As no last-minute extension was announced by the Government, Wills can no longer be witnessed by video link.

Prior to the Covid-19 pandemic, in simple terms a validly executed Will was:

1. In writing
2. Signed by the person making it (‘the testator’), in the physical presence of two independent witnesses; and
3. The witnesses have signed it in the presence of the person making it.

Lockdown restrictions suddenly created the need for change and, so, the Government amended Section 9 of the Wills Act 1837 to say that, in relation to Wills made after 31 January 2020, “presence” includes presence by means of video conference or other visual transmission, so that witnesses to Wills did not need to be physically present at the signing, but could be legally present, over a video link. Section 9 of the Wills Act 1837 states:

(1) No will shall be valid unless—

(a) it is in writing, and signed by the testator, or by some other person in his presence and by his direction; and

(b) it appears that the testator intended by his signature to give effect to the will; and

(c) the signature is made or acknowledged by the testator in the presence of two or more witnesses present at the same time; and

(d) each witness either—

(i) attests and signs the will; or

(ii) acknowledges his signature,

in the presence of the testator (but not necessarily in the presence of any other witness),

but no form of attestation shall be necessary.

[(2) For the purposes of paragraphs (c) and (d) of subsection (1), in relation to wills made on or after 31 January 2020 and on or before 31 January [2024], “presence” includes presence by means of videoconference or other visual transmission.]

The process of video witnessing of Wills was applied for an initial two-year period from 31 January 2020, but was then further extended to 31 January 2024.

The Law Commission has undertaken a consultation, which ended in December 2023, seeking views on whether a new Wills Act should permit electronic wills, either immediately or by allowing for them to be introduced later. Please see our earlier Bulletin. We will of course update you on the results of that consultation.

However, unless the Government reintroduces video witnessing of Wills, this is no longer an option and witnesses must be in person. The ability to witness a Will’s execution by video link has ended.

Comment

Whilst social distancing and lockdown restrictions made remote witnessing a necessity for all for a time, it is not at all clear just how popular this method was as time went on, given that the process is far more complicated than simply having to have two witnesses physically present. Although, of course, the challenges faced by those wanting to make a Will and who were (and still are) also shielding and isolating have not gone away.

A new report suggests that the State Pension Age may need to rise to 71 by 2050

The current legislated trajectory for the State Pension Age (SPA) is for an increase to 67 between 2026 and 2028, followed by another notch up to 68 between 2046 and 2048, although the 68 timing could change. Following an independent review and DWP review last year, the Government kicked the decision on whether to bring forward an SPA of 68 until a further study is completed after the general election. This was a repetition of the manoeuvre it had executed ahead of the 2019 election (please see our earlier Bulletin) in response to the Cridland Review. Controversially, Cridland had proposed a 2037-39 introduction for an SPA of 68 based on Office for National Statistics (ONS) 2014-based mortality data.

The topic of the SPA is kryptonite for politicians and has been made worse by the path of pensioner life expectancy over recent years (please see, for example, this recent Bulletin). It becomes much harder to justify SPA increases when life expectancy improvements are flatlining. However, life expectancy is not the only financial justification for raising the SPA. Another that is relevant for pay-as-you-go pension systems, such as the UK State Pension, is the old age dependency ratio – basically the number of workers (aged 16-64) per state pensioner.

A new report from the International Longevity Centre (ILC) says by 2050 the SPA needs to rise to between 70 and 71 to maintain the current status quo in terms of dependency ratio. It could be worse: the ILC says that if the UK’s working adult population is defined as 20 to 64 years, to account for time spent in full time education, the SPA might need to hit age 70+ as early as 2040 to maintain the current dependency ratio. The ILC accepts that the recent stalling in life expectancy during the austerity years and COVID has temporarily eased the pressure for increases in the SPA beyond 67 after 2027, but reckons that, in longer-term, the pressure will be to increase the SPA to 68 or 69 before 2040.

The ILC says that in the UK the problem becomes even more pressing because of the exit of workers from the workforce long before SPA, as it reduces the tax base to pay for pensions. Poor health is one of the key reasons for this workforce decline, which the ILC regards as one of the greatest barriers to economic prosperity currently faced by the UK. Research shows that, by age 70, at present only 50% of adults are disability-free and able to work.

The ILC calculates that if the proportion of the economically active population were to increase from current levels of around 78% to 85%, then it may be possible to hold the SPA at below 70 from 2040 – at least for a few years.

Comment

If the next Government is going to adopt the Cridland timing of 2037-39 and stay with the principle of giving at least ten years notice of an SPA change, it will need to commission that fresh study almost as soon as it enters office.

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How the new rules will limit tax-free lump sum payments in lifetime and on death

The lifetime allowance (LTA) will be abolished on 5 April 2024. It will be replaced by a new set of rules that will instead limit tax-free lump sum payments both in lifetime and on death. There will be no limits on any funds used to provide a taxable pension income.

Although no LTA charges have applied since 6 April 2023, for tax year 2023/24 the LTA framework has remained in place. This is an interim measure while HMRC work on a new set of rules to abolish the LTA entirely from 6 April 2024. HMRC have worked closely with the pensions industry to try and introduce a workable solution. Whilst there are a still a few technical issues to resolve, we now have a good idea of how the new rules are intended to work.

The aim is that there are no fundamental changes to the way pensions work. It’s just that new rules must be introduced to limit lump sum payments that were previously restricted by the LTA.

To read more in the full bulletin follow this link.

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National Savings & Investments (NS&I) has announced it will lower the prize rate for premium bonds from 4.65% to 4.40% tax free from 1 March. The odds of winning will remain unaltered at 1 in 21,000.

The premium bond prize rate was increased last September (please see our earlier Bulletin), when the chances of winning were marginally improved, as well as the average prize. Those changes were announced shortly after the Bank (Base) Rate was lifted by the Bank of England to its current level of 5.25%. The March nudge downwards could therefore be seen as pre-empting the likely next move by the Bank, although at present few commentators see a cut arriving as early as March.

The pattern of March’s prize distribution is detailed below along with the current distribution for comparison. The most notable feature is that there will be many more £25 prizes and correspondingly fewer larger prizes.

Comment

The prize rate remains higher than on offer from any other variable rate NS&I product, reflecting the importance of premium bonds to NS&I in meeting its funding target. Given that the top instant access rates are around 5.2%, the bonds still look attractive for anyone who pays tax on interest.

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Why those selling goods and services online won’t be subject to a new tax, despite some information in the media over the past few days suggesting otherwise.

HMRC’s guidance has been updated with information regarding new digital platform reporting rules from 1 January 2024, and with additional examples of when someone may need to pay tax when selling goods or services via an online marketplace.

From 1 January 2024, new rules apply which require UK-based online platforms, e.g. a website or mobile phone app that handles and enables the sale of goods and services from individuals and/or businesses to customers, such as Ebay, Vinted, Uber and Deliveroo, to collect information about most people who make money through their platforms and then, on or before 31 January (for the preceding calendar year), to send this information to both HMRC and the individual themselves.

HMRC has had the power to ask platforms for information for a while now. This change means that UK based platforms will now have to report to HMRC every year, without being asked. These rules are part of a global initiative from the OECD (Organization for Economic Co-operation and Development). HMRC won’t just collect and use data from UK platforms, but will also receive data from overseas platforms. The following transactions are captured:

• Category A – those to do with property rental, vehicle rental or a personal service;
• Category B – those to do with the sale of goods – although not if the individual occasionally sells goods for small amounts. (This is defined as less than 30 transactions during the calendar year for which the total amount made must not exceed 2000 Euros – both tests must be met for this exclusion to apply.)

Category A captures things like taxi and private hire services, food delivery services, freelance work and the letting of short-term accommodation through online platforms. Category B captures people who buy or make purposefully to sell; but not those who sell a few personal belongings every now and again, for example to declutter.

Therefore, people who make money via many different platforms, including the big ones like Uber, Deliveroo, Just Eat, Airbnb, TaskRabbit, Etsy and Ebay may all potentially be affected.  

Information shared with HMRC will include identifying information (name, address, date of birth, etc.) for sellers but also how much they’ve earned and bank account numbers / sort codes. For those letting property, details of the property will be included. This will help HMRC, and other tax authorities, match up information about taxpayers.

Anyone who sells goods or services on these platforms will get a copy of this information. They can use this information to check the amount of income and expenses incurred through these platforms, which may be helpful in determining whether tax is due on any profits.

However, these new rules do not create any new tax obligations for individuals and the existing rules about what platform income needs to be declared and who needs to register for a self-assessment tax return have not changed.

In particular, people selling unwanted personal items such as their children’s old clothes or toys are not likely to be trading. Therefore, even if it is a significant amount, any money they make is generally not taxable.

In order to pay tax on the goods or services sold online, the seller either has to be trading or making a capital gain. HMRC’s guidance confirms that, if the individual is just selling some unwanted items that have been laying around their home, such as the contents of a loft or garage, it is unlikely that they will have to pay tax.

If someone buys goods for resale, or makes goods with the intention of selling them for a profit, then they are likely to be trading and will have to pay tax on their profits. However, if their total income from trading or providing services online was less than £1,000 (before deducting expenses) in any tax year, they would not be required to inform HMRC nor pay any tax on the profits (this is due to the Trading and Miscellaneous Income Allowance).

HMRC’s examples, while not exhaustive, cover a range of common scenarios of selling goods online, and illustrate where tax might need to be paid on any profits made.

The Low Incomes Tax Reform Group (LITRG) is urging anyone who is concerned to read its detailed Q&A guidance to understand what is changing and what it means for them.

The new rules, which have caused a great deal of confusion, mean that HMRC will be receiving more information from online platforms than it was before. The new rules do not mean that everyone selling items on these platforms will be liable to pay tax.

When an individual is selling things they no longer want, e.g. books, toys, clothes etc., the reality is they are generally selling at less than they paid for them. Their activity is unlikely to be regular, organised or developed and they are not operating with a view to making a profit. They are therefore unlikely to be trading. The LITRG explains in what circumstances an individual is likely to be trading in its guidance: Tax if you work in the gig economy.

The data collected by platforms will be sent to both HMRC and the individual themselves by 31 January 2025.

However, the changes do mean that, if people who should have been reporting their income from online platforms have not been doing so, HMRC will be more likely to find out about it. Although, even then, if HMRC find out about income from online platforms, there are some legitimate reasons why people do not need to report it. 

Broadly, HMRC say that its necessary to register and send it a tax return unless: the individual has trading or miscellaneous income (before expenses are deducted) of under £1,000 and the trading allowance applies; or they are selling personal items that they no longer want.

It is also important to remember that, even if an individual’s activity is not captured by the new rules, they still need to check their position, as the money they are making could still be taxable. In particular, the following types of people probably still need to do something about their taxes:

• if an individual falls within the ‘small’ Category B exemption mentioned above but are still trading;
• if the individual is paid outside the platform for some element of their work, perhaps in cash or in kind or gifts;
• if the individual has a business commercially selling direct to the public in fairs and boot sales as well as through a platform (for example, if they had an old antique coin business);
• if the online platform account the individual works under is not in their name, but a friend or relative’s (meaning HMRC will think the income belongs to them).

If an individual is required to declare their income and they are not doing so, then they need to take some action to bring their tax affairs up to date. If they have not declared income for previous tax years, they may also need to take action to correct those years. Failure to meet tax obligations, including declaring certain income, can lead to penalties and interest charges. In rare instances, people selling high value personal items like jewellery and paintings may be caught by capital gains tax, which the LITRG explains further in its guidance: Selling shares and other assets.

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Did you know lawyers often refer to the first day back to work as ‘Divorce Day’!?

Typically, post the festive period, lawyers and law firms see a substantial rise in divorce queries. The first Monday, or first working day of the year has even been termed ‘Divorce Day’.

Alarms are set earlier than we’d like them, waistbands and wallets are stretched uncomfortably. And expectations, as well as tensions, are at an all-time high.

But this year, new research by Legal & General suggests financial pressures, as a result of the cost-of-living crisis, have delayed 19% of divorces. This is approximately 270,000+ couples, who have had to delay getting divorced. All as a result of income fears.

Financial pressures are renowned for causing couples to split. But now it seems they may also be forcing them to have to stay together. The rising cost of everyday essentials, like food and bills, mean some can’t afford to maintain two households. Even those that can, may not be able to sell their current larger family home, or afford the new mortgage rates. 

The increase in money concerns also increases the likelihood that at least one of the divorcees isn’t going to feel the proceeds split is financially fair.

Here’s where we as financial advisers can help. Good financial advice increases the likelihood of a fair and equal split of assets in divorce. But it can also help a client protect their assets as divorcees are often unaware of what they are entitled to or legally required to share. A key focus area, in either case, should be on pensions, as often a pension pot is one of the client’s largest assets.

Separations, like pensions, are complex. So, if you are advising couples who are considering divorce, or advising couples still in the honeymoon phase, divorce should be considered and discussed as part of a long-term financial plan.

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In the run up to last month’s Autumn Budget, there was the usual will-he-won’t-he debate about whether the Chancellor would apply the triple lock to the State Pension. In the event there was none of the tweaking that occurred for the 2022 increase, so earnings growth (8.5%) was applied rather than CPI inflation (6.7%) or the floor (2.5%). As the graph above shows, the triple lock has danced around between all three options since it began life in 2011. The net effect is that in 2024/25 the State Pension will be 73.6% above its 2010/11 level, compared with cumulative earnings increases over the same period of 52.2% and price increases of 51.9%. Although that period is unusual in the virtual disappearance of real wage growth, the numbers highlight the affordability question that looms over the triple lock.

The Institute for Fiscal Studies (IFS) has looked at this topic many times and has now returned to it as part of a major Pension Review, undertaken in partnership with the abrdn Financial Fairness Trust. A new IFS report, ‘The future of the state pension’, sets out the challenges facing the State Pension and proposes a four-point guarantee as the new way forward.

The challenges

1. The ageing population will add considerable pressure on public finances in coming decades. According to the projections from the Office for Budget Responsibility (OBR), spending on the State Pension and other pensioner benefits will rise from 5.9% of GDP (£152bn) in 2023/24 to 7.6% of GDP (£197 billion in today’s terms) by 2050/51. The key drivers of this are a projected 25% more pensioners in 2050 and the triple lock.
   
2. The triple lock ratchets up the value of, and spending on, the State Pension over time in a way that creates uncertainty around what the level of the State Pension will be relative to average earnings, and for the public finances. Compared with increasing the State Pension in line with average earnings, the IFS projects that the triple lock alone could cost anywhere between an additional £5bn and £40bn per year in 2050 in today’s terms. If that seems a wide range, look back at that graph.
   
3. If the Government wants to rein in State Pension spending, then relying only on raising the State Pension Age to achieve this, rather than moving to less generous indexation, would hit those with lower life expectancy harder. The same increase in the State Pension Age has a larger proportional impact on the expected State Pension wealth of people who die at younger ages than for people who live longer. Similarly, people who die at younger ages do not benefit as much from the triple lock, which ratchets up the value of the State Pension over time. Groups with lower life expectancy include poorer people (compared with richer people).
   
4. Despite its relative simplicity, there is a mixture of confusion and pessimism about the State Pension. Although the State Pension has increased at least as fast as inflation every year since 1975, polling conducted as part of the Pension Review revealed considerable scepticism about the future. 38% of respondents thought that State Pension rises will not keep up with inflation in the next ten years. Such pessimism extends to the survival of the State Pension: a third of respondents did not think the State Pension would exist in 30 years’ time.

The four-point guarantee

1. A target level for the New State Pension will be set by the Government, expressed as a share of median full-time earnings to be achieved by a specified date. This echoes the approach to the National Living Wage (NLW), which in 2024 will reach its target of two thirds of median earnings (please see our earlier Bulletin). At present the State Pension is about 30% of median full-time earnings, which the triple lock will gradually – and randomly – ratchet up, if left in place.

The IFS considers it wiser for the Government to set a target and stick with it – as has happened with the NLW – rather than leave matters to the roll of the triple lock dice. Currently, each 1% increase as a proportion of median earnings would add about £5bn to the annual pensions bill. Increases in the State Pension would in the long run keep pace with growth in average earnings, which ensures that pensioners benefit when living standards rise.

2. The State Pension will continue to increase at least in line with inflation every year, both before and after the target level is reached. To the extent this inflation minimum increase is triggered, future increases would be constrained to achieve the long-term earnings-related growth goal. The effect is demonstrated in the graph below:

3. The State Pension will not be means-tested.
   
4. The State Pension Age will only rise as longevity at older ages increases, and never by the full amount of that longevity increase. To increase confidence and understanding, the Government will write to people around their 50th birthday stating what their State Pension age is expected to be. Their State Pension Age would then be fully guaranteed ten years before they reach it.

Comment

In recent years, the triple lock has increasingly looked to be on borrowed time. Its short-term survival will depend on next year’s election manifestos. If either of the two main parties says it will maintain the triple lock for the next Parliament, the other party may feel no alternative but to replicate the promise.  

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The National Insurance Contributions (Reductions in Rates) Bill has already had its second reading in the House of Lords as the Government has requested that Parliament fast track the legislation. The need for speed stems from the 6 January 2024 start date for the primary Class 1 NIC reduction, a timing that many see as politically motivated. As the Bill’s explanatory note wryly observes, ‘It is important for …employers to have as much time as possible to implement the changes to their payroll software ahead of the rate reduction.’

Aside from the headlined ‘tax cuts’, the NIC changes have several indirect effects which have received little attention:

Directors’ NICs

The calculation of NICs for directors is based on their full tax year income. This means that, as happened in 2022/23 when there was a NICs cut, a pro-rata Class 1 NICs rate will apply in 2023/24. For this tax year that will mean a main primary rate of 11.5%, as set out in para 1 of the Schedule to the Bill. Any director thinking that, by deferring payment to 6 January, they will pay 10% NICs on a bonus falling with the main primary NICs band (£12,570 to £50,270) is wrong. To get the full benefit of the lower NICs rate, deferment would need to be until 6 April 2024…at which point other considerations may come into play.

The 11.5% is simply calculated as 12% x ¾ + 10% x ¼.

As both the secondary Class 1 NIC rate and the 2% primary Class 1 NIC rate on earnings above the upper earnings limit are unchanged, no pro-rating applies to these.

Bonus v dividend

There is no change in the numbers where the marginal income tax rate is above basic rate as the relevant marginal NIC rate stays at 2%. At a marginal basic rate, the bonus/salary option becomes slightly less unattractive than a dividend but remains well adrift. For example, in 2024/25, taking the highest marginal corporation tax rate, the numbers look like this:

Incorporation v self-employment

Our last Bulletin on the question of incorporation made clear that the higher corporation tax rate environment had reduced the tax appeal of incorporation. The calculations for this adopted the assumptions that:

• £9,100 (the employer NIC secondary threshold) would be drawn as salary from the company, as this would be NIC-free for the company and its director; and
• The entire balance of gross profit would be subject to corporation tax and drawn as dividends; and
• The dividend allowance (falling to just £500 in 2024/25, remember) was not available.

These assumptions mean that the employee NIC cut is irrelevant. However, on the self-employed side, there are two relevant NIC reductions:

• An end to Class 2 NIC contributions, worth £179.40 a year; and
• A reduction in the Class 4 NIC rate from 9% to 8%, worth a maximum of £377 a year where profits are at least £50,270.

As a result, the incorporation advantage can be up to £556.40 a year less in 2024/25 than 2023/24. Reworking the graph in the previous Bulletin produces this pattern.

The two bands in which incorporation has a theoretical tax advantage have narrowed because of the NICs savings on self-employment, with the maximum gain about £1,600 at £60,000 of profit. Both the bands favoring incorporation have their roots in the absence of grossing up for dividend income. In the first band, that means income attracting higher rate tax arrives at a greater gross profit level. For the second, the absence of grossing up pushes out the point at which the personal allowance begins to be phased out.

Comment

The waning attraction of incorporation will not disappoint HMRC, as it continues its off-payroll working (IR35) battles. It may also encourage some users of personal companies to review the alternative of self-employment (although this needs to also consider the non-fiscal beneficial aspects of trading as a company).

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The Society of Trust and Estate Practitioners (STEP)’s third edition of their standard and special provisions for wills and trust instruments subject to the law of England and Wales (SSP3), which was published on 2 November 2023.

Any adviser involved in estate planning will inevitably see a copy of their client’s will. On many occasions, the will includes a statement that “the STEP Standard Provisions (1st or 2nd edition) shall apply”. Similar wording can be incorporated in a trust deed. It is important to understand what this means and be familiar with the provisions.

The STEP Standard Provisions are a set of ready-made clauses that can be inserted into a will or a trust. These clauses provide protections and powers that enable the executors or trustees to effectively deal with the estate/trust funds.

Any properly drafted will or trust deed must contain a large amount of text dealing with routine administration matters. It had been necessary to set this out in full in each such document until STEP condensed this material into its STEP Standard Provisions.

The STEP provisions are widely used by solicitors and, of course, others drafting wills.

The Provisions were originally published in 1992 (1^st edition). An update was published in 2011 (2nd edition), following changes in trust and tax law.

In 2023, the practice direction was approved by the Chief Chancery Master of the Family Division. This allowed the STEP Standard Provisions (3rd Edition) to be incorporated into wills by reference.

The main changes from the 2nd edition are as follows:

1. Updating of the clauses on trust corporations – now reflecting the usual terms and conditions of trust corporations.
2. Powers of maintenance and advancement – updated to reflect statutory changes made in 2014 to section 32 Trustee Act 1925 that broadened trustee powers over the entire interest of a beneficiary.
3. Powers over capital when a minor or beneficiary without capacity is involved – this reflects the general practice of trustees needing to transfer assets to the parents of a beneficiary under 18 or to pay funds on behalf of or to a person that the trustees consider has a care or financial responsibility for a beneficiary who may lack capacity.
4. Appropriation values – under general law the valuation for appropriation should be made at the time of the appropriation. The SSP2 allowed executors to use a valuation at the date of death instead. This has now been removed.

 Comment

Any adviser advising on estate matters should review their clients’ wills.

Wills using the earlier editions of the provisions remain valid and in force, so it may be necessary to refer to those earlier editions. However, on any next update of the will, it would be sensible to ensure that the latest edition of the Provisions is incorporated.

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The Leasehold and Freehold Reform Bill, which was introduced to Parliament on 27 November 2023.

Back on 7 January 2021, Robert Jenrick, the then Housing Secretary, announced that leasehold reform would be tackled through two pieces of legislation

The first part, The Leasehold Reform (Ground Rent) Act 2022, came into force on 30 June 2022. And the Government committed to action on the second part in February of this year. Please see our earlier Bulletin.

The long-awaited second part, the Leasehold and Freehold Reform Bill has now been published. The Government says that this Bill will:

• Increase the standard lease extension term for houses and flats to 990-years (up from 90 years in flats, and 50 years in houses), with ground rent reduced to a peppercorn (zero financial value) upon payment of a premium. This will make sure that leaseholders can enjoy secure, ground rent-free ownership of their properties for years to come, without the hassle and expense of repeated lease extensions.
  
• Remove the so-called ‘marriage value’, which makes it more expensive to extend leases when they’re close to expiry.
  
• Remove the requirement for a new leaseholder to have owned their house or flat for two years before they can benefit from these changes – so that more leaseholders can exercise their right to the security of freehold ownership or a 990-year lease extension as soon as possible.
  
• Increase the 25% ‘non-residential’ limit preventing leaseholders in buildings with a mixture of homes and other uses such as shops and offices, from buying their freehold or taking over management of their buildings – to allow leaseholders in buildings with up to 50% non-residential floorspace to buy their freehold or take over its management.
  
• Make buying or selling a leasehold property quicker and easier by setting a maximum time and fee for the provision of information required to make a sale (such as building insurance or financial records) to a leaseholder by their freeholder (known as ‘landlords’).
  
• Require transparency over leaseholders’ service charges – so all leaseholders receive better transparency over the costs they are being charged by their freeholder or managing agent in a standardised comparable format and can scrutinise and better challenge them if they are unreasonable.
  
• Replace buildings insurance commissions for managing agents, landlords and freeholders with transparent administration fees – to stop leaseholders being charged exorbitant, opaque commissions on top of their premiums.
  
• Extend access to “redress” schemes for leaseholders to challenge poor practice. We will require freeholders who manage their property to belong to a redress scheme so leaseholders can challenge them if needed.
  
• Scrap the presumption for leaseholders to pay their freeholders’ legal costs when challenging poor practice. 
  
• Grant freehold homeowners on private and mixed tenure estates the same rights of redress as leaseholders – by extending equivalent rights to transparency over their estate charges and to challenge the charges they pay by taking a case to a Tribunal, just like existing leaseholders.
  
• Build on the legislation brought forward by the Building Safety Act 2022, ensuring freeholders and developers are unable to escape their liabilities to fund building remediation work – protecting leaseholders by extending the measures in the Building Safety Act 2022 to ensure it operates as intended.
  
• Ban the sale of new leasehold houses so that – other than in exceptional circumstances – every new house in England and Wales will be freehold from the outset.
  

As announced in the King’s Speech, the Government will introduce some measures at first reading and others as amendments as the Bill makes its way through Parliament to deliver on the full range of commitments. These will include measures to amend the Building Safety Act 2022 to make it easier to ensure that those who caused building-safety defects in enfranchised buildings are made to pay, and that the leaseholder protections are not unfairly weighted against those who own properties jointly.

Earlier this month, the Government also published a consultation on capping existing ground rents, to ensure that all leaseholders are protected from making payments that require no service or benefit in return, have no requirement to be reasonable, and can cause issues when people want to sell their properties. Subject to that consultation, the Government will look to introduce a cap through the Leasehold and Freehold Reform Bill.

The Bill will extend and apply to England and Wales.

The Government says that these changes will, amongst other things, make it significantly cheaper for leaseholders to extend their leases. An example given previously by Government was that a young first-time buyer in a £250,000 leasehold flat in Birmingham with 76 years left on the lease, who would currently have to pay around £16,000 to extend the lease plus around £10,000 to cover their costs and the freeholder’s costs, would, under these reforms, now only pay around £9,000 plus their own legal costs for a 990-year extension – a saving of over £10,000.


Comment

Housing Secretary, Michael Gove, has reportedly said that he is confident that the Bill will pass into law before the general election. We will keep you up to date on any developments.

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