Tax consequences of setting aside a voidable transaction on the ground of mistake

Abstract

Abstract This article considers whether there is, as has been widely assumed until now, a general principle that, if a voidable transaction is avoided by an order of the court (for example, on grounds of mistake or under the Hastings-Bass rule), the order operates retrospectively for all purposes, including fiscal purposes. It discusses whether the Court of Appeal decision in Clark v HMRC [2020] EWCA Civ 204 throws doubt on the existence and ambit of such a principle. It also explores how the principle operates where the court imposes terms on the rescission of a transaction, such as a requirement that one or more of the parties enters into a fresh transaction, or where there have been intervening transactions between the voidable transaction and the order rescinding it.