out the consequences and what would have occurred but for the negligence;
  • Provide an estimate of the financial loss caused by the alleged negligence, detailing how the loss is calculated. If it is not possible to supply these details in the Letter of Claim, the Claimant should explain why and indicate when they will be able to provide this information;
  • Confirm whether an expert has been appointed, provide the expert’s identity and discipline; and
  • Request that a copy of the Letter of Claim be forwarded immediately to the professional’s insurers.

Letter of Acknowledgment

The Defendant should acknowledge receipt of the Letter of Claim within 21 days, as required by paragraph 7.1 of the Protocol.

Investigations

Following the acknowledgment, the Defendant has three months to investigate the Claim and respond with a Letter of Response and/or a Letter of Settlement, in line with paragraph 8.2 of the Protocol. During this period, the Defendant should:

  • Assess whether the Letter of Claim complies with the Protocol’s requirements and, if not, inform the Claimant of the deficiencies and the further information required, as outlined in paragraph 8.1 of the Protocol.
  • Evaluate whether the Claimant has presented a legally and evidentially sound case or merely alleged wrongdoing without substantial evidence.
  • Review the provided evidence, including expert opinions and key documents.

If more time is needed to complete the investigation, the Defendant should promptly request an extension from the Claimant, explaining the reasons for the delay and the anticipated extension required, as specified in paragraph 8.3 of the Protocol. The Claimant is expected to agree to reasonable requests for extensions to avoid unnecessary delays.

Response to the Letter of Claim

Upon completing their investigation, the Defendant should send a Letter of Response as detailed in paragraph 9.2.1 of the Protocol. The Letter of Response should:

  • Be sent in open correspondence (as opposed to being ‘without prejudice’)
  • Clearly state which parts of the claim are admitted or denied, providing reasons for their stance.
  • Specifically address the allegations.
  • Provide the Defendant’s version of disputed events.
  • Offer an estimate of the financial loss if it disputes the Claimant’s estimate. If an estimate cannot be provided at that time, the response should explain why and indicate when it will be available.
  • Include copies of key documents not previously exchanged.

This letter, while not a formal defence, is a crucial step, as the court may impose sanctions if it significantly differs from the eventual defence, as outlined in paragraph 9.2.2 of the Protocol.

Paragraph 9.4.1 sets out that if the Letter of Response denies the claim entirely, the Claimant may proceed with court proceedings.

Experts

The protocol recognises that in professional negligence claims, the parties and their advisers will require flexibility in their approach to expert evidence.

In a professional negligence claim, separate CPR 35 expert opinions may be needed on breach of duty, causation or the quantum value of the claim.

Paragraph 11.2 of the Protocol sets out that the parties should co-operate when making decisions on appropriate expert specialisms, whether experts might be instructed jointly and whether any reports obtained pre-action might be shared and should at all times have regard to the duty in CPR 35.1 to restrict expert evidence to that which is reasonably required to resolve the dispute.

Any expert reports obtained at the pre-action stage are only permitted in proceedings with the express permission of the court.

Alternative Dispute Resolution (ADR)

The Protocol imposes an obligation on the parties to consider whether some form of ADR is more suitable than litigation. The courts have a wide discretion to sanction parties in costs if they are held to have behaved unreasonably by refusing to engage in ADR. This is not to say that a party would necessarily face costs sanctions for declining to accept an invitation to participate in an ADR process: this would depend on whether the refusal to participate was reasonable in all the circumstances.

In practice, it is common for the parties to professional negligence claims to engage in some form of ADR, although not necessarily always at the pre-action stage.

Mediation is a commonly used form of ADR for professional negligence claims and often leads to a successful resolution of the dispute, either on the day of the mediation itself or in the course of follow-up negotiations after the mediation.

Conclusion

Adhering to the Pre-Action Protocol for Professional Negligence involves detailed and timely communication between the parties. Every step, from the preliminary notice to managing experts and engaging in ADR, is crucial.

Elysium Law will help you navigate the complexities of the Pre-Action Protocol for Professional Negligence, ensuring full compliance and thereby avoiding potential court sanctions for non-compliance. We will put forward robust representations that effectively outline your claims or defences, facilitating early settlement discussions and saving you the time and costs associated with litigation.

We have extensive experience in representing large, often multi-national groups in claims for professional negligence brought by or against solicitors, accountants, surveyors, trustees and other professionals and have been successful in obtaining many multi-million-pound recoveries for Our Clients.

For further guidance on professional negligence claims, contact our experienced team today.

Less Tax For Landlords – The Flawed Business Property Relief Claim

We are writing this article as a result of the extensive enquiries we have received from Landlords who engaged in planning offered by Less Tax for Landlords and the Bailey Group.

HMRC’s view (and that of every other tax expert) is that the planning does not work. HMRC’s views are set out in Spotlight 63. They can be seen here.

In this article, we will look at Business Relief, explaining what it is, when it applies, what LT4L and the Bailey Group have told their clients and why their view is incorrect.

What is Business Relief

Business Relief (formerly known as Business Property Relief) reduces the value of business property for inheritance tax. It is available on the transfers of business assets during lifetime or upon death. To qualify, the business asset must usually have been owned throughout the two years before death or transfer.

There is no Business Relief if the business or company is one of ‘wholly or mainly’ in dealing in securities, stocks or shares, land or buildings or in the making or holding of investments.

A business that only generates investment income will not attract BPR, so this excludes:

  • A residential or commercial property letting business.
  • A property dealing business.
  • A serviced office business.

This means relief is not available to landlords with rental property.

The legislation is contained in Section 105(3) and (4), IHTA 1984.

In deciding whether a business consisted “wholly or mainly” of one or more of these prohibited activities, the courts will look at the business in the round, taking into account all of its activities both at the date of the transfer and over a reasonable period of time before the transfer (which may be several years), to see if one or more prohibited activities predominate – see the case of  George v IRC [2003] EWCA Civ 1763. This means that the test will be applied to the specific facts in each case. Most of the case law considering the ‘wholly or mainly’ test has looked at whether a business is mainly involved in investment activity rather than trading or service provision. 

It therefore seems incontrovertible that BPR or Business Relief is NOT available to Landlords. It defies belief that Chris Bailey, LT4L and the Bailey Group told clients that Business (Property) Relief was available and that the deceased’s estate would not be met with a significant Inheritance Tax liability upon the death of the deceased.

The (Flawed) Basis of the Advice given to the participants in this planning

We must repeat that there is not one tax professional who agrees with the assertion of the availability of Business Relief.

The following is an example of a discussion between Chris Bailey and a tax professional who questioned this aspect of the planning.

Trusted Advisor: You indicated that by structuring the property business in the particular way that you do, you create a trade which would benefit from BR, giving IHT exemption after 2 years. Business relief is not available for businesses which wholly or mainly involve the making or holding of investments. HMRC considered the holding of rental properties an investment business, which I appreciate is a business and can qualify for s.162 TCGA, but regardless of whether it qualifies for incorporation relief is specifically excluded from Business Relief under s.105(3). As such, unless the business of the LLP relates more than 50% to something other than the holding and letting of residential property, then I don’t see how it can qualify for BR, particularly when 100% of the income, management time and expenditure relates to the letting of rental properties.

Chris Bailey: The LLP holds the equity and not the properties – so it cannot be classed as an investment. The owner of the properties will not qualify for BR on the properties, but on the equity.

Trusted Advisor: I don’t understand how holding equity in a property ‘cannot be classed as an investment’. The case of M ROSS v HMRC (2017) confirmed that the exploitation of land in return for rent is still an investment business (this was an FLH (Furnished Holiday Let) case so related to a business that tax law recognises as a trade) and denied business relief. What is the business doing which is not the exploitation of land which would elevate the activity beyond that of a furnished holiday let? Caselaw in recent decades has been very clear that a business must offer significantly more than just the exploitation of a proprietary interest – what additional services do you suggest are being provided by the business, which means it’s not an investment?

Chris Bailey: Once again, unfortunately, we have had clients die during the time that they have been clients and HMRC have accepted all of our Probate calculations based on the above. The cases range from small cases (about £1m assets) to larger cases in excess of £5m assets.

Elysium Law have been approached by clients who, having submitted the claim for Business Relief as advised by Chris Bailey et al via Accountancy and Legal Solutions UK ( which is now OCG Legal and part of the Less Tax for Landlords group of companies), have now received a review of the claim.

So, does it work? – No

Here is an extract from HMRCs letter to the client (redacted to protect any identity:

“The executors returned business assets valued at REDACTED on the IHT400 reporting the IHT Account for REDACTED’s estate. The IHT400 return shows that business property relief was claimed against the full value of these assets.

I am aware that Accountancy and Legal Solutions UK have provided advice to other taxpayers with similar investment businesses in respect of Business Property Relief claims and that those claims have been determined invalid (Our emphasis). Therefore, I am conducting a review to confirm the validity of the Business Property Relief claim in respect of REDACTED’s estate.

REDACTED’s IHT400 return states that the business assets comprised a property management and development business. I have conducted a review of the deceased’s individual tax returns and the tax returns of both REDACTED Ltd and REDACTED LLP but have not been able to identify any evidence of business activity beyond the holding of property as investments.”

HMRC are now claiming the IHT on the full amount, which runs into millions of pounds, in addition to interest on the unpaid IHT, which is racking up at a significant daily rate.

Conclusion

  • The planning does not work and if you have engaged in it, you will suffer losses;
  • Elysium Law has now been approached by numerous clients who have submitted claims for BPR during probate that have been rejected;
  • The deceased’s estate not only faces a significant increase in the IHT payable but also considerable interest, which is increasing daily as well as penalties;
  • We have not seen any advice from Chris Bailey or LT4L to contradict HMRC and Elysium Law believe that the Executors who have submitted claims for relief as a result, have a claim in professional negligence.

Elysium Law has an outstanding track record of bringing, defending, and settling high-value and complex cases.

Contact us today for more information if you have been affected, completing our enquiry page or call us at 0151-328-1968

CGT Rebasing – Why Less Tax For Landlord’s Planning Doesn’t Work

Elysium Law has posted several articles on this issue in recent weeks. Since HMRC’s Spotlight 63, we have been continuously approached by landlords who have entered into the planning with LT4L, Chris Bailey or the Bailey Group and they are concerned as to what the best course of action to take is.

At this point, it is probably wise to step back and look at the planning itself and why HMRC says it doesn’t work.

We will break down the key aspects of the planning and the claimed advantages of using it as well as providing HMRC’s view and our opinion of that.

The Structure

By now, especially as you may have used the planning, you will likely be familiar with the structure of the planning. Simply put:

  1. The Landlord (and/or family members) set up a Limited Company and an LLP with the Limited Company as a Corporate member of the LLP.
  2. The Landlord transfers their properties into the LLP and then the Landlord as an individual member of the LLP allocates profits to themselves remaining basic rate taxpayers, excess profits are then allocated to the Limited Company.
  3. The Corporate Member then claims a deduction for finance costs.

The Claimed CGT Advantages

LT4L and Chris Bailey claim that the planning results in a Base Cost Uplift to for Capital Gains Purposes to the date of transfer to the LLP

This means that when you come to sell the property, the Capital Gain is calculated on the value when the property was transferred into the LLP, which ordinarily will be higher than when you originally purchased it. The claim is therefore that this will result in a lower gain and consequently lower CGT being paid.

Our view is that LT4L’s planning is based on a total misconception that Incorporation Relief applies in this instance.

Our Analysis

If on the transfer into the LLP an element of Capital is transferred to the Company, then this element would be rebased for the Company, but that would also trigger an immediate CGT charge to the Client. Any disposal of a property from the LLP is treated as transparent and therefore the Client’s base cost is used to calculate CGT. HMRC explains this in example 2 here, which is taken from their Capital Gains Manual.

It is claimed by the scheme promotors that the Incorporation Relief rules apply here. To clarify HMRC states regarding Incorporation Relief:

“you may be able to delay paying Capital Gains Tax if you transfer your business to a company in return for shares”

HMRC

The fundamental flaw here is that you are not transferring your business to a COMPANY in exchange for SHARES, you are transferring it to an LLP – under a Trust arrangement, an entity which does not have shares.


The following questions regarding CGT rebasing were put to Chris Bailey by a trusted colleague of ours.

Trusted Advisor: “You advised that on the transfer into the LLP the properties would be rebased for CGT purposes. I questioned this and although I appreciate that they would be recorded in the LLP accounts at fair market value, on a disposal of a property the LLP would be treated as transparent and as such CLIENT’s base cost would be used for the purposes of the CGT calculation. You advised that this wouldn’t be the case and that he would only be subject to CGT on any growth from the date of contribution into the LLP. I can see that on the transfer into the LLP if an element of capital is transferred to the Company then this would rebase that element for the benefit of the company, but it would also trigger CGT on CLIENT’s disposal to the company. So, on the basis that no CGT is triggered on the transfer into the LLP, I assume that all capital is retained by CLIENT. This is demonstrated in HMRC example 2 on the attached: https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg27940 where it demonstrates that the base cost for the disposal is the original base cost (not the uplifted market value).” (Trusted Advisor)

Chris Bailey: “An LLP is an incorporated partnership and as such the incorporation relief rules can be applied”.

Trusted Advisor: “How can incorporation relief apply to an LLP? Incorporation relief requires a person to transfer a business to a company in exchange for shares. The LLP is a corporate body, but it is not a company and cannot issue shares so I can’t see how this could apply or the impact it would have on CLIENT’ CGT base cost. Please can you clarify?”

Chris Bailey: “The LLP’s capital account is increased by the level of the equity. The same rules apply as in a company environment, in that if the LLP is closed down then the CGT would become payable – just as in a company environment.”

As you can see, the question remains unanswered.

Elysium Law has spoken to multiple individuals who used this planning and subsequently received a revised and unexpected CGT calculation from HMRC on the basis of the original value of the properties, not their rebased value as claimed by Chris Bailey.

This of course has resulted in a very large tax charge and had the individuals been aware, it would certainly have affected their decision to sell the properties.

Conclusion

Despite LT4L and Chris Bailey’s claims that there is a CGT Base Cost Uplift, Elysium Law has now been approached by numerous clients who have now had to pay CGT from the date of purchase of the assets, not the uplifted value.

We have seen no advice from Chris Bailey or LT4L as to what they should do, and our view is that they have a claim in professional negligence. Elysium Law has an outstanding track record of bringing, defending, and settling high-value and complex cases.

Contact us today for more information if you have been affected.

OCG Accountants: Their Advice To Do Nothing, Requests For Disclaimers and the Unanswered Questions

Elysium Law has received a number of requests for legal advice as to what to do in the face of the latest letter sent by Chris Bailey (of Less Tax for Landlords and the Bailey Group) on behalf of OCG Accountants.

The letter sent to their clients – which we are still considering in more detail – raises two points of concern.

Reliance

Given our experience in professional negligence claims, my colleague Ruby Keeler-Williams previously advised that advice from between Leading Counsel was NOT one that could be relied upon by the clients of Chris Bailey, LT4L or any other who sought advice. WE WERE CORRECT.

At the time of writing the article we had not seen any disclaimer. In their letter to their clients, OCG accountants set out extensively the excellent background and qualifications of Leading Counsel. However, we can now confirm that this caveat was provided further in the letter:

“We are writing this letter to you after taking (Leading Counsels) advice. However, (Leading Counsel) has asked us to make it clear to you that he is advising only OCG Accountants Ltd and not any of its Clients and that he cannot, for a number of reasons, himself accept any duty of care to any of you or to any other third party”.

Our previous warning has been proven correct. There is no duty of care between the Clients and Leading Counsel and they cannot rely upon his advice.

Who is advising Clients?

The letter then goes on to say:

“The advice to you in this letter thus comes from OCG Accountants Ltd. If you choose not to follow that advice, then we will need to discuss this with you and potentially ask you to sign a disclaimer that you are choosing not to follow our advice. This has been requested by the insurance broker who deals with our Professional Indemnity Insurance.”

This raises the question – what ‘advice’ are OCG giving their clients and are they insured to give such advice?

Our belief is that nothing contained within the letter amounts to advice, save for one small sentence, which advises Clients to do nothing.

We now ask Chris Bailey, Less Tax for Landlords, OCG Accountants or anyone else connected: What ‘advice’ have you been giving your Clients?

Given neither Chris Bailey or OCG accountants are qualified, regulated legal professionals, any advice given is not subject to legal professional privilege and as such can be disclosed.

The letter sets out Leading Counsel’s view, and Leading Counsel’s view as regurgitated in this letter is NOT advice to their Clients, as the retainer makes clear and CANNOT be relied upon by the Clients at all.

Therefore, every reference to what Leading Counsel has advised is of no consequence to the Clients. Further, OCG are not underwriting the advice via their retainer – the whole thing is arguably a smoke and mirror exercise.

The difference between Advice and Information

In claims of professional negligence, English law distinguishes between advice and information given to a client upon which the client may act if they chose. This is a complex area of law and is beyond the scope of this post.

Here, with one caveat as discussed later in this article, there is no advice given.

OCG are simply rehearsing Counsel’s view to their clients

Whilst Leading Counsel’s qualifications and experience are very impressive, rhetorically why is OCG setting this out to clients who cannot rely upon it.

You can read our previous post for more information on reliance upon Counsel’s advice.

The Caveat – OCG’s advice is to do nothing

Lest it be thought that OCG have not offered any advice to their clients. OCG have offered one piece of advice and that is to do nothing.

That one small piece of advice in the letter that may have significant consequences. It is predicated upon the basis that the client has received a nudge letter re Spotlight 63 (some clients of course having not):

“…we advise you on what should be your general response to such a letter…  do nothing in response to HMRCs letter.”  (our emphasis)

That advice does not tell you either:

  • What to do if you have not received a letter;  

and more importantly:

  • What the potential consequences are should you not respond either to the letter or to HMRC’s Spotlight 63 registration.

No doubt experienced tax advisers, with whom Elysium Law are currently working, will have far more questions and we are happy to receive them and expand the post.

The Request for a disclaimer – the iniquity of the uniformed choice

In our view, what seems to be iniquitous here is that Clients who are facing unknown consequences have so far received no advice from Chris Bailey, Less Tax for Landlords or OCG Accountants as to the way forward. The Clients are now given a stark choice with uninformed consequences – to sign or not to sign the disclaimer.

Elysium Law assumes (albeit OCG do not specify this) that this is an attempt to bar clients from bringing a claim under OCG Accountant’s Professional Indemnity Insurance should the clients chose not to follow the only piece of advice in the letter; namely to do nothing with regards to Spotlight 63, and should they go to independent and more experienced tax advisers who will give proper, informed, regulated advice.

We ask OCG and LT4L – why only now has this iniquity raised its head and upon what basis is the disclaimer sought?

LT4L and OCG Accountants have been aware of HMRC’s Spotlight 63 since at least 4th October 2023.

They ought to have informed their professional indemnity insurers at that stage of the potential of a claim or claims to be made.

Can they confirm to their clients that they have done so? If it is not the case, then why?

We therefore ask Chris Bailey and OCG Accountant the following questions:

(we invite every client of theirs to copy them and send them to Chris Bailey and the other Directors and demand answers)

  • Does the Schedule of Work in the Client Care Letter, which we assume is different to that sent by LT4L, cover work by OCG as regards any investigations/enquiries by HMRC?
  • Given that HMRC are aware of the LLPs registered at the office of OCG Accountants, what is the harm (or adverse consequences) to clients in simply registering under the Spotlight?
  • Do you accept that registration is not an automatic admission of any tax that HMRC claim to be owed?
  • In the event that a Client does not register, will this expose them to issues such as, but not limited to, greater penalties or possibly the unavailability of any settlement facility?
  • If more penalties and interest may (or do) occur as a result of OCG’s advice, will OCG’s insurance cover ALL penalties and interest that accrue to each and every affected client as a result?
  • Was it a term of any original contract and did you point out that any insurance might be invalid, as we believe you intimate, if the clients did not stay with you in the event of HMRC issues? If not, why not?
  • If this is an attempt at variation of the contract or at exclusion for liability in some form of new contract, have you considered the legislation that protects consumers against unfair exclusion clauses and contractual terms?  If not, why not?
  • Rather the discussing matters with individuals, which may go unrecorded in the event of a dispute, will you set out in clear and unequivocal terms so that your clients can take independent legal advice as to the basis of the disclaimer, its validity and consequences if signed?
  • Will you tell your clients that they should take independent advice before signing the disclaimer? If not, why not?
  • Acting in the interest of your clients and not your own interests or the interests of a third party such as the insurance broker or the underwriter, have you considered whether there could be a conflict of interest in asking the Clients to sign this Disclaimer? Clearly it would suit OCG and their insurers if the clients had signed such a disclaimer, but is that in the best interests of the clients? As set out at paragraph 12 of the ICAEW’s Guidance on identifying and managing conflicts, in relation to self-interest conflicts, the test is whether: “…the member (OCG) can give, and be seen by a reasonable and informed third party to give, objective advice or service.’
  • If you assert that you have considered this and are compliant with it, will you let your clients see your written correspondence with the Broker as to why the disclaimer is sought now and prima facie at least, is not in the interests of the plethora of clients you currently represent?
  • Does the Broker have any interest in protecting themselves in making the request?
  • Has the Broker told you why this request is being made, or upon whose authority, and pointed out to you under the original PII policy that your clients will be covered only in the event that you continue to act even in the face of a significant and serious conflict of interest?
  • Finally, please tell us all now the consequences of not signing the disclaimer as regards your Professional Indemnity Insurance and what you will say to those who want to seek advice elsewhere.

Once again, Elysium Law invite each and every client of OCG/LT4L to reproduce these questions and send them to OCG demanding an immediate response.

Conclusion

The January 31st deadline for registration is upon the users of the planning and we have numerous affected who, rather like a rabbit in the headlines, are caught without knowing the proper way forward.

OCG’s advice, namely to do nothing, cannot seriously be considered as responsible advice such as would be expected from a competent, independent advisor unless they have considered and set out the consequences of following their advice.

We urge their clients to write to them, setting out and adopting our questions. In the meantime, seek independent advice on registration and its potential consequences.

Elysium Law has an outstanding track record of bringing, defending, and settling high-value and complex cases. With a significant number of taxpayers likely to be affected following Spotlight 63, we are looking to advance a group claim. Contact us today for more information and a free consultation.