Some key highlights of legal updates affecting the Private Client industry over the past month are as follows.
Tax – new tax year changes
The tax changes to note that came into effect for the new tax year 2024/25 are as follows.
- Capital gains tax (“CGT”) – reduction in the annual exemption from £6,000 to £3,000 (individuals and personal representatives (“PRs”)) and £1,500 for trustees.
- CGT – rate for residential property gains reduced from 28% to 24% (for individuals and trustees).
- Income tax – dividend allowance reduced from £1,000 to £500.
- Inheritance tax (“IHT”) – agricultural property relief and woodlands relief restricted to UK agricultural land and woodlands from 6 April 2024.
- Trusts – new income tax rules for “low-income” trusts and estates are now in force (please see below for further details).
- Charities – following legislation last year to restrict charitable tax reliefs to UK charities only, the transitional rules put in place for existing qualifying EU or EEA charities whereby their charitable reliefs would continue until 1 or 6 April 2024 (depending on the tax) have now come to an end. Such charities will need to establish a UK presence if they wish to continue to benefit from UK tax relief going forwards.
- IHT – the rules on “grants on credit” have changed from 1 April 2024 (please see below for further details).
- Transfer of assets abroad (“TOAA”) – from 6 April 2024, the TOAA rules apply to a transfer made by a “closely-held” company such that it will be treated as being made by an individual with a qualifying interest in that company, where the individual will have the power to enjoy the income arising abroad, or received a capital sum, as a result (the “HMRC v Fisher” scenario). You can read more about this change in our summary note on the Budget 2024 here.
- National insurance contributions (“NICs”) – main rates of employee class 1 NICs have reduced from 10% to 8%, and self-employed class 4 NICs to 6% rather than 8%. The mandatory class 2 NICs has been abolished.
Offshore – non-dom tax changes
Developments to note during the past month on the government’s proposed changes to the taxation of non-UK domiciled individuals (“non-doms”) are as follows. For further details on these non-dom changes, please see our “Budget 2024: Non-Dom Changes” landing page.
- Labour party reaction – on 9 April, the Labour party provided some information on how they would approach the government’s proposed non-dom tax changes if they come to power. Shadow Chancellor Rachel Reeves commented on “loopholes” within the government’s proposals and announced that the Labour party would seek to raise £2.6billion by closing these. Examples include scrapping the government’s proposed 50% tax discount for non-doms who benefit from the current non-dom tax system but who would become subject to UK tax in the first year of the new rules. A further example is subjecting foreign assets held in offshore trusts to IHT; at present, the government has given non-doms a window of opportunity between now and 5 April 2025 to create new offshore trusts that will qualify as “excluded property trusts” for IHT purposes. Labour vows to fund NHS pledges by tackling tax dodgers – BBC News
- Industry feedback – HM Treasury has announced a series of “listening events” to discuss the proposed non-dom tax changes with stakeholders. These events are scheduled between 13 and 31 May 2024 and will provide stakeholders an opportunity to give comments on the proposed policy changes. Changes to the taxation of non-UK domiciled individuals – details of external engagement – GOV.UK (www.gov.uk)
- Timing of implementation – in terms of the awaited draft legislation to give effect to these non-dom changes, along with a consultation on the IHT aspects, the government has said that: “further details on how the government plans to engage on the technical detail of the legislation, together with details of the Inheritance Tax consultation and Overseas Workday Relief engagement, will be published in due course”. The documents were not published as part of the government’s “Spring 2024 Tax Day” on 18 April. The parliamentary summer recess starts on 23 July so it is hoped that the draft legislation and consultation will be published well before then. Changes to the taxation of non-UK domiciled individuals – details of external engagement – GOV.UK (www.gov.uk)
Tax – new rules for low-income trusts
With effect from 6 April 2024, Income Tax Act 2007 was amended so that trusts and estates with income of up to £500 are exempt from income tax. This limit is shared with any other current accumulation or discretionary trusts that the settlor has created, subject to a minimum limit of £100. The current £1,000 de minimis band for discretionary trusts no longer applies. Trusts with income in excess of £500 are subject to income tax on the full amount at the usual tax rates. Trusts and taxes: Trusts and Income Tax – GOV.UK (www.gov.uk)
Tax – IHT grants on credit
On 1 April, HMRC published guidance in connection with the announcement in Budget 2024 that PRs can apply to HMRC for a “grant on credit” enabling them to pay the estate’s IHT liability before probate without first having to seek commercial loans to raise the funds. In accordance with the guidance, the application should be done by letter to HMRC and should include a statement confirming that the PRs are unable to release funds from the estate using the methods described in the guidance. PRs must contribute the maximum amount they can raise. If the application is granted, HMRC will postpone the payment deadline for all or part of the IHT, although the applicant must undertake to pay the IHT within an agreed timescale. HMRC will charge interest on any IHT not paid by the six-month deadline from date of death. Apply to postpone payment of Inheritance Tax – GOV.UK (www.gov.uk)
Tax policy – Tax Administration and Maintenance Day
18 April was “Spring 2024 Tax Day” on which the government published tax consultations and associated documents on tax administration and maintenance. There were no tax policy developments of major importance for private client practitioners but there was an announcement that the government will launch a 12-week consultation on introducing a targeted VAT relief for low value household goods which businesses donate to charities. Summary of tax administration and maintenance: Spring 2024 – GOV.UK (www.gov.uk)
Offshore – Register of Overseas Entities (ROE)
New regulations have been issued under the Economic Crime and Corporate Transparency Act 2023 (“ECCTA 2023”) and the associated register of overseas entities (“ROE”), along with the new Companies House guidance as follows.
- Financial penalties – the Economic Crime and Corporate Transparency Act 2023 (Financial Penalty) Regulations 2024 (published on 26 March) allow the Registrar of Companies to impose a financial penalty on a person if satisfied beyond reasonable doubt that the person has committed misconduct amounting to an offence under s.1132A of the Companies Act 2006. The regulations come into force on 2 May 2024.
- Fees – the Registrar of Companies and Register of Overseas Entities (Fees) (Amendment) Regulations 2024 (published on 3 April 2024) correct errors in the Registrar of Companies (Fees) (Amendment) Regulations 2024 and the Registrar of Companies (Fees) (Register of Overseas Entities) Regulations 2024.
- Removal from the ROE – on 17 April, Companies House published new guidance on the procedure for overseas entities to apply to be removed from the ROE if they are no longer registered owners of relevant UK property or land. Entities must pay a £400 fee and complete an application for removal including a confirmation that all the information held about the overseas entity remains correct. The removal process does not allow for an entity’s record to be fully deleted; the original explanatory note to s.9 of ECCTA 2023 states that the entity’s entry on the ROE will continue to reflect the previously provided historic information, until the records are archived at the Public Record Office (even then, they will remain available to the public).
Overseas entities can now apply to be removed from UK register | STEP; UK parliament (financial penalty regulations); UK parliament (consequential, supplementary and incidental provisions regulations); UK parliament (explanatory note); The Economic Crime and Corporate Transparency Act 2023 (Financial Penalty) Regulations 2024 (legislation.gov.uk)
Mental capacity – testamentary capacity and predatory marriage case
Langley v Qin (2024) is a Will dispute case highlighting how the automatic revocation of a Will by a predatory marriage can cause lasting problems. The dispute related to the Will of Robert Harrington who, at the age of 93, married his carer (Ms Qin, aged 54). Ms Qin encouraged Mr Harrington to make a new Will in her favour. On Mr Harrington’s death, his daughter succeeded in setting aside the Will for want of testamentary capacity, want of knowledge and approval, and undue influence. Costs were awarded against Ms Qin on the indemnity basis due to her conduct. Despite the Will being invalid, the previous Will (made before the predatory marriage) could not be revived (it being revoked on the marriage), meaning that Ms Qin stands to inherit under the intestacy rules and is entitled to the fixed net sum (£270,000 in this case) and half of the remainder of Mr Harrington’s estate. Further litigation is expected as it was revealed at trial that Ms Qin may have received over £230,000 from Mr Harrington’s bank accounts in the months before, and days after, his death. The rule that marriage revokes a Will is one of the issues that the Law Commission is currently reviewing as part of its “Making a Will: A Supplementary Consultation Paper” (published October 2023). Read Wedlake Bell Partner, Victoria Mahon’s, commentary on the Langley v Qin case here including preventative steps that families in similar situations could consider. NSC-TWE-Case-Note-Langley-v-Qin-JMK-15.4.24.pdf (newsquarechambers.co.uk)
Probate – increase to probate fees
In a consultation response published on 1 April, the Ministry of Justice announced that it is going ahead with its proposed increase to probate fees from May 2024. The standard probate fee (for estates over £5,000) will increase from £273 to £300. Court of Protection hearing fees will be unchanged at £494 – however, the fees to apply for action under, a hearing under, or to appeal a decision made under the Mental Capacity Act 2005 are among those being increased by 10% (the application fee is increasing to £408 (from £371) and the appeal fee is increasing to £257 (from £234)).