A summary of key legal updates for the Private Client industry over the past week is as follows.
Tax policy – mini Budget
The new Chancellor delivered his Growth Plan (or "mini Budget") on 23 September with a raft of tax cuts designed to boost the economy and support households. As we have seen since, with the dramatic drop in the value of the pound, the warnings from the International Monetary Fund, and the Bank of England's £65billion emergency intervention yesterday to save bond markets, the economic success of these policies is in serious doubt. The private client announcements, as they stand at the moment, however, are as follows.
- Income tax – from April 2023, the basic rate will be cut from 20% to 19% (with a four-year transition period for Gift Aid relief) and the additional rate of 45% will be abolished. The additional rate for savings, dividends and the default additional rate will also be removed from April 2023. The recent 1.25% increase in the rates of income tax applicable to dividends will also be reversed.
- Income tax and trusts – whilst we await the legislation (and possible further developments), the assumption is that the trust rate for dividends will reduce from 39.35% to 32.5%, and the trust rate for other income (currently 45%) will reduce to 40%, both from April 2023.
- Stamp duty land tax ("SDLT") – as from 23 September 2022, first time buyers will pay SDLT on homes over £425,000 (up from £300,000) and the SDLT nil-rate band is increased to £250,000 (from £125,000).
- Corporation tax – the increase in the main rate from 19% to 25%, planned for April 2023, is cancelled. The 19% rate remains the lowest in the G20.
- National insurance – as from 6 November, national insurance rates will be cut by 1.25% and legislation for the Health and Social Care Levy (due to take effect in April 2023) will be repealed.
- Charities – these will be included in the government's new Energy Bill Relief Scheme.
- Office of Tax Simplification – this will be abolished with HMRC and HM Treasury having a mandate to focus on simplifying the tax code.
The Chancellor will set out a medium-term fiscal plan on 23 November 2022 accompanied by an Office for Budget Responsibility forecast. There will be a full Budget in spring 2023 (not this autumn as per the usual fiscal timetable). Capital gains tax and inheritance tax ("IHT") were untouched in the mini Budget although these have long been up for reform and simplification. It remains to be seen whether, should the signs of expected economic growth not arrive, there will be more appetite to use reforms to these taxes to help plug the fiscal deficit. 2022 Autumn Statement (Growth Plan): key private client announcements | Practical Law (thomsonreuters.com); EPrivateClient - article (paminsight.com); New UK Chancellor of the Exchequer announces significant tax cuts | STEP; HM Treasury announces autumn Fiscal Plan and spring Budget | Practical Law (thomsonreuters.com); Mini-Budget 2022: The impact on trusts - PKF Francis Clark (pkf-francisclark.co.uk)
Tax policy – Brexit and retained EU tax law
On 22 September, the Retained EU Law (Revocation and Reform) Bill 2022-23 was introduced. The Bill is wide-ranging but includes provisions so that retained EU law in EU-derived secondary legislation and retained direct EU legislation will expire on 31 December 2023 unless otherwise preserved. In connection with this, the government has announced that all required legislation relating to tax and retained EU law will be made via the Finance Bill or subordinate tax legislation. Retained EU Law (Revocation and Reform) Bill 2022-23 introduced to House of Commons (initial update) | Practical Law (thomsonreuters.com)
Tax – proposed IHT exemption for siblings
A private members' bill (the Inheritance Tax Act 1984 (Amendment) (Siblings) Bill) has been introduced to make transfers between siblings during lifetime and on death exempt from IHT in certain circumstances. It had its first reading in the House of Lords in July. The Bill follows the European Court of Human Rights case of Burden and another v UK (29 April 2008) involving two elderly unmarried sisters who argued that the UK's IHT legislation was discriminatory in denying them the equivalent of the spouse exemption (s.18 IHTA 1984). Their case was unsuccessful but brought the issue of siblings' tax rights to the forefront. Proposal to allow exempt transfers between siblings | Taxation
Contentious probate - inheritance claim statistics
According to data from the Ministry of Justice, the number of unmarried couples making inheritance claims has increased fourfold over the last fifteen years. In 2007, 43 inheritance claims were made, but this rose to 192 in 2020 and 165 in 2021. The myth of a "common law marriage" is likely to be a contributing factor with many cohabitants failing to make provision for their partner after death, relying on them having rights automatically by law, when this is not currently the case. EPrivateClient - article (paminsight.com)
Charities – role of Charity Commission in scrutinising charity trustees' decisions
On 21 September, the Charity Commission announced that it will not intervene in the decision of the trustees of the Gerald Curgenven Will Trust to sell the Trust's Cornish estate (for £16million). Local residents had raised concerns about the validity of the trustees' decision. This matter is a reminder that the Commission can scrutinise charity trustee decisions but there will be no intervention where the trustees can demonstrate that they have followed proper processes and acted in accordance with their legal duties. Regulator satisfied that charity trustees' controversial decision to sell Cornish estate was lawful | Practical Law (thomsonreuters.com)