Summer 2006
In this
issue
Budget day
blow to favoured tax status for trusts
Count down to age
discrimination
BNP/Racial
discrimination
Holiday Entitlement
Consultation Paper
Registering Judgments
Too late for second
thoughts
Company law simplified?
Mediation: its time has
come?
Consumer debt and
bankruptcy
Back to Newsletter Archive
In this issue we will provide you with an insight into a
recent raft of regulations changes and proposals which may affect us all: trust
law will have to take account of the changes to trust tax status, employment
law will have to adopt to age discrimination regulations, insolvency law may
have to accommodate an increase in the financial threshold for bankruptcy and
finally a government review of company law may remove some of its more archaic
aspects. As usual, we will also be keeping you up to date with some of the
latest case law which we hope you will find this of interest.
As summer is upon us, I should like to take this opportunity
to wish you all the best for the holiday season.
With best wishes to you all,
Peter Watkin
Budget day blow
to
favoured tax status for trusts
When Gordon Brown made his budget
speech on 22 March 2006 he omitted to mention major proposed changes to the
Inheritance Tax (IHT) treatment of trusts in schedule 20 of the Finance Bill.
No consultation had taken place about the changes, which was surprising as
professional bodies had been in long term discussion with HM Revenue and
Customs over proposals to modernise the taxation of trusts so far as income and
capital gains tax were concerned.
As currently drafted (and the bill has yet to be enacted)
the Finance Bill has the effect of making the tax treatment of life interest
and Accumulation & Maintenance (A&M) trusts identical to that of
discretionary trusts, with only a few exceptions.
Lifetime trusts
Before 22 March 2006:
The
transfer of assets on the creation of life interest and A&M trusts were
'potentially exempt transfers', so no IHT was initially payable on creation of
the trust. The 10 yearly IHT charge (a maximum of 6% of the value of the fund)
and the tax charges when assets left the trust ('exit charges') did not apply
to such trusts.
After 22 March 2006:
On the
creation of lifetime trusts (except disabled persons trusts) the value of
assets transferred will be taxed at 20% where it is over the settlor's nil rate
band. The 10 yearly charges and 'exit' charges will apply.
Will trusts
The government has made welcome concessions following
intense lobbying from professional and other bodies and has agreed to return to
the pre-budget position regarding the spouse exemption for trusts in wills. As
a result, spouses will not now be in a danger of losing the family home under
the intestacy rules and Muslim families can still make Islamic Wills.
There are now three main exemptions to the charging regime
for trusts created by will:
In many cases it will still be necessary for individuals who
have established trusts under their wills to review their estate planning
arrangements so that they can consider in particular whether they wish to
establish continuing trusts after the life interest in the favour of the
surviving spouse/partner comes to an end.
Existing trusts
- Life interest trusts:
The
existing rules will continue to apply unless the interest comes to an end after
6 April 2008 and is replaced by a further life interest, when it will be
treated as the creation of a new settlement charged to tax and without the
benefit of the spouse exemption.
- A&M trusts:
The existing
A&M treatment will continue until 6 April 2008 when the trust property will
become subject to the usual 10 yearly charges and charges when assets leave the
trust and are distributed to beneficiaries unless the asset in trust will go to
a beneficiary absolutely at 18 or 25.
Our advice to clients is that where you have created a trust
either in your wills or in the course of lifetime capital tax planning then you
should review that trust with your solicitor.
If you would like us to assist then please do
not hesitate to contact either Richard Boulding
or Vanessa Eyre
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Count down to age discrimination
The new age discrimination
legislation, The Employment Equality (Age) Regulations
2006 comes into force on 1 October this year. There has been some
criticism of the Regulations suggesting they are in parts overly complex and in
others areas lacking in detail. As employers are painfully aware ambiguities,
particularly on procedural matters, can result in litigation.
Perhaps one of the most difficult challenges for employers
will be for those who seek to justify a normal retirement age that is below the
national default age of 65. In practice employers who cannot objectively
justify the wish to retire employees early may simply have to consider raising
the normal retirement age to 65.
Here are some pointers on provisions relevant to dealing
with dismissals connected to age and retirement:
- Regulation 7 makes it
unlawful for an employer to discriminate on the ground of age both during
employment or on recruitment.
- Regulation 7(4) provides
an exemption to an employer who recruits where the applicant's age already
exceeds the normal retirement age or would be within a period of six months of
applying for the job. Note however this exemption does not extend to internal
applicants seeking promotion.
- Regulation 3 defines
discrimination on the grounds of age and indicates that discrimination will not
be unlawful if it can be justified.
- Regulation 30 provides an
exception whereby it will not be unlawful to dismiss an employee at or over the
age of 65 where the reason for dismissal was retirement.
Employers should be able to rely on Regulation 30 and
retirement as a reason for dismissal, where employees are retired at or over
the age of 65 and the prescribed procedure is followed. As always a careful
approach will need to be adopted. The statutory procedure involves:
- The employer providing written notice of the intended
retirement date of no more than 12 months, but no less than 6 months.
- The employee must be advised in writing of the right to
request not to be retired.
- Any such request must be made 3 to 6 months before the
intended retirement date where this falls on or after 1 April 2007.
- If the request is not granted a meeting must be convened
within a reasonable period and the employee has a right to be accompanied at
that meeting.
- As with the statutory dismissal procedure the employee
also has the right to appeal the decision and if this right is exercised a
further meeting must be convened. Again the employee has a right to be
accompanied.
- The decision taken following the appeal meeting is final.
Unlike the requirements for other dismissals the employer
will not be obliged to provide written reasons for the refusal to allow the
employee to work beyond the retirement age, and so it should be sufficient to
simply require the employer to retire. This begs a question as to how the
employer should in practice conduct matters during the initial and appeal
meetings if there is little or no requirement to provide any detailed
explanation why it wishes the employee to retire.
The employer will need to bear in mind the duty of good
faith. Employees who are left to harbour a perception that there is some other
reason for the dismissal may raise a grievance and could terminate the contract
ahead of the retirement date and claim constructive dismissal. This may give
rise to some interesting case law in future. Watch this space!
For further information on this or any other
aspect of Employment law, please contact Nicola Hughes at
or on 0117 926 4121.
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BNP/Racial
discrimination
In our last edition of the Orchard we reported
to you on the controversial case of Redfearn v Serco Ltd. The case concerned a
successful claim for race discrimination by a British National Party councillor
who had been dismissed from his employment as a driver following union
representations to the employer after his membership with BNP was
discovered.
The Court of Appeal has overturned the Employment Appeal
Tribunal's controversial decision and held that the complaint did not fall
within the Race Relations Act 1976. The CA found that it was wrong to say that
the Claimant was dismissed on 'racial grounds' simply because race issues had
been in the mind of the employer when deciding to dismiss. Mummery LJ held that
in allowing the claim for direct discrimination to succeed would "cover cases
that would produce consequences at odds with the legislative aim" and "turn the
policy of race relations legislation upside down".
Such words of common sense will no doubt be welcome by
employers, particularly as in this case the claim for race discrimination
appeared to have been brought as a means of circumventing the requirement that
an employee must have one years service as a qualifying period to bring a
straight claim for unfair dismissal.
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Holiday Entitlement Consultation Paper
The DTI has issued a preliminary consultation paper on
extending the annual leave entitlement from 20 days to 28 days paid holiday per
year to take account of the eight bank holidays, although the additional days
will not need to be taken on the bank holidays.
The consultation paper can be viewed from the DTI website
(www.dti.gov.uk/consultations/
page30026.html) and it is anticipated that employers will have plenty to
say in response to this proposal!
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Registering Judgments
Unlike the County Court judgments in
the High Court have never previously been passed to credit reference agencies
or available to members of the public.
All this changed on 6 April 2006 with the creation of the
Register of Judgments, Orders and Fines. Judgments will now be entered
automatically into the register where they will remain for 6 years. Only if the
judgment is paid within one month will the court cancel the entry.
The creation of the registry is welcomed in that it remedies
the unfairness of the previous system, where someone owing a relatively small
sum could be subject to a registration in the Register of County Court
Judgments, while someone owing very considerably more would escape inclusion in
any such register.
Searches of the register (for which there is a fee) can be
made by post to Registry Trust Ltd., 173/175 Cleveland Street, London, W1T 6QR
(telephone 0207 380 0133) or at
www.registry-trust.org.uk.
Please contact Val Chapman on or 0117 926 4121 if you would like to discuss how these proposed
changes might impact on you or your business.
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Too late for second
thoughts
It always pays to read the small print, as the
Trading Standards Department at Plymouth City Council must now be
reflecting.
The latest case of mistaken identity to be heard in the
Divisional Court involved an appeal by Sainsburys Supermarkets Ltd. against a
decision of a District Judge sitting at Plymouth Magistrates Court.
Following a customer complaint concerning jam doughnuts
purchased from Sainsburys, Plymouth Trading Standards Department commenced an
investigation against Sainsburys Supermarkets Ltd. Apparently, it received a
response from the Regulatory Affairs Manager of J Sainsbury plc. who stated
that he was authorised to speak on behalf of Sainsburys Supermarkets Ltd. A
prosecution was subsequently issued under the Food Safety Act 1990 S.8 naming
"J Sainsbury plc. (trading as Sainsburys Supermarkets Ltd.)" as defendant. This
was clearly incorrect, since as a limited company, Sainsburys Supermarkets Ltd.
is a separate legal entity, not a trading name for Sainsburys plc. This was in
due course recognised as an error by both parties. Plymouth sought leave from
the District Judge to correct the information so as to substitute Sainsburys
Supermarkets Ltd. as the named defendant in place of J Sainsbury plc.
It would have been a straightforward matter to abandon the
original prosecution and reissue against the correct defendant but for the fact
that the time limit for initiating a prosecution had expired before it was
recognised by Plymouth that the summons against J Sainsbury plc. was defective.
In order to proceed with the prosecution the Council therefore needed to keep
the original prosecution alive, and it proposed to do this by substituting
Sainsburys Supermarkets Ltd. as defendant. The District Judge at Plymouth
Magistrates Court no doubt had in mind the close connection between the two
companies and gave the Council permission to amend the summons so as to allow
the prosecution to proceed. Sainsburys Supermarkets Ltd., which now found
itself to be the defendant, appealed against the decision. J Sainsbury plc. did
not like the fact that the District Judge refused a costs order since it had
been wrongly named in the summons. It applied for judicial review.
On appeal in the Divisional Court, it was held that the
District Judge had erred in his decision. It was not possible to introduce a
new defendant after the time limit had expired. J Sainsbury plc. also succeeded
on review of the decision not to allow it a costs order since it had a complete
defence. It was not the party responsible for the sale and had not delayed the
progress of the investigation.
So, Sainsburys Supermarkets Ltd. escaped prosecution. The
case confirms the principle that even closely related companies must be viewed,
and will always be treated, as completely separate personalities at law. This
case should be contrasted with the recent successful conviction of Greene King
plc. by Harlow District Council, where finding itself with similar
representations made on behalf of the parent company Harlow argued successfully
on appeal that the corporate structure in that case gave the parent plc. an
"active and independent" role in managing the subsidiary company which meant
that it could also be prosecuted under the relevant legislation - in that case
for Food Hygiene offences at the "Moorhen" public house run by its subsidiary
company.
Please contact Judith Kelly on or 0117 926 4121 for further information.
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Company law simplified?
Earlier this year the
first significant changes to company law since Margaret Thatcher was in power
moved into the committee stage.
One of the principal objectives of this reform is to
engender a "think small first" approach and to make it easier to set up and run
a company - all laudable aims for the SME market which has previously been
shoe-horned into a corporate structure designed for large companies with
numerous public investors which had no intention of becoming involved in the
management of the business. As a result some of the more archaic aspects of
company law, which bear little relevance to the way in which most private
limited companies are operated, will be removed to simplify the administration
of owner managed companies. These include: -
- the abolition of the need for all shareholders to sign
written resolutions. A written resolution can be passed simply by the requisite
majority of shareholders signing.
- opt in to holding an AGM rather than the existing opt
out.
- simplification of the process to redeem shares and give
financial assistance which will be warmly welcomed by any one involved in
management buy-outs or other corporate restructures.
All this seems too good to be true and it may be. The price
for this "deregulation" is the proposed codification of directors' duties. This
addition to the statutory regulation of companies and the way they are run, is
still subject to discussion and debate but as the bill stands at the moment,
there may be implications for a director who is on the board of two companies
where they trade with each other.
We will issue further guidance on these aspects as and when
the outcome of the current debate becomes clearer.
Please contact James Hawkins on or 0117 926 4121 if you would like to discuss how these proposed
changes might impact you or your business.
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Mediation:
its
time has come?
The cost of litigation and the cost in particular of taking
cases to trial are responsible for a significant growth in alternative dispute
resolution procedures. Mediation is one of the most popular and effective means
of settling cases that would otherwise be expensive to run and costly to
defend. But the best results can often only be achieved by those experienced in
the process. Meade King has produced a guide to mediation and this can be
obtained from Adam Chivers on (0117) 923 4028 or .
Adam Chivers is an experienced mediator and
qualified arbitrator. He specialises in commercial litigation and professional
negligence claims.
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Consumer debt and
bankruptcy
The recent announcement by the Insolvency
Service that the statutory rules were to be consolidated came as no surprise to
insolvency professionals. The Insolvency Rules 1986 have already been directly
amended no less than 14 times since coming into force, not to mention all the
changes that have resulted from other legislation. While the proposed amended
legislation is driven by the government's desire to codify the law, the
government has yet to announce the details of the change that could potentially
have the most far reaching effect. The new rules will increase the level of
debt required to support a bankruptcy or winding up petition for the first time
since the present level (£750) was set in 1986.
The extent of the proposed increase is as yet unannounced
and it may yet prove controversial bearing in mind the large increase in
personal insolvencies. In November 2005 the DTI announced that there had been
17,562 individual insolvencies in England and Wales in the third quarter of
that year - a rise of 46% on the same period in 2004.
Insolvency industry specialists have noted that most of the
new insolvencies involve consumer debt as opposed to failed businesses, which
were traditionally seen as the primary cause of bankruptcy.
It remains to be seen if the proposed increase will have any
effect on the soaring levels of consumer debt. A large increase could be seen
as massaging the personal insolvency statistics on the one hand, or merely
delaying formal insolvency on the other.
An increase in accordance with the retail price index since
1986 would lead to a doubling of the limit to £1,500, which would
probably have little effect. However a substantial increase (particularly in
the context of the cost of a debtor's bankruptcy petition which has increased
to £475) could leave today's potential bankrupts too poor or
insufficiently insolvent to enter into formal insolvency.
While the high cost of becoming bankrupt has been held by
the Court of Appeal not to be a breach of the European Convention of Human
Rights (R v The Lord Chancellor, ex parte Lightfoot, 1999), if the new rules
create further barriers to formal insolvency a new challenge could well result.
Please contact Keith Mahoney or 0117 926 4121 if you would like to discuss this article.
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Whilst every effort has been made to ensure accuracy,
information contained in the Orchard may not be comprehensive and should not be
acted upon without professional advice. |
