Welcome change

The Autumn Statement delivered by
the Chancellor of the Exchequer on
3 December 2014 contained a few
surprises for private client practitioners.

The government’s announcement that it has shelved the plans to give each individual a single settlement inheritance tax (IHT) nil-rate band (the IHT-free amount, currently £325,000) to be shared between all trusts is a welcome surprise.
The proposal had already undergone a number
of consultations; responses criticised it for being
too complex and unfair in its retrospective effect.

However, the government still intends to bring in measures to simplify the IHT rules in respect of relevant property trusts and to seek to prevent settlors using multiple trusts to avoid IHT. Draft legislation for the Finance Bill 2015, which sets out such measures, was published on 10 December 2014. Commentary on this will be included in the next wealth management update.

The revision of the stamp duty land tax (SDLT) charging structure on residential property will be welcomed by many as a fairer system. The levying
of a single rate of SDLT on the purchase price
(known as ‘the slab’ system) has been replaced from
4 December 2014 by a system where SDLT will be payable at each rate on the portion of the purchase price that falls within that band. Generally, those purchasing properties worth less than £937,500
(or between £1m and roughly £1.18m) will now pay less SDLT. However, those at the higher end of the SDLT scale, where properties are worth £1.18m or more (and, due to the way in which the new bands work, those buying properties worth between £937,500 and £1m) will now pay more SDLT in the light of the increased rates, the top rate having increased from 7 per cent to 12 per cent of the portion of the purchase price which exceeds £1.5m.

The increase in the remittance basis charge (RBC) will affect non-UK domiciled UK residents. Such individuals benefit from a favourable tax regime (the remittance basis) under which they are only subject to UK tax on their offshore income and capital gains if these are brought into the UK. To continue to be eligible for this treatment once they have been a UK resident for at least seven out of the last nine tax years, individuals must pay an annual RBC of £30,000; this rate will remain unchanged. However, from April 2015, those who have been UK residents for at least 12 out of the previous 14 years will have to pay an increased RBC of £60,000 (the charge is currently £50,000). There will also
be a new RBC of £90,000 for individuals who have
been UK residents for at least 17 out of the last 20
tax years. Currently, those subject to the RBC can elect each year whether they wish to pay the charge, depending on how beneficial it would be to do so. The government intends to consult on increasing the minimum period of election from one to three years, making it increasingly difficult for those subject to the RBC to pay it only when beneficial
for them.

The annual tax on enveloped dwellings (ATED), which is applicable to residential properties with
a value of over £2m that are held by companies and other non-natural persons, is to increase from April 2015. The starting rate for properties worth up to £5m will be £23,350 (increasing from the current rate of £15,400), going up to £218,200 (from the current rate of £143,750) for properties valued
at over £20m. This is part of the government’s continuing drive to make it increasingly unattractive to purchase property via such structures.

Investor visa route

A number of changes to the UK Tier 1 visa scheme, which allows non-European citizens and their families to live in the UK provided they invest in the UK economy, have been introduced with effect from 6 November 2014. This scheme forms part of a range of incentives introduced by the government to attract foreign investors to the UK. Most notably,
the minimum investment required has doubled from £1m to £2m. A rise had been anticipated for some time as the £1m minimum had remained unchanged for many years.

A new requirement under the scheme is for the entire investment to be in active and trading UK companies or UK government bonds. This means that investors can no longer hold up to 25 per cent of the funds in a UK bank account or invest up to
25 per cent in other UK assets such as their home.
It is not envisaged that this change will have a significant effect as many investors to date have opted, in any event, to invest all funds in a qualifying portfolio for simplicity.

A welcome change for those wanting to make use of the scheme is the removal of the requirement for investments to be topped up if their market value falls below the minimum threshold. The changes will only apply to new visa holders under this scheme, so that existing visa holders will not be affected. The government also said that it intends
to consult on the type of investments the scheme should encourage, with a view to using it to bring about more economic benefits. The outcome of the consultation is expected in the course of the year.

Proprietary estoppel

The Court of Appeal’s recent dismissal of an
appeal in Southwell v Blackburn [2014] against
a successful proprietary estoppel claim highlights
the importance of unmarried cohabiting couples putting in place cohabitation agreements or declarations of trust which record the parties’ intentions for their respective interests in their home, should the relationship break down in
the future.

In this case, the parties had been living together for five years in a property funded by the defendant and registered in his sole name. When their relationship broke down, the claimant claimed
a share in the property. The first instance court
found that the claimant had an equitable interest
in the property on the basis of proprietary
estoppel, despite not having made any significant contribution to the purchase price or outgoings
of the home. The essence of this equitable doctrine was that the defendant had encouraged the claimant to act to her detriment in the belief that she would obtain an interest in the property. The first instance judge found that the defendant had given the claimant assurances over rights of occupation (in terms of having a home for life), even if not over ownership. As a result of this, the claimant had abandoned her previous home, in which she had invested, uprooted her daughters and invested
the small amount she had left in the property she shared with the defendant, without having any security of title. By contributing to housekeeping duties, the claimant had supported the defendant
in his career success during their relationship, when
his earnings and the value of the home increased significantly.

Couples should therefore be wary about giving assurances regarding their home if they are to ward off potential equitable claims from those who have acted to their detriment (a very wide concept)
by relying on such assurances. Cohabitation agreements or declarations of trust can help
to prevent such claims.

Remuneration of lay trustees

The case of Brudenell-Bruce v Moore and others [2014] serves as a reminder that a lay trustee
cannot be remunerated for acting as trustee unless authorised by the court. The lay trustee in this case had agreed to act as such for free when asked by
his beneficiary friend, who had informed him that
the time involved in the role would be limited.
The trustee later remunerated himself from the
trust fund when his role became considerably more onerous than anticipated. Following a breakdown in the relationship between the beneficiary and the trustee, the beneficiary obtained an order from the court for the trustee to pay back his remuneration.

The court explained that it will only authorise remuneration of a lay trustee where this would be in the interests of the good administration of the trust or where the services rendered were completely outside what had originally been envisaged. In this case, remuneration was not authorised for various reasons, including the fact that the trustee would have become aware of the extent of his role upon appointment, the trust had limited funds and the trustee had no relevant qualifications or expertise that would have warranted remuneration. The case emphasises the need for lay trustees to ensure that they fully understand the extent of their role before taking on trusteeship. SJ

Victoria Mahon de Palacios is a senior associate at Wedlake Bell