A summary of key legal updates for the Private Client industry over the past week is as follows.
Offshore – Register of Overseas Entities
On 21 July, the Law Society published an "interim note for real estate/property lawyers: new register of overseas entities" ("ROE") and, on 22 July, Companies House published a Stakeholder Newsletter on the ROE. The points to note from these are as follows.
- Companies House intends to open the ROE on 1 August 2022.
- Overseas entities acquiring property interests in England and Wales will not be able to complete on or after 1 August 2022 unless they are on the ROE.
- Registration will enable the overseas entity to acquire an Overseas Entity ID number that will be needed to register the property transaction with the Land Registry.
- The land registration aspects of the legislation will not come into force until 5 September 2022, so an application to the Land Registry (to include the Overseas Entity ID number) cannot be made until on or after 5 September.
- Before an overseas entity can register, a supervised UK-regulated agent will need to verify the required information about the overseas entity.
- The Law Society "interim note" advises that verification for ROE purposes is a very different task to client due diligence under the money laundering regulations and lawyers should exercise "extreme caution" if they are considering providing such verification.
- Although trusts are not "overseas entities" for the purposes of the ROE, trusts are disclosable as beneficial owners of overseas entities where relevant. The Companies House Newsletter lists the information required on affected trusts, their trustees, beneficiaries, settlors and any other person who has the power to appoint or remove trustees.
- The required information about trusts will not be available for the public to view.
Trusts – disclosure of Trust Register data
On 20 July, HMRC published an Agent Update setting out its policy on responding to third-party requests for information held on the Trust Registration Service ("TRS") as from 1 September 2022. Where the request is made under the "legitimate interest" rule, the request must show reasonable grounds for suspicion of money laundering or terrorist financing in relation to a specific trust. Alternatively, the request may be made under the "offshore company rule" (without the need to show "legitimate interest") if the trust holds a controlling interest in a company or other legal entity in a non-EEA country. If the request is granted, the data disclosed will include details of the beneficial owners associated with the trust. Disclosure will be refused where the trust is of an excluded type. UK government sets out conditions for disclosure of TRS data | STEP
Professional conduct – undertakings
On 21 July, the Law Society published guidance on the risks with accepting undertakings given by incorporated law firms as opposed to individual solicitors. This issue was highlighted in the Supreme Court case of Harcus Sinclair LLP v Your Lawyers Ltd (2021) where it was noted that the courts do not have jurisdiction to enforce an undertaking given by an incorporated law firm unless that undertaking separately gives rise to a cause of action such as a contractual claim. It is therefore more difficult to enforce undertakings against incorporated law firms than it is against individual solicitors. Nevertheless, breach of an undertaking by an incorporated law firm could lead to a fine or sanctions by the SRA or the Solicitors Disciplinary Tribunal. New Law Society practice note on undertakings | Practical Law (thomsonreuters.com)
Tax policy – publication of Finance Bill 2023
On 20 July, draft legislation for the Finance Bill 2023 was published. As expected, this includes rules extending the CGT "no gain no loss" window on separation and divorce. Under the draft new rules, from 6 April 2023, separating spouses or civil partners will be given up to three years after the year they cease to live together in which to make "no gain no loss" transfers, or unlimited time when the transfer is part of a formal divorce agreement. The "no gain no loss" treatment currently applies only to transfers in the tax year of separation. The draft legislation is open for consultation until 14 September 2022 and will be introduced into Parliament following the Autumn 2022 Budget (date yet to be announced). Draft Finance Bill 2023 legislation: CGT rules to be relaxed on separation and divorce | Practical Law (thomsonreuters.com)
Tax – Business Property Relief case
In Firth v HMRC  UKFTT 219 (TC), the First-tier Tribunal ("FTT") has held that an aparthotel business consisted of wholly or mainly making or holding investments and did not qualify for inheritance tax business property relief ("BPR"). Although the business put forward evidence of non-investment activities (such as the various ancillary services they offered to guests), the investment-related activities outweighed these and suggested that the business was selling short term rental accommodation, not being run as a boutique hotel. The FTT accepted that some aparthotels could qualify as eligible for BPR, but the facts of the case did not allow this conclusion in this case. IHT business property relief: aparthotel business fails mainly investment test (First-tier Tribunal) | Practical Law (thomsonreuters.com)
Contentious probate – Law Society note on disputed Wills
On 19 July, the Law Society published an updated version of its practice note: "Disputed Wills – guidance for practitioners". Law Society practice note on disputed wills: further revisions | Practical Law (thomsonreuters.com)
Estate planning – Law Society note on making gifts
On 15 July, the Law Society updated its practice note "Making gifts of assets" relating to the transfer of assets to family and friends before death. Law Society updates practice note on making gifts of assets | Practical Law (thomsonreuters.com)