Will-writing reforms proposed

Signing Last Will and TestamentThe Law Commission of England and Wales is holding a public consultation on reform of the law of wills. The current law, largely derived from the Wills Act 1837, is understandably antiquated and requires an overhaul. The Commission notes that 40 per cent of people in England and Wales die without leaving a valid will, which often results in application of the unfavourable laws of intestacy.

Background

Significant changes in society, technology and medicine have prompted the Commission to review the wills law. Some of these factors include:

• the ageing population;
• the greater incidence of dementia;
• the evolution of the medical understanding of disorders, diseases and conditions that could affect a person’s capacity to make a will;
• the emergence of, and increasing reliance on, digital technology;
• changing patterns of family life – for example, more cohabiting couples and more people having second families; and
• with more people having substantial amounts of property, clarity about what happens to it after death being more important than ever.

Objectives

The Commission’s objective is to modernise and improve the current, archaic wills law. Some of the key focus areas include:

More flexibility: This would enable courts, when it is clear what the deceased wanted or intended, to dispense with the formalities of a will. If a particular formality, such as having two witnesses sign the will, had been overlooked or incorrectly administered, new ‘dispensing powers’ would enable the court to validate the will.
Capacity review: It may be necessary to improve the test for capacity to reflect the modern understanding of medical conditions such as dementia. This review could result in the introduction of a new test specifically linked to these conditions, where the testator makes a will with specific new guidance and support.
Statutory guidance: It may be necessary to introduce statutory guidance for doctors and other professionals when assessing whether or not a person has the required mental capacity to make a will. This could reduce the need for lengthy, costly litigation.
Undue influence: New rules should be considered to protect testators from being unduly influenced by another person. In particular, elderly and vulnerable testators should be better protected from fraud.
Testamentary capacity: Lowering the age at which a will can be made from 18 years old to 16. A child of 16 or 17 might have significant assets that he or she may not want to pass to an estranged parent under the rules of intestacy.
Electronic wills: It may be necessary to review how technology can be adapted in relation to making a will; it may become easier, cheaper and more convenient to a testator if they are able to do so electronically, though some practical challenges will need to be considered.
Ademption: The Commission would like to encourage discussions as to whether or not the ademption rules need to be reviewed. The rules could be improved to better align the testator’s wishes and intentions with the operation of the law.

Consultation events

STEP is working closely with the Law Commission and the Association of Contentious Trust and Probate Specialists (ACTAPS) on this consultation project. STEP is hosting free consultation events in London, Newcastle and Manchester, and STEP members are invited to provide feedback to Commission representatives.

Consultation event schedule:

London, 13 Sep
Newcastle, 18 Sep
Manchester, 18 Oct

The consultation closes on 10 November 2017, and the Commission’s conclusions, along with its final recommendations and a draft Bill, are expected to be published in early 2018.

Emily Deane TEP is STEP Technical Counsel

Foreign domiciliaries – what next?

UK passport

Early in July, the UK government offered some clarity about what will happen to its proposed changes to foreign domiciliaries, which were dropped from the Finance (No.2) Bill 2017 in the rush to pass legislation prior to this year’s general election.

Following the election and the Queen’s Speech, a Ministerial Statement announced that, after the summer recess, everything that did not make it into the eventual Finance Act 2017 would be reintroduced in a second Finance Bill 2017.

Briefly, the main changes are:

  • If a person is born in the UK with a UK domicile of origin, and is resident in the UK during a tax year, he or she will be considered to be domiciled in the UK for all tax purposes.
  • Anyone who has been resident in the UK for at least 15 of the previous 20 tax years will be judged to be a long-term resident and domiciled in the UK for all of his/her tax purposes.
  • Inheritance tax will be extended to cover:
    • any UK residential property owned by foreign domiciliaries via a non-UK company or partnership;
    • any UK trust settled by foreign domiciliaries via a non-UK company or partnership; and
    • a loan, if the funds are used for the acquisition, maintenance or enhancement of an interest in UK residential property, as well as the collateral on such a loan.

Reliefs and protections

In addition, the government plans to introduce several accompanying reliefs and protections, including:

  • Capital gains tax (CGT) rebasing relief on assets held directly by individuals applying to income gains from non-reporting funds, as well as on capital gains on foreign assets.
  • A cleansing relief for individuals who have been remittance basis users in at least one tax year between 2008/2009 and 2016/2017 with mixed-fund bank accounts. This measure excludes formerly domiciled residents.
  • The protection of settlor-interested trusts, as long as the settlor is a long-term resident of the UK, through the continued disapplication of the capital gains tax anti-avoidance provision that would otherwise have levied a charge on the trust’s foreign income.
  • A small number of relaxations to Business Investment Relief.

The government has stated that there are no plans to alter the implementation dates of any of the measures. If they are passed, they will represent the most significant set of changes to the rules regarding foreign domiciliaries since 2008.

Time scales

Given that Parliament does not return until 5 September, rising on 14 September for the party conference season, it is unlikely that MPs will be able to properly debate the second Finance Bill 2017 before October. If so, the legislation would likely receive Royal Assent in late November – at the earliest.

Given the limited time MPs will have to debate and pass the Bill, and the important changes it will bring, STEP will carefully monitor developments as they happen, and provide updates on the legislation’s progress.

Daniel Nesbitt, Policy Executive, STEP