Category: Uncategorized

Important note: this article covers only some of the general tax considerations in relation to a limited number of ‘tax-efficient’ investments. It does not constitute, and must not be construed as investment advice in any form. You must consult with a suitably qualified financial advisor if you are considering any form of investment, and we do not offer advice in this respect under any circumstances. The provision of the generic tax considerations contained in this note constitutes neither investment advice nor tax advice and must not be relied upon for any purpose. Individual advice on your specific circumstances must always be sought.

‍Risk vs Reward: VCTs, EIS & SEIS

In the ever-evolving landscape of investment, individuals are constantly on the lookout for opportunities which not only promise potential returns, but also offer lucrative tax advantages. The world of capital investment is not for the faint of heart. Not only do investors take on the inherent risk that comes with unproven business models, but taxes on investment gains can also eat into returns.

 There are, however, three interesting investment opportunities offered by HMRC to encourage the financial growth of small enterprises and start-ups and scale-ups in the UK. They do so by mitigating risk and giving tax relief to those who choose to invest in new and small businesses where there is a significant risk-to-capital for the investor. 

These are:

1. Venture Capital Trusts (VCTs)
2. Enterprise Investment Schemes (EIS) 
3. Seed Enterprise Investment Schemes (SEIS)

How do these schemes work? 

Whether you are an experienced investor looking to expand your portfolio or a newcomer enticed by the tax breaks, this guide serves as an overview of the world of investing in fledgling UK companies through VCTs, EIS and SEIS structured investments.

1. Venture Capital Trusts: Investing in innovation

‍What are Venture Capital Trusts (VCTs)?

VCTs are public entities, listed on the stock market, that invest in a diverse range of small, unquoted companies. By investing in a VCT, individuals gain exposure to a curated portfolio of promising ventures, carefully selected and managed by experienced professionals. 

‍What are the tax implications of VCT investment?

Investors in VCTs can claim up to 30% income tax relief on up to £200,000 of investment. This substantial upfront tax relief allows investors to minimise their tax burdens while simultaneously supporting innovative companies. Additionally, any dividends received from VCT investments are exempt from income tax.

With VCTs, there is potential to make tax-free capital gains. If investors hold their VCT shares for at least five years, any gains realised upon selling those shares are entirely exempt from CGT, significantly reducing the burden of taxation on investor profits.

2. Enterprise Investment Schemes (EIS): Fuelling entrepreneurship

‍What is an Enterprise Investment Scheme (EIS)?

Introduced in 1994, the Enterprise Investment Scheme (EIS) is another investment vehicle which provides investors with generous tax reliefs. Here investors get the opportunity to provide capital to enterprises looking to scale-up. For fledgling companies, the EIS allows access to equity financing from angel investors, high-net-worth individuals, and venture capital funds.

‍What are the tax implications of EIS investment?

Investors can claim 30% income tax relief on investments up to £1 million per tax year. Moreover, any gains realised from the disposal of EIS shares are entirely exempt from CGT, provided the shares have been held for at least three years.

‍What is CGT rollover relief? 

Investing in an EIS qualifying company offers a unique opportunity to defer CGT on taxable gains. This applies to gains realised from selling investments, a second home, or other assets. By reinvesting those gains into an EIS-qualifying investment, you can postpone paying CGT on the gains for as long as the money remains invested, and the EIS conditions are not violated. This deferral can be applied to gains of any size, made within three years before or one year after the EIS investment. Once you withdraw your money from the EIS investment, the deferred gain becomes chargeable again, and you’ll need to pay CGT at the prevailing rate. Alternatively, you can continue deferring the gain by reinvesting the proceeds into another EIS-qualifying investment. This is called CGT rollover relief. 

3. Seed Enterprise Investment Schemes (SEIS): Nurturing start-ups

‍What is a Seed Enterprise Investment Scheme (SEIS)? 

The Seed Enterprise Investment Scheme (SEIS) is the much younger counterpart to EIS, unveiled in 2011 as part of Chancellor George Osborne’s Autumn Statement. The purpose of SEIS is to spur economic expansion in the UK by encouraging new business creation and entrepreneurial risk-taking. This instituted major reforms to investment tax incentives, complimenting the pre-existing EIS. Since its debut, SEIS has become hugely popular and is now considered one of the most successful government initiatives ever implemented to promote private investment in budding enterprises in their infancy.

‍What are the tax implications of SEIS investment? 

Under the SEIS, investors can claim a staggering 50% income tax relief on investments up to £200,000 per tax year. 

The SEIS provides a beneficial “carry back” feature for investors. This facility allows you to elect for all or a portion of your SEIS shares acquired in one tax year to be treated as if they were acquired in the previous tax year. This option essentially enables SEIS investors to offset the tax relief associated with their investment against the income tax they paid in the preceding tax year. However, this carry back option can only be exercised if you have sufficient remaining SEIS allowance in the tax year to which you’re carrying back the investment. By taking advantage of the carry back facility, SEIS investors have the flexibility to apply their tax relief to the tax year that offers the most favourable financial outcome.

Like the EIS, any gains realised from the disposal of SEIS shares are exempt from CGT, provided the shares have been held for at least three years.  The SEIS also offers CGT reinvestment relief, a conditional exemption that provides the opportunity to exempt up to 50% of a chargeable gain, provided that a qualifying SEIS investment is made during the same tax year. It is important to note that there is no requirement for the proceeds from the disposal to be directly used to subscribe for the SEIS shares. As long as a qualifying SEIS investment is made within the same tax year as the chargeable gain, the reinvestment relief can be claimed. This relief allows investors to reinvest a portion of their gains by taking advantage of the SEIS incentives, without the need to directly apply the disposal proceeds towards the SEIS investment.

Additionally, if you sell your SEIS shares for less than you paid for them, the capital loss can be offset against any capital gains you may have realised in the same tax year.

‍Navigating complexities and maximising opportunities 

While there are benefits to investing in VCTs, EIS, and SEIS from a tax planning perspective, navigating the intricate rules and regulations surrounding these investment vehicles can be a complex endeavour.

At Sanctoras we are well-versed in the nuances of VCTs, EIS, and SEIS and can provide invaluable guidance to investors, as well as to businesses seeking funding through these schemes. From ensuring compliance with ever-evolving legislation and regulations to identifying tax-efficient investment opportunities, we are here to assist in your wealth management and creation endeavours.

There is a significant risk-to-capital in investing within a start-up, EIS and SEIS shares being considered low-liquidity assets as they are long-term investments and should be carefully considered before they are undertaken. But as the investment landscape continues to evolve, forward-thinking investors seeking to diversify their portfolios could explore VCTs, EIS, and SEIS. 

The team at Sanctoras, has aided many investors in assessing their personal tax position following SEIS/EIS & VCT investment. We also assist enterprises that are seeking SEIS/EIS funding. If you are curious as to how your investments impact your tax or are hoping to raise funds under a venture capital scheme and want to learn more about your company’s eligibility and the application process, please contact one of our specialists today at hello@sanctoras.com

Inheritance tax (IHT) planning can be complex, but a clear understanding of the various nil-rate bands is a good first step in demystifying this area of taxation. 

This article provides an in-depth look at how you can leverage the standard nil-rate band, the spousal unused nil-rate band, and the additional nil-rate band for the family home to optimise your estate planning. Note that this only applies to individuals domiciled in the UK; the specific rules for non-UK domiciled individuals may differ.

The four nil-rate bands on death

1. Standard nil-rate band

Upon the death of an individual, the first £325,000 of their estate is taxed at 0% for IHT purposes. This is known as the standard nil-rate band and applies to all estates. Specific details of this provision can be found under s7 Sch 1 of the Inheritance Tax Act 1984.

2. Spousal unused nil-rate band

When one spouse or civil partner passes away, the surviving spouse can inherit any unused portion of the deceased’s nil-rate band. This inherited percentage is then applied to the nil-rate band available at the time of the surviving spouse’s death. Note that where the nil rate band has changed between the first and second deaths, the relevant nil-rate band is that at the second death. Specific details of this provision can be found under s8A-s8C IHTA 1984.

Scenario:

Daisy passed away in January 2008, leaving her entire estate to her husband, Paul, thus not using any of her nil-rate band of £300,000. When Paul dies in 2023, the nil-rate band has increased to £325,000. Paul’s estate can now benefit from Daisy’s unused nil-rate band, effectively doubling the tax-free threshold to £650,000.

3. Additional nil-rate band for main residence

An additional nil-rate band is available when a deceased individual leaves a main residence to direct descendants, such as children or grandchildren. This additional band was phased in from the tax year ended 5 April 2017 and reached £175,000 in the tax year ended 5 April 2021. This band can also be transferred to a surviving spouse. Specific details of this provision can be found under IHTA 1984 ss8D-8M.

The residential nil rate band is withdrawn for estates with a value of over £2 million at a rate of £1 for every £2 the estate value exceeds the £2 million threshold, and is fully withdrawn for estates with a total value of over £2.25 million.

Scenario:

Harry passed away in 2015 and left his estate to his wife, Taylor, including their family home. Harry did not use his residence nil-rate band. Taylor passes away in 2024, leaving her entire estate, including the family home, to their children. The total residence nil-rate band available to Taylor’s estate is £350,000 (her own £175,000 plus Harry’s £175,000).

4. Combined nil-rate bands

‍For a married couple, the combined nil-rate bands, where a family home is passed to direct descendants, can amount to £1 million, taking into account the standard nil-rate bands and the residence nil-rate bands (£325,000 + £325,000 + £175,000 + £175,000).

Extending the benefits: Up to £1.5 million tax-free

‍With careful planning, it is possible in certain circumstances for individuals who embark on new relationships following the death of their previous spouse to benefit from any unused nil-rate bands from these previous marriages, and thus potentially extending the total available nil-rate bands to up to £1.5 million. Note that this would require some fairly narrow circumstances to be able to benefit from multiple additional nil rate bands, and it is imperative for wills to be drafted correctly to be able to benefit.  

Scenario:

Consider Sam and Chloe, both of whom inherited unused nil-rate bands from their late spouses. Sam’s first wife, Sophia, did not use her £325,000 nil-rate band, and similarly, Chloe’s first husband, Marcus, left his entire estate to her, not utilising his nil-rate band. When Sam and Chloe pass away, their estates can benefit from these inherited nil-rate bands, in addition to their own.

Sam’s estate: Standard nil-rate band (£325,000) + Sophia’s unused nil-rate band (£325,000) 

Chloe’s estate: Standard nil-rate band (£325,000) + Marcus’ unused nil-rate band (£325,000)

By effectively utilising these provisions, Sam and Chloe’s combined estates can potentially benefit from up to £1.3 million being taxed at the nil rate.

Key considerations

As noted above, the residential nil-rate band is subject to tapering for estates exceeding £2 million, reducing by £1 for every £2 over this threshold. Thus, larger estates may not fully benefit from this relief. The ‘regular’ nil-rate band is not subject to tapering for larger estates.

Conclusion

Effectively utilising these nil-rate bands can significantly reduce the IHT burden on your estate. Timely claims and strategic planning can ensure that – for the majority of individuals – up to £1 million of their estate is taxed at the nil rate, preserving more wealth for future generations. 

At Sanctoras, we specialise in guiding clients through the intricacies of IHT planning to maximise these benefits. For personalised advice on inheritance tax planning and optimising your estate, please contact Ed Maycock at em@sanctoras.com

Although not as widely discussed as the sweeping changes to domicile, still as important was the announcement in the Budget in March that the government intends to legislate to abolish the furnished holiday lettings (“FHL”) tax regime, thereby ending the advantageous tax benefits for FHLs starting from 6 April, 2025. 

Given the short timeframe, owners of FHLs should swiftly develop a suitable plan of action in response to these changes.

When will the furnished holiday lettings regime end?

It is proposed that from 6 April  2025 the tax regime for furnished holiday lettings will be abolished, thereby removing the tax advantages for landlords renting out short-term furnished holiday properties. These were always more advantageous rules than those relating to ‘regular’ property lettings, however the criteria for qualifying as an FHL were relatively narrow. 

Who will be affected by the FHL changes?

This change will affect owners of furnished holiday homes that are commercially let and meet the criteria to be classified as a FHL for tax purposes.

What are the existing rules for Furnished Holiday Lets?

Under existing regulations, landlords who lease properties meeting the criteria for FHL can avail themselves of certain capital gains tax relief for traders. They are also eligible for capital allowances on plant and machinery, covering items like furniture, equipment, and fixtures. Moreover, profits are considered earnings for pension purposes, and full interest costs are permitted.

To qualify as an FHL, the property must be available for letting for at least 210 days in a tax year and be actually commercially let to the public for at least 105 days in the tax year. Landlords with multiple properties can opt for an averaging election, allowing for variations in their portfolios.

If any lettings of 31 or more continuous days exceed a total of 155 days during the year, the property will not qualify as a furnished holiday let for that year.

Any days occupied by the landlord, even where they are paying a market rate of rent, are not counted under the 210 and 105 day counts above, as HMRC consider that the property is not available for let when occupied by the landlord.

What are the existing advantages for owners of FHLs?

The entire amount of finance costs, such as mortgage interest, can be subtracted from FHL income.

• When selling an FHL, business asset disposal relief might be available, resulting in a 10% capital gains tax rate.
• Profits generated from FHLs are considered relevant earnings for pension purposes, permitting tax-advantaged pension contributions.

Legislating to abolish the FHL regime

The government has proposed that it will legislate to abolish the FHL regime from April 2025. This move will eliminate the tax advantages enjoyed by FHL landlords leasing short-term furnished holiday properties. 

Why has the Chancellor abolished the FHL regime?

In his Budget in March, the Chancellor explained that the rationale behind this decision is that the government perceives the tax benefits for such properties as having come at the expense of local residents struggling to access the property market. The aim of these changes is to increase opportunities for local residents to rent such properties.

This, together with the reduction in the rate of UK capital gains tax on gains realised on the sale of residential property to 24% is clearly aimed at generating sales of residential properties (both those which fall inside and outside of the FHL regime), and boost home ownership.

Have the details of the FHL abolition been released yet?

Detailed legislation will be released later in the year, and it will be intriguing to examine the specifics. 

This legislation is expected to incorporate an anti-forestalling provision to prevent individuals from gaining a tax advantage by using unconditional contracts to secure lower rates of capital gains tax under the current FHL  rules. Essentially, this provision will remove the 10% business asset disposal relief for sales occurring on or after Budget Day, 6th March 2024.

Should you have a FHL within your portfolio and need advice tailored to your situation, please contact Anthony Roberts via hello@sanctoras.com

Trusts have, in recent years, garnered considerable widespread attention amongst the public and in more mainstream media. No longer a preserve of the Financial Times and industry publications, trusts are often viewed with scepticism and an assumption that they must be for nefarious purposes.

In this article, we attempt to cut through some of the newspaper headlines and clickbait to explore why trusts can still play an important role in estate planning.

The concept of trusts

The concept of trusts has existed in English law dating back to at least the 13th century. It’s believed that trusts originated as a means for crusader knights to safeguard their property and assets while they were away fighting. With no way to personally manage their possessions during these extended military campaigns, they entrusted others to oversee and protect their belongings until their return – forming one of the earliest examples of a trust-like arrangement.

What is a trust in today’s world?

Although a trust is commonly referred to as an ‘entity’, this isn’t quite correct. It is, in essence, a relationship between the parties who bring the trust into existence (see below). Most trusts are created with a specific document (called a deed), but can also come into existence in someone’s will after they pass away; be imposed by a court; or ‘accidentally’ be created by the actions of two or more people who may not realise they are creating a trust arrangement!

Today, trusts are a secure way to protect your valuable assets and pass them on per your exact wishes. A trust, in essence, is a vault, holding your cash, property, investments and business interests for the benefit of your chosen beneficiaries. They can be very complex, designed to last many generations; or they can be very simple – for example, did you know that a parent opening a bank account for their child is also a type of trust?

What are the roles in a trust arrangement?

There are three main roles in any trust arrangement:

• Settlor – The person funding and creating the trust who determines what goes into the trust initially and the specific terms for how it should be managed and disbursed. There can be more than one settlor, and it can be an individual, a company, or even another trust.
• Trustees – The impartial parties you entrust as the person (whether individuals or a corporate trustee) who take legal ownership of the assets and are responsible managing the trust assets in line with the provisions in the trust deed. They have a legal, fiduciary obligation to act in the best interest of the beneficiaries and, although they can be guided by a letter of wishes from the settlor, this is not legally binding if the trustees consider it would be an inappropriate use of trust assets (for example, if a beneficiary suffers from addiction, poor financial management or is unable to manage their own affairs).
• Beneficiaries – The person(s) you want to eventually receive the benefit of the trust assets – this could take the form of receiving income; outright distribution of capital; loans from the trust; or use of a trust asset (such as a property). Sometimes beneficiaries have a right to certain income or assets (known as a ‘life interest’), but often they can only benefit at the discretion of the trustees. Beneficiaries can be family members, other individuals, companies, charities or other trusts: it is very flexible. It is also possible to exclude some people from being able to benefit from the trust (we commonly see this to exclude spouses marrying into a family to protect a multigenerational family business).

What are the five main benefits of a trust?

From a UK perspective, the tax advantages of trusts have gradually been eroded over time. However, trusts have a number of important benefits that may still make them valuable estate and asset protection tools:

• Maintaining control – The trust terms dictate how assets are managed, and it is usually possible for the settlors to also act as trustees – allowing them to retain an element of control over who is able to benefit, when, and to what degree.
• Asset protection – Trust assets may offer enhanced protection for beneficiaries in the event of future creditors, divorces, or bankruptcies. This is not fool proof, but choice of jurisdiction for the trust and the specific provisions can all assist.
• Tax advantages – there can remain certain tax benefits of UK trusts, particularly regarding Inheritance Tax. Non-UK trusts may have additional benefits, particularly for those who are non-UK resident (and often, but not always, non-UK domiciled).
• Avoiding probate – Assets in a trust don’t have to go through the lengthy probate process that Wills do as all of the terms of the trust assets have been outlined extensively within the trust declaration.
• Continuity – a trust continues status quo even on the death of a beneficiary, settlor or trustee. Certain actions may be required to replace a trustee, for example, but the trust itself continues to hold the assets without interruption.

Estate planning and trusts at Sanctoras

The exact tax treatment, scope for asset protection and preservation of long-term, multigenerational family assets will depend heavily on the type of trust used, what assets are contained within it, who the beneficiaries are, and other factors.

If you have a sizable estate you’d like to preserve and pass on to your beneficiaries according to your specific wishes, creating a trust may be an invaluable tool to consider as part of your estate and tax planning. To discuss estate planning and trusts with a specialist, please don’t hesitate to get in touch with Aimée Dolbear ad@sanctoras.com or your usual Sanctoras contact.

The Labour Party have made no secret of their displeasure at the ability for non-UK domiciled individuals to – in their view – reduce their UK tax obligations, by taking advantage of certain protections offered to them.

It is likely that sweeping changes to the taxation of non-UK domiciled individuals will make up a significant part of their UK tax policy should they form the next government in the UK.

By making the announcements on the proposed changes in his March Budget, it is clear that Jeremy Hunt wanted to take some of the wind from Labour’s sails.

As a result, in their hard-to-find policy paper, Labour have responded to the Budget, and made further proposals that they will seek to enact once in power.

Budget 2024 – a reminder!

As a quick reminder, in March, Jeremy Hunt, Chancellor of the Exchequer announced significant changes to the taxation of non-UK domiciled individuals, including:

• Reducing the timeframe where individuals are able to benefit from shielding their non-UK income and gains from a maximum of 15 years, to a maximum of four years;
• The ability for individuals eligible for the Foreign Income and Gains (FIG) regime to remit unlimited income and gains to the UK in the first four years after arriving in the UK.
• FIGs arising in non-UK settlor interested trusts will be taxable on the settlor on an arising basis (where the settlor does not qualify for the new FIG regime);
• A 50% discount on foreign income subject to UK tax in 2025/26;
• A further transitional arrangement and a two year period in which previously shielded foreign income and gains may be remitted to the UK at a lower rate of tax (proposed to be 12%);
• Subject to a consultation, an individual coming to the UK will be out of the scope of UK Inheritance Tax (“IHT”) for up to 10 years following arrival.

What do Labour think?

Labour say that, they support “most” areas of the changes announced, and support “in principle” the 10-year window for IHT for new arrivals to the UK, they note that “loopholes” remain and, as such propose that:

• The 50% discount on foreign income in 2025/26 would not be included as a transitional provision.
• Excluded property trusts (broadly trusts settled by non-UK domiciled individuals using non-UK situs assets) would no longer be outside of the scope of UK IHT. This would include trusts settled prior to 5 April 2025.

Additionally, it has been suggested that they will introduce legislation to encourage investment into the UK by individuals, by exploring ways to encourage remittance of stockpiled FIG after the end of the two-year transitional period and by potentially allowing for some UK investment income received by qualifying individuals to be free of UK tax.

When will these changes take effect?

We are expecting draft legislation in the Finance Bill in the early Summer. We will then be in a better position to be able to advise on how the new legislation is expected to operate. This would likely be effective, on 6 April 2025, subject to there being sufficient parliamentary time available.

Whether the changes Labour are proposing would be able to be introduced will depend on the timing of a general election. This must happen in January 2025, at the latest, and an emergency budget will likely immediately follow.

The IHT changes are to be subject to a consultation, and it is not expected that any changes will be effective before 6 April 2026.

What we think

The Labour policy paper is rather vague, and some of the predictions on the amount of tax that they may raise is flawed (for instance, the suggestion that the ‘average’ non-dom has £63m of assets).

Additionally, Labour are walking a fairly tight line with the rhetoric used; repeatedly referring to ‘tax dodgers’ and ‘loopholes’. Whilst this may excite their voter base, it is likely to have the opposite effect, and alienate those wealthy individuals who do contribute a significant amount of tax revenue to the UK Exchequer. 

Although this may not be the final policy adopted if they form the next government in the UK, it is, nonetheless, useful in providing an insight into the thinking of the Labour party, and the general direction in which non-dom matters are moving. 

To the extent that they haven’t already, non-doms must start considering their options as a priority. Get in touch with your usual Sanctoras contact, or any of the team, for an initial confidential discussion.

Since the Spring Budget in March 2023 the UK’s pension tax landscape has undergone rapid changes, here we highlight some key changes and impacts of these reforms.

Increased annual allowance and abolition of lifetime allowance

One of the most notable changes the Chancellor made to pensions – effective from April 6 2023 – was to increase the annual allowance and abolish the lifetime allowance to encourage workers over 50 to stay in the workforce. While the lifetime allowance remains for the 2023/24 tax year, the lifetime allowance charge ceased from April 6, 2023, and the allowance itself will be abolished from April 6, 2024, to be replaced by two new allowances.

The increase in the annual allowance from £40,000 to £60,000, along with other adjustments, will benefit taxpayers across income brackets, potentially providing up to £30,000 more compared to the previous tax year. During 2023/24, the lifetime allowance continues to determine certain lump sum benefits, with the tax-free pension commencement lump sum capped at £268,275 for those entitled to the standard lifetime allowance.

Excess benefits charge abolished

Previously, excess benefits over the lifetime allowance were subject to a 55% tax rate, but this charge was abolished from April 6, 2023. However, other tax implications may still apply. Under the new framework, benefits previously subject to the lifetime allowance charge are treated as pension income, effectively reducing the tax rate for additional rate taxpayers from 55% to 45%.

A new framework for pension benefits

The abolition of the lifetime allowance required the introduction of a new framework for pension benefits, focusing on maintaining the 25% tax-free pension commencement lump sum and taxing other benefits at standard income tax rates. New allowances were established, including a lump sum allowance and a lump sum and death benefit allowance, aiming to prevent tax evasion.

The need to adapt quickly

Overall, these reforms represent a significant change in UK pension taxation, aiming to balance retirement savings incentives with tax fairness. However, individuals and pension providers will need to adapt quickly to navigate the complexities of the new system and its implications for retirement planning and taxation.

Should you like to speak to a member of our specialist team about your own situation, please email us today: hello@sanctoras.com

In what is presumably the final UK Budget before the General Election, Chancellor of the Exchequer, Jeremy Hunt, delivered a Budget that he billed as being “for long-term growth”.

Focusing on the requirement to be responsible with finances, the Chancellor took advantage of slightly improved growth forecasts from the Office of Budget Responsibility to ‘set out his stall’ prior to voters going to the polls later this year, by promising “more investment, higher growth and lower taxes”.

‍Mandatory VAT registration threshold to be raised

Although the Chancellor started off slowly, with announcements of a freeze of alcohol and fuel duty into 2025 – the sole highlights of the first 20 minutes of his speech -things picked up quickly thereafter with announcements of the mandatory VAT registration threshold increasing to £90,000 (up from £85,000).

‍Introducing a British ISA

A reform of the ISA system was tentatively announced, introducing a “British ISA” announcing a further £5,000 allowance (on top of the existing £20,000 ISA allowance) to invest in UK equities. This will be subject to a consultation later in the year.

‍Abolishing the Furnished Holiday Lettings Regime

In the first of the personal tax announcements, the Furnished Holiday Lettings (“FHL”) regime will be abolished from April 2025. Broadly, the current FHL rules allow landlords to deduct their mortgage interest in full and may also have Capital Gains Tax benefits on a future sale. Having heard suggestions over the weekend of some of the reliefs available on FHL being curtailed (sceptics would say they were leaked), the full abolition came as a bit of a surprise.

‍4% reduction of higher rate of CGT on property

Continuing on with his announcements relating to the taxation of UK property, it was also announced that the higher rate of Capital Gains Tax on property was to be reduced to 24% from 28%.

Taken together, it is clearly hoped that the abolition of the FHL regime and the reduction of the higher rate of CGT will encourage the sale of second homes, and increase the supply of properties on the market for first-time buyers.

‍Concept of domicile for tax purposes to be abolished 

Of all of the announcements that were briefed to the press over the weekend, the changes to the taxation of non-UK domiciled individuals were the ones where we didn’t quite know where the Chancellor was going to land.

The changes announced were of mass and very significant reform, and the concept of domicile for UK tax purposes is to be abolished. It is important to note that the common law concept of domicile (for example, for succession and legal jurisdiction matters) is expected to remain.

From April 2025, the concept of domicile will be changed to one of long-term residence. After just four years of residence (slashed from the previous threshold of 15 years), non-UK “domiciled” individuals will now be taxable in line with longer-term UK residents.

There will be transitional arrangements allowing for the remittance of funds to the UK. From the backing budget documents, this would appear to be possible over a 2-year period, and any foreign income and gains remitted would be taxable at 12%. This may be beneficial.

Inheritance Tax to move to a residence-based regime

Along with the mass reforms to the taxation of income and gains for non-UK domiciled individuals, Inheritance Tax (IHT), which is also currently taxable based on the domicile status of the deceased, will also be reformed. The Budget “Red Book” announced that IHT will, subject to a consultation, also move to a residence-based regime, with the potential for exemptions for new arrivals. It is noted that there will be no changes to IHT before April 2025, but it would not be surprising to see a move towards an Irish-style system where IHT is levied on beneficiaries of the estate depending on their residence status.

High Income Child Benefit Charge threshold for repayment increased

Finally, the application of the High Income Child Benefit Charge (“HICBC”) is to be reformed. From April 2024, the threshold for repayment will increase to £60,000, with the top of the taper increasing to £80,000. The Chancellor also announced a consultation for the collection of the HICBC to be based on household income from April 2026.

‍What we think

There were some interesting choices in today’s Budget, especially given its significance as we gear up to a likely very significant General Election.

The 2% cut to National Insurance sounds, on the face of it, a welcome measure – and it no doubt will be for those in employment. However, does it miss the mark politically? It won’t benefit those at or above the State Pension age (a traditionally strong Conservative voter base), as they don’t pay National Insurance. It won’t benefit those who receive considerable dividend income. And, frankly, it’s far less well-understood (by taxpayers and many advisors alike) than income tax. Would a 1% cut to the rate of income tax have had a great political impact?

We knew that change was coming to the taxation of non-doms. However, the extent of the changes announced was surprising and far more extensive than we think most people expected. We will need to see the full legislation but expect significant activity in this area.

The abolition of the concept of domicile for UK taxation has wide-ranging implications, beyond the taxation of income and gains. The subsequent effect of these changes to Inheritance Tax and the taxation of trusts (both existing and yet-to-be-settled trusts) will be significant, and we will have to wait for both the Finance Bill and the results of the IHT consultation later this year to have a clear idea on the extent of the potential implications.

‍How we can help

It is more important now, than perhaps at any time since 2008, to review your affairs critically and in detail. We are already working with a large number of clients preparing to leave the UK – whether UK domiciled or not – and no doubt these enquiries will only increase.

The varying liabilities of a trustee

Trustees play a crucial role in managing assets and safeguarding the interests of beneficiaries. However, the extent of a trustee’s duties and liabilities can vary depending on the negotiated terms between the settlor (the donor) and the trustee. One significant aspect that has emerged from case law is the concept of ‘anti-Bartlett clauses’, which limit a trustee’s duties and potential liability. 

Here we explore how these clauses came about, their implications for trustees, and recent legal developments in this area.

The origin of anti-Bartlett clauses 

The case of Bartlett v Barclays Bank Trust Co Ltd [1980] Ch 515 focused attention on the potential range of liability faced by trustees. In this case, a trustee failed to intervene in a speculative building project, this led to substantial losses for the trust. The judge ruled that the trustee should be allowed to offset the loss with a gain from a different investment. As a result of the ruling, draftspersons of trusts began to utilise anti-Bartlett clauses which limit a trustee’s duty of supervision over controlled underlying companies.

Understanding anti-Bartlett clauses

An anti-Bartlett clause typically states that the trustee is not bound or required to interfere in the management or conduct of a company in which the trust fund is invested. The trustee can leave the management to the company’s directors without being liable for any resulting loss, as long as they have no actual knowledge of fraud or dishonesty. These clauses aim to shield trustees from liability when they have no breach of duty, thus preserving the negotiated terms of the trusteeship.

IQEQ (NTC) Trustees Asia (Jersey) Ltd v Arboit and Sutton [2019] HKFCA 45: In the case of IQEQ, the Hong Kong High Court and Court of Appeal upheld an anti-Bartlett clause, rejecting the existence of a residual obligation for a trustee to intervene in certain circumstances. The Court of Final Appeal firmly stated that such an obligation is inconsistent with the purpose of anti-Bartlett provisions. This ruling emphasised the importance of respecting the terms agreed upon between the settlor and trustee in determining the trustee’s duties and liabilities.

Obligation to intervene

While anti-Bartlett clauses limit a trustee’s duties, they cannot completely override the core obligation to intervene when the trustee has actual knowledge of dishonesty. Trust law maintains that trustees must act if they possess such knowledge, regardless of any exoneration clauses in place. This ensures that trustees cannot evade responsibility in cases of dishonesty.

Onus of proof

When a trustee tries to rely on an exoneration clause, it is the claimant’s burden to prove that the trustee had actual knowledge of dishonesty, thus nullifying the protection provided by the clause. The statement of claim must provide full particulars of the trustee’s actual knowledge, which requires an understanding of what constitutes such knowledge. Recent case law emphasises that blind-eye knowledge, where a person deliberately avoids confirming suspicious facts, can be considered as actual knowledge.

The implications for donors and trustees

The case of IQEQ highlights the importance of the donor’s role in determining the extent of their bounty for beneficiaries. When creating a trust, both the settlor and trustee have the right to negotiate and agree upon the terms of the trusteeship. The level of risk involved in implementing the settlor’s investment strategy should be considered, with anti-Bartlett clauses providing protection for trustees taking on such risky ventures. Once the terms have been agreed upon, beneficiaries cannot challenge the extent of the trustee’s duties as determined by the Trust Deed.

Crucial protection whilst not removing core obligations

Anti-Bartlett clauses have become an important tool in trust planning, allowing donors and trustees to define the scope of a trustee’s duties and potential liability. While these clauses provide crucial protection for trustees, they cannot absolve them of their core obligation to intervene in cases of dishonesty. The recent case of IQEQ reaffirmed the importance of respecting the negotiated terms of a trusteeship, emphasising that donors have the authority to shape the extent of their gifts to beneficiaries. By understanding the implications of anti-Bartlett clauses, both donors and trustees can navigate the complex landscape of trust law and protect their respective interests.

The UAE Golden Visa: the closest thing to permanent residence?

In 2019, the emirates of Abu Dhabi and Dubai introduced a long-term residence program in the form of the Golden Visa. This provides eligible individuals and their families with long-term residence permits of 5 or 10 years, with the option for renewal of the visa at expiry of the initial term.

The Golden Visa is available to various categories of individuals identified by Abu Dhabi and Dubai as having the potential to bring significant skill, wealth of expertise to the regions, including:

• Real estate investors who purchase property in either Abu Dhabi or Dubai with a minimum value of AED 2 million.
• Investment in Business: entrepreneurs who establish a business in the UAE, with a minimum capital investment of (typically) AED 500,000.
• Investment in Financial Assets: investors who deposit a minimum amount of AED 2 million in a business or investment fund within the UAE.
• Specialists in Science, Medicine, and Research: professionals in the fields of science, medicine, and research, who can demonstrate significant achievements, contributions, or expertise recognized internationally.
• Those with exceptional creative talent in the fields of the arts and culture.
• Executive Directors with a bachelor’s degree; minimum of five years’ experience in their role; and a salary of at least AED 30,000 per month.
• Pioneers of humanitarian work, including funders of humanitarian efforts in an amount not less than AED 2 million.

For qualifying individuals, the process of obtaining a Golden Visa once already present (and, ideally, resident) in the UAE is relatively straightforward. Even for those who may not strictly fall neatly into one of the categories, those whom the UAE see as ‘attractive’ to the region may well find themselves on a path to long-term Golden residence.

It is important to note that while most visas issued in any of the seven emirates allow individuals to live anywhere in the UAE (including outside of the emirate from which their visa was issued), currently only Abu Dhabi and Dubai issue Golden Visas. Nonetheless, this does not preclude Golden Visa holders from residing in one of the other emirates should they so wish.

A considerable benefit of the Golden Visa is that the holder can be absent from the UAE for as long a period as they wish; whereas with other types of visa, they are ordinarily automatically cancelled if the holder is absent from the UAE for a continuous period of six months. Golden Visa holders may also sponsor their spouse, children, certain company executives and helpers (such as maids and nannies), subject to meeting certain criteria.

‍How Sanctoras can help

We have helped a number of clients obtain their Dubai Golden Visa, providing security and long-term stability for them and their families. Although neither ‘permanent residence’ nor UAE citizenship are currently available to most people, the Golden Visa goes some way to address this.

For a discussion about your circumstances, an assessment of whether you are likely to qualify for a Golden Visa, or to begin the application process, please get in touch with our Dubai team.

In April 2023, significant amendments were made to the capital gains tax (CGT) rules concerning divorce and dissolution of civil partnerships in the United Kingdom. These changes aim to simplify the process of dividing assets during and post-separation, ensuring fairness and clarity for all parties involved. Here we will delve into the details of these modifications and explore their implications for tax professionals and their clients.

The pre-April 2023 rules

Before we explore the recent changes, let’s recap the previous rules surrounding CGT in divorce and dissolution cases. Ordinarily, assets can be passed between spouses and civil partners free of CGT. However, under the pre-April 2023 rules for divorcing couples, transfers between the parties were deemed to take place at market value for CGT purposes if the transfers took place after the end of the tax year of separation (which could be much earlier than the divorce itself).

In other words, if a couple separated on 1 May 2020, they would be able to make CGT-free transfers between themselves until the end of that tax year – therefore until 5 April 2021. However, had that couple instead separated on 1 April 2020, they would have had just five days to make any CGT-free transfers! This was clearly inequitable and led to considerable confusion – and significant ambiguity amongst clients, lawyers and tax advisors as to what the “date of separation” actually was…

Overview of the changes

The changes implemented in April 2023 represent a hugely welcomed simplification of the CGT treatment in divorce and dissolution cases. The key modifications include:

Potentially indefinite deadline

Under the new rules from 6 April 2023, transfers of assets between separating spouses or civil partners are now treated as “no gain/no loss” transfers for CGT purposes for an indefinite period, provided the transfers are made pursuant to a formal divorce agreement (including an Order made by consent). This means that the transfer is deemed to occur at the original cost of the asset, thereby deferring any CGT liability until a future disposal.

The ‘three-year’ rule

The changes now allow transfers made between the parties other than under a Court Order until the end of the tax year three years following separation. A couple who separated on 1 May 2023 will therefore now have until 5 April 2027 to benefit from the no gain/no loss transfer provisions (in effect, almost four years since the actual date of separation).

This three-year period, however, will end if the Court pronounces decree absolute or issues a final order. Any subsequent assets being transferred between the parties would therefore need to be included in the formal court-approved agreement to continue to benefit from tax-neutrality.

Accurate record-keeping

It is crucial to emphasise the importance of maintaining accurate records of all asset transfers, including the original cost and acquisition dates. This information will be vital for future CGT calculations when the assets are eventually disposed of.

Seeking expert advice

Given the multidisciplinary nature of divorce and dissolution cases, tax professionals should collaborate with family law solicitors, financial planners, and other relevant professionals to provide comprehensive advice and ensure a holistic approach to the parties’ financial well-being.

This is particularly relevant in international, high-value or otherwise complex cases, where specialist advice – often across jurisdictional borders – is paramount. Clients obtaining advice at the very earliest stage remains paramount, and the tax position can still be highly complex; though the relaxation on timings outlined above is certainly a positive step in the right direction.

How can we help? 

We are regularly instructed by family lawyers in London and around the UK to advise on the tax implications of complex divorce cases, acting either for one party or as a ‘Single Joint Expert’ for both. We are well-versed in the rules for expert witnesses advising the Family Court, and we recognise that such advice is often required at short notice. We also have excellent relationships with family lawyers and tax advisors in other jurisdictions – including the US, Italy and France – on whom we can call if necessary.

Please contact James Heathcote to discuss your own specific circumstances – or those of your client – in confidence. If you would like to understand more about James’s professional CV relating to divorce, he will be happy to share this.