Lessons from Hastings-Bass and Pitt v Holt: For years, trustees and advisers took comfort in a perceived safety net: if a trust decision produced an unexpected tax result, it could often be undone. The so‑called Hastings-Bass principle became seen as a “get out of jail free” card. That position has now changed fundamentally.
Re Hastings-Bass arose from a 1947 settlement. In 1958, trustees advanced £50,000 into a sub‑settlement, part of which was void for perpetuity. On the settlor’s death, HMRC argued the funds remained in the original settlement, triggering estate duty. The Court of Appeal held that where trustees exercise discretion, the court may intervene if they failed to consider relevant matters or considered irrelevant ones. Over time, this was interpreted broadly, allowing decisions to be unwound – particularly where based on incorrect advice.
The reset came with Pitt v Holt and Futter v Futter.
In Pitt, £1.2m of damages was placed into a discretionary trust without considering inheritance tax, creating a £100,000 liability. In Futter, trustees relied on incorrect advice regarding capital gains, leading to unexpected tax.
The Supreme Court significantly narrowed Hastings-Bass. It applies only where there is a breach of fiduciary duty. Trustees relying on professional advice – even if wrong – are not in breach, so their decisions cannot be set aside.
However, equitable mistake remains available. A transaction may be undone where there is a causative mistake of sufficient gravity and it would be unconscionable not to correct it. This is a high bar. Mrs Pitt succeeded on this basis; the trustees in Futter did not.
The message is clear: tax planning must be robust at the outset. Correcting mistakes after the event is now far more difficult. Careful structuring and proper advice are no longer optional – they are essential.
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