Setting aside a mistaken transfer of property into trust

As part of a scheme intended to save inheritance tax, our client had been negligently advised to transfer her home into a trust. Unfortunately, she was not advised that the transfer would result in her losing the right to remain in her home, where she has lived since the 1960s, rent free.

We obtained an admission of negligence from the solicitors who advised our client, and their insurance company agreed to meet the full costs of an application to set aside the transfer.

The law on mistake has been recently reviewed in the Court of Appeal case of Pitt v Holt [2011] EWCA Civ 197. Following that case, the circumstances in which transactions can be set aside on the basis of mistake have been narrowed. There must be a mistake as to the legal effect of the transaction which is of sufficient gravity to allow the court to exercise its jurisdiction to set the transaction aside. The Court of Appeal considered that a mistake as to the fiscal consequences of a transaction would be insufficient to bring the court's jurisdiction to set aside that transaction into play.

At trial, we successfully proved that our client had made a mistake as to the legal effect of the transfer of her home because she had not been advised that she would lose the right to live there. The court was therefore satisfied that our client's application fell within the circumstances set out in Pitt v Holt and made an order on the terms we had requested. As a result, the legal title to our client's home will now be transferred back into her sole name and she will retain the right to live in that property rent free.

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