A summary of key legal updates for the Private Client industry over the past month is as follows.
Trust Register - 90-day reporting
Affected trusts that are set up (or first become registrable) after 4 June 2022 must be registered within 90 days. The deadline of 1 September 2022 applies to non-taxable trusts (and certain taxable trusts) that were set up and became registrable before 4 June 2022. The 90-day reporting rule applies to both taxable and non-taxable trusts. (Regs. 45 and 45ZA of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017/692)
Mental capacity – government response to consultation on modernising LPAs
On 19 May, the Ministry of Justice published its response to the public consultation on modernising Lasting Powers of Attorney ("LPAs") originally launched in July 2021. The response concludes that the government will move ahead with introducing a digital LPA channel, however: i) the paper route will remain for people who do not have the required technology; and ii) the legislation will include powers for the digital route to be mandatory for professionals at a future date. These developments will require amendments to the Mental Capacity Act 2005 and legislation will be introduced "when parliamentary time allows".
Some of the other points to note from the consultation response are:
- witnessing – the government's suggested alternatives to witnessing (removing the need for a witness, allowing remote witnessing or using digital signatures) attracted criticism; however, the government will continue to investigate whether: i) technology can be used to replace the witness with a similar digital function; and ii) the role of the certificate provider and the witness can be combined to authenticate execution of the LPA;
- certificate providers – additional guidance and support will be provided to certificate providers to help them assess the donor's understanding of the LPA; and
- OPG service – a special fast-track LPA service will not be introduced despite concerns expressed in some of the responses about the length of time it takes the OPG to register an LPA.
Paper channel to remain under LPA modernisation plan | News | Law Gazette; England and Wales LPA reform proposals focus on role of witnesses | STEP; Government responds to public consultation on modernising LPAs (full update)
Residence – first reported case on the statutory residence test
A Taxpayer v HMRC [2022] UKFTT 133 (TC) (21 April 2022) is the first reported case on the "exceptional circumstances" exemption from the statutory residence test ("SRT") day-counting rule in paragraph 22(4), Sch. 45, Finance Act 2013. The First-tier Tax Tribunal ("FTT") found in favour of the tax-payer whose visit to the UK in tax year 2015/16 was extended by six days because she had to care for her twin sister and her sister's two minor children. As a result, the taxpayer was non-UK resident under the sufficient ties test and not liable for income tax on a £8 million dividend. Some interesting points arising out of the case are:
- circumstances can be exceptional even if they are foreseeable (this finding appears to conflict with the Residence, Domicile and Remittance Basis Manual at RDRM13240 - Residence: The SRT: Annex B: What are exceptional circumstances);
- the taxpayer must show that the circumstances prevented him/ her from leaving the UK and "prevent" can encompass physical, moral, conscientious and legal inhibitions; and
- the judgment indicates that it was the need to care for the sister's two minor children that tipped the situation into exceptional circumstances.
First-tier Tribunal considers exceptional circumstances for SRT | Practical Law (thomsonreuters.com); UK Statutory Residency Test: first decision on "exceptional circumstances" - PwC Suite
Residence – statutory residence test and Ukraine crisis
HMRC has updated its guidance on "exceptional circumstances" to address the crisis in Ukraine. The updated guidance confirms that as current government advice is against all travel to Russia, Belarus and Ukraine, individuals returning to the UK from these territories will qualify for days spent in the UK to be disregarded due to exceptional circumstances, subject to the 60-day limit. HMRC updates guidance on SRT exceptional circumstances to address Ukraine crisis | Practical Law (thomsonreuters.com)
Contentious probate – NRB legacy
Beasant v Royal Commonwealth Society for the Blind, 2022 EWHC 1319 Ch relates to the construction of a nil-rate band ("NRB") legacy in a Will. The claimant argued (appealing against two earlier orders) that the clause was intended to give him a gift of £325,000, but the residuary beneficiaries (consisting of 21 charities) argued that the sum should be nil. The clause was drafted as follows: "In this clause [4.1] “the nil-rate sum” means the largest sum of cash which could be given on the trusts of this clause without any inheritance tax becoming due in respect of the transfer of the value of my estate which I am deemed to make immediately before my death." The Will contained other legacies to the claimant which together exceeded the NRB. The claimant argued that the deceased could not have intended to include a gift that equated to nothing: the Will was therefore ambiguous and should be construed by the court according to evidence of the testatrix's intention under s.21 Administration of Justice Act 1982. The High Court dismissed the appeal. Nil-rate-band legacy cancelled out by definition clause, finds EWHC | STEP
