STEP members input into reform of the law of wills

doctor with patientEarlier this week STEP held the second of three consultation events on the reform of the law of wills. Law Commission representatives Dr Nick Hopkins and Spencer Clarke invited feedback from STEP members in England and Wales on key areas of the consultation including, capacity, statutory wills, formalities, electronic will-making, protecting vulnerable testators and revocation.

At both events, practitioners raised substantial issues relating to the review of the test for capacity to make a will under Banks v Goodfellow (1870), the review of the formality rules, the introduction of court dispensing powers and further possible protection measures for vulnerable testators.

Some particularly pertinent questions that initiated discussion amongst members at the events were:

• How can the Golden Rule (where the making of a will by an elderly or ill testator is witnessed or approved by a medical practitioner who is satisfied of their capacity) be improved?
• Should the Wills Act adopt the Mental Capacity Act 2005 for decisions regarding testamentary capacity?
• Could other professionals such as psychiatrists assess capacity, not just medical practitioners?
• Should the ‘attestation’ requirement be removed?
• Should a dispensing power be introduced to allow judges to override a will formality that has been overlooked, for example, missing witnesses?
• Should the marriage revocation clause be reconsidered or removed?
• Is there scope for expanding the undue influence doctrine, in order to further protect vulnerable testators?
• Could there be more clarity separating the concepts of undue influence, and knowledge and approval?
• Have nominations been taken into consideration, particularly considering they require far less formalities than wills?
• Do domicile and residence issues need to be considered, including how the new rules would operate within other jurisdictions?

Members note that these roadshow type events are invaluable in the consultation process. The Commission, in turn, has been pleased with the response from members at both events.

Following the consultation deadline on 10 November 2017 there will be an analysis stage, after which a report and impact statement will be published by the Commission and subsequently a draft Bill.

Spaces are still available at the Manchester event on 18 October at Mills & Reeves LLP.

If your firm is unable to attend a consultative event, but would like to submit some feedback on the consultation to be incorporated into STEP’s consultation response, please contact emily.deane@step.org by 30 October.

Emily Deane TEP is STEP Technical Counsel

Policy watch: Debating the UK Finance Bill

Simon HodgesSTEP members may be interested in a reasoned debate that took place last Wednesday, 6 September in the UK House of Commons, which gave some insight into the view of both the opposition and the government as to how offshore trusts are perceived.

Parliament came back from its summer holidays last week, albeit not for long (it goes back into recess on Thursday when MPs go off for conference season), but already lively discussions have been had over tax issues as part of a debate on the elements of the Finance Bill that were held up before the summer due to the general election.

Overall, 48 Finance Bill resolutions were left outstanding from the previous session. With the Brexit bill seemingly taking up most of the short amount of parliamentary time available this month, this bit of legislative housekeeping didn’t attract the biggest crowd but raised some interesting points none the less.

The 48 resolutions were debated together, though some areas were clearly more interesting to MPs than others, not least the issue of non-domiciled tax status. Speaking on the subject, Mel Stride, the Financial Secretary to the Treasury, said that the measures in the Finance Bill would help to make the tax system fairer while also forecast to raise GBP1.6 billion over the next five years. He added that: ‘Most importantly, permanent non-dom status for people resident in the UK will be ended, so that they pay tax in the same way as everybody else.’

Peter Dowd, Labour’s Shadow Chief Secretary to the Treasury, naturally disagreed, calling the measures on domicile ‘sieve-like’ and arguing that the rules on business investment relief ‘will allow non-doms to remit funds into the UK without paying usual taxes’. Wes Streeting, a Labour MP sitting on the Treasury Committee, said that ‘the Government are saying clearly “if you have a trust overseas before the rules kick in, don’t worry; we’re not going to touch that money”.’ He went on to say that he recognised that many are family trusts – and, later still, that he understands the ‘parental instinct’ to want to pass on assets – but argued that there was an unfairness in not applying retrospective changes to non-doms in the same way as different measures affect many others.

Concluding the debate for the government, Stride addressed what he saw as Labour criticisms of offshore trusts, stating: ‘Let me be clear again: if funds are taken out of trusts, they will be taxed in the normal way. In recent years, we have reached important international agreements on the automatic exchange of information to ensure that we can effectively monitor those movements.’ Addressing Streeting’s points, Stride reiterated that funds remitted out of non-dom trusts will be taxable. But addressing the idea of greater parliamentary scrutiny of HMRC – Streeting has suggested the Treasury Committee could look at its work more closely – Stride argued that ‘the idea of politicians getting directly involved in the tax affairs of individuals…would be a dangerous road to go down. I do not want politicians interfering in people’s tax affairs; I want to protect tax confidentiality’.

Under Jeremy Corbyn, Labour will likely return to some of these issues again, possibly at its party conference later this month. For the Conservative government, for now they will move on and publish the draft clauses for the Finance Bill to follow the Autumn Budget this Wednesday, 13 September 2017. The consultation on these draft clauses will be open until Wednesday 25 October 2017.

 

Simon Hodges is Director of Policy at STEP

Trustees, have you got your LEIs?

Emily Deane TEPThe Global Legal Entity Identification Foundation (GLEIF) has designed a system whereby every ‘legal entity’ will need to register and obtain a unique identification number – a Legal Entity Identifier (LEI) when new European legislation, the Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR) takes effect in the UK.

If the entity does not obtain an LEI it will not be able to trade on the financial markets in the UK after 3 January 2018.

The London Stock Exchange (LSE) requires investors who are deemed to be legal entities to obtain the LEI, which is a 20-character alphanumeric reference code unique to the legal entity.

Legal entities include trusts (but not bare trusts), companies (public and private), pension funds (but not self-invested personal pensions), charities and unincorporated bodies that are parties to financial transactions. If the LEI has not been obtained by 3 January 2018, the investment firms will not be able to meet their obligations and provide the legal entity with investment services.

What is the purpose of LEIs?

All LEI data will be consolidated in one database in an effort to improve global entity identification and standardisation, which will enable regulators and organisations to measure and manage counterparty exposure. In addition it will enable every legal entity or structure with an LEI to be identified in any jurisdiction. Once the legal entity has the LEI, it will be required to quote it to the requisite service provider when it enters into a reportable financial transaction. Every financial transaction will require sight of the LEI in order for it to be processed.

Do trusts need one?

The regulations require trustees who are using capital markets in relation to trust funds to obtain the LEI for the trust. We understand that bare trusts have been excluded from the requirement to obtain an LEI (depending on whether the firm classifies bare trusts as legal entities or as individual/joint accounts) but all other trusts will be obliged to obtain one if they are parties to financial transactions.

In the case of discretionary trusts which have legal restrictions and cannot disclose trust details, the LSE will accept a validation from the trust itself, and will not require sight of the trust deed. However, in all other cases the LSE will generally accept a scanned copy of the first couple of pages of the trust deed in the same way that many banks do for AML compliance. Entities other than trusts are obliged to provide information such as their official registry details and business address.

Issues around trusts

When you apply for the LEI you will be asked to reference the source of its identity, such as Companies House if it is a company registered there. However, there is no equivalent register for trusts. It may be possible to use the trust’s Unique Tax Reference (UTR) from HMRC’s tax return to identify it. This would appear to be a sensible approach for the purpose of minimising the number of LEIs for a trust with multiple funds; however some larger trusts may apply for an LEI covering all of the sub-funds regardless of the UTR. There is still no guidance available on this point.

Renewal

Every entity will be required to renew its LEI on an annual basis and there will be a charge for renewal. To renew your LEI you must provide the Local Operating Unit with updated information, so that it may verify the data held.

However the FCA update dated 2 August 2017 clarifies that the requirement under MiFID II to renew the LEI on an annual basis applies to firms that are subject to MiFIR transaction reporting obligations, and in the UK, under our implementation of MiFID II, to UK branches of non-EEA firms when providing investment services and activities.

This recent update clarifies that trusts will not need to renew their LEIs on an annual basis unless they want to continue undertaking financial transactions.

What if I don’t apply?

If the LEI has not been obtained by 3 January 2018, investment firms will not be able to provide the legal entity with investment services. The legal entity itself is ultimately responsible for obtaining the LEI, but some investment firms may agree to apply for the LEI on behalf of their legal entity clients. The LSE has produced a draft format which will be acceptable in order to transfer the application authority from the entity to a third party such as a management company, if preferred.

Registration information

Each Local Operating Unit (LOU) may charge a fee for arranging the LEI and the fee may variable at each Operating Unit. You can find a LOU on the GLEIF website.

For more details on how to request your LEI, see the guides:

Quick User guide (pdf)
Full LEI User Guide (pdf)

It is widely acknowledged that guidance is lacking in this area, and the private client sector is keen to see some more prescriptive guidance in relation to trusts before the end of the year.

Emily Deane TEP is STEP Technical Counsel