McMahon v Grant Thornton – Scottish Court of Session (Outer House) finds that an accounting firm was not liable for not suggesting exit tax planning before it was too late

A Scottish entrepreneur (Mr McMahon, or the “pursuer”) sued his accounting firm on the basis that it had failed to advise him to transfer some of his shares of a car dealership company to his wife at least one year before his sale of those shares, so as to enhance access to the UK “entrepreneursʼ relief” (providing a capital gains exemption). The engagement letter with the accounting firm, which was for tax compliance services, stated:

We cannot accept a duty to monitor and unilaterally suggest tax planning advice on specific matters. Advice on the tax implications of such specific matters will be given once you have referred it to us.

Lord Doherty stated that this clause did not have the effect of excluding the raising of tax planning ideas that were “reasonably incidental” to the work included within the tax compliance work retainer. However, he found:

[U]ntil the sale was unexpectedly proposed the pursuer had made it very clear to the defender over a number of years that he had no interest in discussing an exit strategy, and that he had no intention of selling his shares in the business.

In addition, the amount of the capital gains relief had only recently been substantially increased, so as to make spousal transfer planning worthwhile.

Lord Doherty indicated that, once the sale was proposed, he was “not persuaded that the pursuer would have run the risk of delaying the sale in order to implement the idea” of waiting a year so that planning could have been implemented to enhance the entrepreneurs’ relief. The action against the accounting firm was dismissed.

Neal Armstrong. Summary of McMahon v Grant Thornton UK LLP [2020] CSOH 50 (Court of Session (Outer House)) under General Concepts – Negligence.