A summary of legal updates for the Private Client industry over the past week is as follows.
Register of overseas entities
The Economic Crime (Transparency and Enforcement) Act 2022 received Royal Assent on 14 March. The Act provides legislation for a register of overseas entities to be maintained by Companies House. The register will list the beneficial owners of overseas entities that own property in the UK. "Overseas entity" is defined as a "body corporate, partnership or other entity that (in each case) is a legal person under the law by which it is governed" (s.2(2)). Trusts will fall within the scope of the regime if trustees hold shares in such an overseas entity as they will be "beneficial owners" of it. Amendments were made to the legislation as it was rushed through Parliament as an emergency measure and these include the following.
- The transitional period during which applicable overseas entities must register their beneficial ownership is shortened from eighteen months to six months.
- The penalty for non-compliance is significantly increased to a daily default fine up to £2,500.
- Companies House is prevented from publicly disclosing information on trusts. However, there is power to disclose information to HMRC or other specified persons with public functions (s.23).
The transitional period for registrations will run from the day that s.3(1) of the Act comes into force, which will be appointed by regulations. The Home Secretary has already said that a second bill will be required to close any loopholes due to the speed in which the Act was passed. Commons passes UK Economic Crime Bill in one day | STEP; Economic Crime (Transparency and Enforcement) Bill: Royal Assent and publication of Act (corporate and property aspects) | Practical Law (thomsonreuters.com)
LPAs - discretionary investment management clauses
On 14 March, the Law Society reported that the Office of the Public Guardian ("OPG") has agreed to revise its guidance on the need for an express provision in Lasting Powers of Attorney ("LPA") to allow the management of investments via a discretionary investment provider. The OPG's current guidance (LP12) provides that there must be such an express provision, failing which, an attorney must apply to the Court of Protection. The development follows discussions with practitioners and the Law Society which raised the need to avoid the cost of an unnecessary court application. Investment by attorneys in discretionary management schemes clarified | The Law Society
LPA – waiting times
The OPG phone line currently states that you should not chase up LPA registrations unless at least 20 weeks have lapsed. Further, the OPG will only deal with a maximum of five LPA matters per call.
Tax advice – liability of lawyers when advising promoters of tax schemes
In McClean v Thornhill (2022 EWHC 457 Ch), the High Court has ruled that a barrister who advised a film investment partnership scheme promoter (Scotts) on the tax effects of its schemes did not owe any duty of care to the schemes' investors. More than a hundred investors sued the barrister over his advice that the schemes, marketed 20 years ago by Scotts, would provide tax benefits. Scotts' information memorandum to potential investors had advised them to consult their own tax advisors. The judge concluded that it was not reasonable to expect investors to rely on the barrister's advice without independent enquiry. England and Wales: Scheme promoter's tax advisor is not liable to investors for their losses | STEP
HMRC investigations - statistics
According to research, investigations by HMRC into individuals and small businesses yielded no extra tax in 47% of cases in the 2018/19 tax year, compared with 31% in the year before. HMRC action yielding £0 in 47% of all tax investigations | Insights | UHY Hacker Young (uhy-uk.com)
Life insurance – top slicing case
In Sally Judges as PR for Young v HMRC, 2022 UKFTT 77 TC, the First-tier Tax Tribunal allowed a deceased's personal representative to use a more beneficial method of calculating top-slicing relief from income tax than the method deemed correct by HMRC. Legislation introduced in March 2020 now prevents this method from being used, but doubt has remained about claims for earlier years. FTT considers top slicing relief under ITTOIA 2005 and effect of FA 2020 amendments | Practical Law (thomsonreuters.com)