A summary of key legal updates for the Private Client industry over the past week is as follows. 

Mental capacity – retrospective assessments 

In Public Guardian v RI and others [2022] EWCOP 22 (7 June 2022), the Court of Protection cancelled the registration of a Lasting Power of Attorney ("LPA"), concluding that the donor (an individual with a lifelong learning disability) had lacked the mental capacity to execute it. The Court gave guidance on the procedure to be followed when retrospectively determining a donor's capacity to execute an LPA noting that there was currently a lack of published authority. Part of the test of capacity set out at s.3 of the Mental Capacity Act 2005 ("MCA 2005") is that the donor must understand the information "relevant" to the decision (s.3(1)) and the judge expanded on this to say that the "relevant" information in relation to the execution of an LPA is:

  • the effect of the LPA;
  • who the attorneys are;
  • the scope of the attorneys' powers and that the MCA 2005 restricts the exercise of their powers;
  • when the attorneys can exercise those powers, including the need for the LPA to be executed before it is effective;
  • the scope of the assets the attorneys can deal with under the LPA;
  • the power of the donor to revoke the LPA when he has capacity to do so; and
  • the pros and cons of executing the particular LPA and of not doing so.

In addition to this guidance, the decision highlights the need for practitioners to exercise particular care when acting for a donor who is known to have a learning disability or other impairment which might affect their capacity. LPA donor lacked capacity to execute LPA purportedly made twelve years ago | Practical Law (thomsonreuters.com)

Capital gains tax – PPR case

In Lee v Revenue and Customs Commissioners [2022] UKFTT 175 (TC), the First-tier Tax Tribunal ("FTT") held that, for principal private residence relief ("PPR relief") purposes, "dwelling house" does not include land and "period of ownership" refers to the period of ownership of the dwelling house rather than the land it is built on. The taxpayers had purchased land in 2010 and redeveloped this over the next 43 months including building a new house which they occupied for the last 15 months. They sold the land and house at a significant gain. HMRC claimed that the "period of ownership" for PPR purposes was the whole 43 month period and, as the taxpayers only occupied the house for 15 months of this, PPR relief was available at 18/43rds of the gain (as PPR at the time was available for the last 18 months of ownership). The taxpayers contended that the "period of ownership" meant the 15-month ownership of the house and, as this fell within the 18 months before disposal, they would be entitled to 100% relief. The FTT agreed. The decision is useful when assessing how PPR relief applies in cases involving redevelopment of land. CGT PPR: period of ownership means ownership of dwelling house rather than land it is built on (First-tier Tribunal) | Practical Law (thomsonreuters.com)

Charities –Charity Commission consultation on annual returns 

On 9 June, the Charity Commission launched a consultation on a new approach and format for charities' annual returns ("AR"). The Commission has proposed that, each year, it will ask a core of fixed questions and select other questions depending on prevailing circumstances. The Commission also proposes adding 23 new questions to the AR, meaning a minimum of 32 questions will be asked of all charities (an increase from 16). The consultation closes on 1 September 2022 and a response is to be published in the autumn. Charity Commission consults on new flexible approach and questions for annual return for 2023 onwards | Practical Law (thomsonreuters.com)

US – corporate transparency and beneficial ownership reporting

STEP USA has produced a guidance note for trust and company service practitioners on the US’s Corporate Transparency Act ("CTA") and proposed beneficial owner information reporting regime for companies. The CTA was enacted on 1 January 2021 and requires "reporting companies" to provide selected information about their beneficial owners for a (non-public) database. The aim of the regime is to combat "the proliferation of anonymous shell companies that facilitate the flow/sheltering of illicit money in the US". "Beneficial owner" means any individual who exercises "substantial control" over a reporting company or has at least a 25% ownership interest. A settlor, beneficiary or trustee can be in substantial control or have an ownership interest. step-usa-note-of-corporate-transparency-act-.pdf