After one Court of Appeal ruling that issued a revocation of trustees’ ability to reverse poor tax decisions, IFAs may soon experience a hike in their indemnity insurance premiums.
As the ruling may influence those seeking to recover losses to sue their adviser, one expert says that the result could be much higher adviser’s professional liability insurance premiums.
Boodle Hatfield law firm partner Will Twidale stated that the Hastings Bass regulation not only provided protection to trustees but also permitted them to invoke a way to eradicate poor tax advice. Mr Twidale went so far as to call the procedure a ‘legal morning-after pill’ in describing its efficacy.
The legal partner states that a trustee can no longer use Hastings Bass in the event that it makes a payment that has adverse tax consequences. Under Hastings Bass, trustees could go before the court and admit they had erred (provided they stated they didn’t realise the tax consequences) and have the court undo the damage – however now the ability to do just that has been taken away by the Court of Appeal.
Mr Twidale stated that the court had made the decision that the HMRC losing revenue due to poor decisions was unacceptable, provided that the trustees had been seeking professional business liability insurance advice.
The Court of Appeal stated it was incorrect to have trustees who don’t appreciate the tax consequences. However if the trustee took professional advice (which is par for the course) then they could bring a legal action against the adviser.
The courts stated that it was wrong because the Revenue should not lose out if trustees seek to take professional advice. If a trustee had taken advice, they’re unable to reverse the decision – however the trustee would have a claim in order to sue IFAs.