Lessons from not taking Tax Advice

As the ancient Greek and Latin fables tell, life and law teach us important lessons. The ancients would call those lessons “morals”, meaning a series of behavioural models typical of certain social contexts, achieved by pursuing an honest rules-based conduct. In Latin, Mos-moris, hence morality, refers to behaviour, manner, character, habit. ‘Moral’ means what is pertinent to the conduct and therefore susceptible to evaluation and, to follow, judgment.

In this regard, the situation warrants us to report a recent well-discussed Manx legal case. It would be interesting for the case law itself as well as significant for professional trustees in the Isle of Man.

In the recent case of AB and CD, the High Court of Justice of the Isle of Man was asked to consider if Call Options fulfilled by trustees should be set aside on the basis of the Hastings-Bass rule or not. The trustees did not obtain tax advice before granting call options to beneficiaries. This resulted in beneficiaries receiving unwanted UK tax liabilities. The Isle of Man Court ruled that the trustees had made a mistake and that the Call Options were deemed never to have taken effect.

Leaving the professional technical implications, the outcome of the case would pass some morals down;

  • Isle of Man Court is deeply aware of the nuances of Manx practice when applying legal principles. The process and the Court’s judgement took just several weeks to be completed; the expedition in resolving a similar matter for the parties highlights the speed of judicial system in the IoM as well as its expertise.
  • UK and Isle of Man law are not necessarily one and the same and the case explicitly recognises the potential for differences in approach and outcome between the two legal systems. Professional trustees in the Isle of Man have to be aware of those differences as well as derivate implications. Manx law is not always required to follow English law, especially in respect of some specific matters. Again, Isle of Man and UK public policy may experience differences.
  • Every trustee should, where appropriate and useful, take professional legal and tax advice to avoid potential criticism. The right and safest approach going forward is to ensure advice from tax advisors is sought before making decisions. Failure to contemplate such advice could result in serious risks. This approach may be more expensive but it offers a higher degree of protection.

Written by Marta Bellamoli, Marketing Co-ordinator