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.

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk.

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.  

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk.

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).

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk.

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.

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk.

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.

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk.

The new NLW rate for 2024/25, which has been announced at a higher level than originally proposed

Source: Gov.UK CPI based on September in year

What gets revealed either side of a fiscal statement can often throw a light on measures that the Treasury find awkward to include in the main presentation. The announcement on the day before the Autumn Statement of the 2024/25 National Living Wage (NLW) and National Minimum Wage (NMW) rates is a case in point.

As we noted in an earlier Bulletin, the Chancellor had trailed in October that the NLW rate would rise to over £11 an hour (from the current £10.42) as well as being extended down to 21 year olds (from the current 23 minimum age). Yesterday’s announcement revealed a figure well over £11 and 1p above the top of the band proposed by the Low Pay Commission back in March. The new rates are:

* NLW applies from age 21 from 1/4/2024, previously 23

The 9.8% NLW increase is well above the current rate of inflation (4.6% CPI in October 2023) and comfortably exceeds the latest Office for National Statistics (ONS) earnings growth figures for July-September of 7.9% (including bonuses) and 7.7% (excluding bonuses). The size of the rise is driven by the Government’s longstanding goal to bring the NLW up to two thirds of median earnings by April 2024 for workers aged over 21. This also explains the jumps in the NMW for those under age 21, bringing them closer to the NLW level they will eventually move into.

The large increases are something of a problem for the Chancellor:

• It was not so long ago that Mr Hunt was saying that pay rises above inflation would be a ‘terrible mistake’ and fuel inflation.
• On the day that the NLW announcement was made, the Governor of the Bank of England told the Treasury Committee that wage growth remained too high, creating an upside risk to inflation. Of late, Mr Hunt (and his boss) have focussed on their ‘success’ in halving inflation in 2023.
• The sharp jump in the NLW will directly benefit 2.7m employees and indirectly benefit many more – a £1.02 an hour increase will ripple some way up through wage scales. That will add to business (and Government) costs, potentially countering the increased investment Mr Hunt wishes to encourage via his widely anticipated ‘full expensing’ extension.
• A 10%ish NLW rise contrasts awkwardly with the likely continued freeze in the personal allowance.
• Similarly, the NLW rise may shine an unfavourable light on benefit increases, particularly if working benefits are linked to October 4.6% CPI, as has been rumoured.
  

Comment

The 2024/25 NLW equates to £20,821 a year, based on a 35-hour week. That is a number worth remembering when the New State Pension, assuming a (far from certain) 8.5% increase, will be £11,502…   

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk.

With fractional shares, rather than owning a share in a company, individuals own fractions of one or more shares. This could be useful, where, for example, a whole share would cost more than the £20,000 annual ISA subscription.

The emergence of fractional shares post-dates the ISA regulations. However, HMRC recently issued a definitive answer on the topic of differential shares in ISAs, by way of its tax-free savings newsletter published on 9 October 2023.

According to HMRC, a fraction of a share is not a share and therefore cannot be held in ISAs. ‘Shares’, as referred to in paragraph 7(2)(a) of the ISA Regulations, refers only to whole shares and not parts or derivatives thereof. A fraction of a share does not give the investor the same legal rights as a whole share does. Fractional shares could only qualify for inclusion in ISAs if the ISA Regulations were amended to allow them.

HMRC’s newsletter goes on to say that, where fractional shares are an underlying investment in a collective investment scheme or fund (for example an exchange traded fund), they are not subject to the same restrictions.

HMRC says that any ISA managers who allow fractional shares to be purchased or held within their ISAs as a qualifying investment under Regulation 7(2)(a) should contact HMRC by email at savings.compliance@hmrc.gov.uk.

However, it appears that, this update has caused some controversy, with disagreement in some parts over HMRC’s interpretation of the consolidated version of The Individual Savings Account Regulations 1998 (SI 1998 No. 1870). According to AccountingWEB, Dan Neidle, a regular contributor to their site, has since “set out his own stall”, as to why he believes that HMRC is probably wrong. Please see here.

Whether such an investment is in fact legal or not, since HMRC has published its own view, it’s unlikely that an investor would want to take a chance on including fractional shares in their ISA in the knowledge that this would be open to challenge.

It’s quite possible that HMRC will seek to settle the matter via the courts. However, that will take time, and that might mean investors facing uncertainty regarding their entitlement to tax relief on the fractional shares in question until some time late in the current decade.

Or, maybe, Jeremy Hunt will look to resolve this once and for all, in the upcoming Autumn Statement, by arranging for some suitable wording to be included in the current ISA regulations, either to make it clear that that fractional shares can’t be held in an ISA, or, perhaps, to allow fractional shares to be held in an ISA.

Please look out for information on any developments regarding this in our Autumn Statement analysis which will be published on Techlink on the evening of 22 November 2023.

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk.

The FCA’s new guidance, which is designed to give people a better understanding of what they are investing in, and the risks involved. And a consultation on a new Discussion Paper to help develop the FCA’s regime for fiat-backed stablecoins including when used as a means of payment.

New guidance for crypto firms to help them comply with marketing rules

Following a change in legislation, cryptoassets promotions targeting UK consumers now fall within the FCA’s remit.

Following a consultation, the FCA has published Guidance to further support crypto firms complying with the new marketing rules. The Guidance also details how authorised firms communicating or approving financial promotions should apply the Consumer Duty to their marketing.  

To further support firms make necessary improvements to their marketing, the FCA previously published examples of good and poor practice on firms’ preparations for the new financial promotions rules. 

It says that it continues to remind people that despite these new rules, cryptoassets remain high-risk and people should be prepared to lose all the money they invest. 

Consumers should check the Warning List before making any investment in cryptoassets. The list is intended to help consumers make more informed investment decisions by finding details of unauthorised firms the FCA is aware of. It should also help consumers understand which firms may be providing or promoting financial services or products in the UK without the FCA’s permission. 

New Discussion Paper

The Treasury’s recent Policy Statement sets out their intention to define fiat-backed stablecoins in legislation, expecting it to capture those stablecoins which seek to maintain a stable value by reference to a fiat currency, and hold (in part or wholly) currency as ‘backing’. Please see our earlier Bulletin.

The Treasury is also considering making changes to the payments legislation to enable retail payments for goods and services to be made using fiat-backed stablecoins. This includes an option the Treasury are exploring to allow certain stablecoins which are issued outside of the UK (overseas stablecoins) to be used for payments.

The FCA says that its Discussion Paper will be a part of a joint publication package with the Bank of England’s Discussion Paper on systemic payment systems using stablecoins and related services providers, and the Prudential Regulation Authority’s Dear CEO letter on innovative uses of deposits, e-money and stablecoins. To accompany these publications, it is also publishing a joint ‘Roadmap paper’ with the Bank and Prudential Regulation Authority which aims to explain how its proposed regimes interact and its approach for dual regulation. 

This Discussion Paper will interest anyone in the UK who has bought, or may in the future buy, fiat-backed stablecoins. This regime will also interest organisations and individuals that participate in the cryptoasset sector (specifically, cryptoassets that claim a form of stability and make use of a stabilisation mechanism). It will particularly interest:  

• firms or individuals that design, issue or maintain a fiat-backed stablecoin;  
• firms that provide custody for, or safeguarding ownership of, fiat backed stablecoins – or the ‘private keys’ to access them (this will include any entity that takes custody of stablecoin, no matter how briefly, for example an exchange that does so to facilitate a trade);  
• retail payment service providers, which may consider using fiat-backed stablecoins as an alternative means of payment;  
• cryptoasset firms providing services to UK consumers for fiat-backed stablecoins industry groups/trade bodies;  
• professional advisers;  
• consumer groups and individual consumers;  
• policy makers and other regulatory bodies; 
• industry experts and commentators;  
• academics and think tanks.

The FCA has asked for feedback by 6 February 2024. It will consider feedback to decide its next steps and it will consult on any proposals in this Discussion Paper if it proposes to adopt them as part of its final rules.

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk.

HMRC’s guidance around the impacts of its corrected advice on the treatment of Group Income Protection (GIP) policies and salary sacrifice schemes, and the interaction with NIC credits for the State Pension.

On 15 October 2019 HMRC provided guidance to the Association of British Insurers (ABI) on how the OpRA legislation (please see below) affected the taxation of Group Income Protection (GIP) policies taken out by employers to fund payments of sick pay. This guidance stated that salary sacrificed by employees could be taken into account as employee contributions for the purpose of determining the amount taxable under either section 221 ITEPA 2003 or chapter 7 of part 5 ITTOIA 2005.

This guidance was incorrect. In August 2022, HMRC updated its guidance, and says that EIM06474 shows the correct taxation position and agreed transitional arrangements if this incorrect advice had been relied on.

It says:

“The correct position is now reflected in the previous pages [to EIM06474] and at IPTM6120. These amounts of salary foregone will not be employee contributions for either provision.

The guidance was provided as a general view on the tax treatment of sick pay funded via salary sacrifice arrangements. HMRC says that it therefore recognises that this guidance may have been relied on by:

• employees entering into or deciding to remain in sick pay arrangements via salary sacrifice after 15 October 2019;
• payers and payees considering the tax treatment of sick pay payments made after 15 October 2019 where they derived from salary sacrifice arrangements.

HMRC will therefore not seek to revisit the tax treatment where customers [taxpayers] have relied on the previous guidance in the following cases:

• where sick pay payments were made to employees or former employees without deduction of tax between 15 October 2019 and 31 December 2023 inclusive to the extent that they are (or are derived from) amounts that can be or have been attributed on any just and reasonable basis to salary foregone by employees in periods starting on or after 6 April 2017;
• where repayment claims (including overpayment relief claims and PAYE adjustments) were made between 15 October 2019 and 1 December 2022 inclusive to the extent that these claims related to sick pay payments made to employees or former employees and are, or are derived from, amounts that can be attributed on any just or reasonable basis to salary foregone by employees in periods starting on or after 6 April 2017;
• sick pay payments made on or after 1 January 2024 will be accepted as non-taxable to the extent that they are made or are derived from amounts that can be attributed on any just or reasonable basis to salary foregone by employees between 15 October 2019 and 31 December 2023.

HMRC will assume that customers [taxpayers] have relied on the 15 October 2019 advice unless details of the claim indicate there was no such reliance.

In all other cases, the guidance provided in the preceding pages [to EIM06474] and relevant pages in IPTM6200 onwards will apply to the taxation of sick pay provided under OpRA.”

HMRC’s guidance in its latest Employer Bulletin, says that, in some cases, there may be an impact on an individual’s entitlement to contributory benefits including State Pension if they or their employer relied on the incorrect advice given in October 2019. This is because they may have received, or will receive under the transitional arrangements, income from a GIP policy not fully subjected to National Insurance contributions (NICs), as it would have been under the correct taxation position.

Whether there is an impact will depend on other income or NIC credits an individual has received in the year. HMRC has considered this issue and concluded that due to this, any such impact should be looked at on a case by case basis.

HMRC is therefore urging individuals to check their personal tax account or their NICs record for years where they have benefited from GIP policies to see whether there is a shortfall in their NICs record. If there is they should contact HMRC if:

• they made contributions to a GIP policy by way of salary sacrifice;
• they received sick pay from their employer under that GIP policy and that sick pay was not fully subjected to NICs.

HMRC says that it will look at each case individually at that point and, if required, rectify the shortfall to mitigate impact on any contributory benefit entitlement.

The OpRA legislation

Salary sacrifice is an agreement between an employer and employee to change the terms of an employment contract and reduce the employee’s entitlement to cash pay in exchange for some form of non-cash benefit in kind. The effect of this, depending on the benefit in kind, is often to reduce the amount of income tax, employee and employer NICs due on the employee’s remuneration. Making efficient pension contributions is one of many reasons to sacrifice salary.

In its 2016 Budget report, the Government announced it would limit the range of benefits that attract income tax and NICs advantages when they are provided as part of salary sacrifice schemes. As a result, from 6 April 2017 certain benefits provided under salary sacrifice arrangements (described in the legislation as ‘optional remuneration arrangements’ – OpRAs), no longer benefit from the income tax and NICs advantages previously available under salary sacrifice arrangements – please see EIM42750. (This does not however affect all benefits. For example, employer pension contributions are not affected. So, salary sacrifice can remain as tax efficient as ever for employer pension contributions.)

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk.

As reported in our earlier bulletin, the Law Commission restarted its wills project earlier this year. On 5 October, it launched its anticipated consultation paper.

This “Supplementary consultation” focuses on two main issues which have recently become very topical.

The first is whether electronic wills should be allowed in light of technological and societal developments. The second is whether the rule that marriage or a civil partnership automatically revokes a will should be retained in the light of concerns about predatory marriage and vulnerable people.

The Covid pandemic highlighted the problems with execution of wills and, in the UK, provisions were introduced for virtual witnessing of paper wills. However, many countries went farther and introduced permanent reforms to enable electronic wills.

The Law Commission is now seeking views on whether a new Wills Act should permit electronic wills, either immediately or by allowing for them to be introduced later. The new legislation could go further than the temporary measures brought in during the pandemic. Fully electronic wills could be created digitally, using electronic signatures, and could be stored electronically with no paper version needed. However, any legal provision for electronic wills would need to ensure that they are as secure as paper wills. The key question, therefore, is how electronic wills can be made legally valid and how bespoke requirements for these wills should be introduced.

The issue of predatory marriages was recently highlighted in a Channel 5 documentary about “Inheritance Wars”. In one episode, a 92-year-old widow with severe dementia was befriended by a man. She was apparently unable to make even simple decisions but married the man a few months before her death, with her family having no notice of this. Although Registrars have responsibility for judgment of mental capacity on the day of marriage, they often lack training and/or awareness of capacity issues.

As mentioned above, under English law, a marriage or civil partnership automatically revokes an existing will so, as a result of marriage in this case, the lady’s children lost their inheritance and indeed were not even able to bury their mother. This case resulted in the daughter of the lady starting a campaign for a change in the law, resulting in a Private Member’s Bill from her local MP. There are apparently numerous similar examples.

In this regard, the new consultation seeks to establish how often this form of financial abuse takes place and considers whether wills should continue to be automatically revoked by marriage or civil partnership.

The Commission asks the following main questions (with a lot of supplementary questions on the details of the proposals as well as any evidence of the need for change):

• Should electronic wills be legally valid? If yes, how, and when should bespoke requirements for these wills be introduced?
• Should marriage or civil partnership automatically revoke a will, given the risk of predatory marriage?

Responses to the consultations should be submitted by 8 December 2023.

The consultation document is available here and the response can be made online here.

While this particular consultation focuses on the two issues mentioned above, the Law Commission’s Wills project covers all of the following:

• The formal and substantial validity of a will, including:
  • testamentary capacity;
  • the formalities for a valid will (currently governed by section 9 of the Wills Act 1837), including an examination of the issue of a will being made electronically;
  • the interpretation and rectification of a will;
  • the possibility of a power to dispense with the formalities otherwise necessary for a will to be valid;
  • the age at which a will can validly be made; and
  • knowledge and approval and undue influence in the testamentary context.
• Statutory wills.
• Mutual wills.
• Ademption of testamentary gifts (where the property no longer exists or has changed in substance) and revocation of wills.
• The registration of wills.
• Donationes mortis causa.
• The comparative and international context of the law of wills.
• Other areas of the law of wills as set out in the Wills Act 1837.

Given that wills in England and Wales are governed by the Wills Act 1837 (that’s almost two hundred years old!) and case law, it is clearly high time for reform. Clearly, the subject is complex and, unfortunately, the Law Commission’s Wills Project, ongoing since 2016, was interrupted for two years due to Covid. Let’s hope, now that things are moving again, it won’t be too long before we see reform. Before that happens, though, there will probably be several more Supplementary consultations.

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk.