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In the recent case of Ginger v Mickleburgh the High Court revisited the fundamental principles relating to testamentary capacity (the capacity to make a Will). It provides a useful reminder of the importance of timely and thorough capacity assessments in will-preparation.

Case Overview

The dispute concerned a 2014 will (the ‘Will’) made by the late Michael Gwilliam which was challenged by his four daughters. One of the grounds for the challenge was a lack of testamentary capacity.

The Will

The Will gave:

• 75% of Mr Gwilliam’s estate to his sister, nephews and ex-partner; and
• 25% to his four daughters in equal shares.

This was a significant shift from the Testator’s previous wish that his estate should pass to his children on intestacy.

The Testator’s condition

At the time the Will was executed Mr Gwilliam was suffering from late-onset schizophrenia with delusions. The Court found that those delusions materially affected his decision-making and prevented him from properly appreciating the nature and effect of his testamentary dispositions.

The Decision

The Will was therefore held to be invalid for lack of testamentary capacity, and Mr Gwilliam was treated as having died intestate.

Core Legal Principles

The Court confirmed that the applicable test for testamentary capacity remains the one set out in Banks v Goodfellow (1869).  A testator must be able to:

1. understand the nature and effect of making a will;
2. understand the extent of their property;
3. comprehend and appreciate the claims to which they ought to give effect (such as the expectations of close family); and
4. not be subject to a disorder of the mind that poisons their affections, perverts their sense of right, or prevents the exercise of natural faculties.

Application of Legal Principles

The Court, in this case, held that Mr Gwilliam failed the third and fourth limbs of the Banks v Goodfellow test.

At the time the Will was executed, Mr Gwilliam held several false and irrational beliefs about his daughters, including claims that they were conspiring with their mother to have him sectioned under the Mental Health Act to facilitate the sale of his home. The Judge was satisfied that these beliefs constituted delusions and that, but for those delusions, Mr Gwilliam would not have executed the Will.

Considering these delusions, the Court held that Mr Gwilliam could not properly consider the claims of his daughters. The Court emphasised that the ability to ‘comprehend and appreciate’ the claims of others requires a testator to have the capacity to evaluate those claims rationally. It is not sufficient merely to remember who potential beneficiaries are.

The role of solicitor evidence and the “golden rule”

The Will was prepared by an experienced paralegal who considered Mr Gwilliam to have capacity at the time the Will was executed.  However, there was no formal, contemporaneous medical capacity assessment.

The Court recognised that an assessment of capacity carried out by an experienced legal practitioner may carry significant weight.  However, much depends on the circumstances in which instructions are taken and the practitioner’s knowledge of the testator and their circumstances.

In this case, the Court emphasised that the paralegal had no prior relationship with Mr Gwilliam, and was aware of his recent sectioning under the Mental Health Act. The Court reiterated the “golden (if tactless) rule” that in cases of advanced age or infirmity, a doctor – ideally the testator’s own – should examine and attest to capacity. The paralegal ought to have known better.

Key Take-Away for Families

Families often treat estate planning as a to-do task that they never quite around to completing. Even in simple circumstances, where the intestacy rules will achieve their goals, families should still consider preparing a Will. A professionally prepared Will is often future-proofed, where possible, and will help to avoid stress and uncertainty if an individual later loses capacity.

Where an individual has had medical intervention for mental health difficulties, and wishes to make a Will, families should be prepared to facilitate a capacity assessment. Without one, any Will made is susceptible to challenge.

If you have any queries regarding this note or require further information about anything covered in it, do get in touch with Alex Shah or Henry Braithwaite in our specialist Private Client team or your usual contact at the firm on +44 (0)20 7526 6000.

 

For entrepreneurs, the sale of a business is the culmination of years of hard work. To reward this, the UK tax system offers Business Asset Disposal Relief (BADR) – formerly known as Entrepreneurs’ Relief (ER)—which reduces the Capital Gains Tax (CGT) rate on qualifying gains. The extent of that reduction has changed several times in recent years[1].

A recent ruling in the Upper Tribunal case of Philip Cox and Debra Cox v HMRC [2026] UKUT 00007 (TCC) serves as a reminder that a gift of shares, when a business sale is anticipated, can jeopardise this valuable relief. It is also a useful illustration of how, sometimes, good behaviour can bring an unfavourable outcome.

The Fatal Mistake: Dilution Below 5%

To qualify for BADR, a shareholder must meet the “personal company” test under Section 169S(3) Taxation of Chargeable Gains Act 1992 (TCGA 1992). This rule requires that for a period of at least two years leading up to the sale, the individual must hold:

• At least 5% of the ordinary share capital.
• At least 5% of the voting rights.
• At least 5% of the economic interest (profits and assets upon winding up).

In the Cox case, Mr & Mrs Cox each held roughly 6.4% of the shares in their company, David Williams IFA Holdings Ltd (DWIFA). They attended meetings where the 5% requirement was discussed and confirmed that they met it. However, shortly before the sale in 2019, they gifted a portion of their shares to other shareholders.

These gifts reduced their individual holdings to approximately 4.1%. When the company underwent a restructure a few months’ later, the couple sold their remaining shares and claimed ER. HMRC disallowed the claim. The result? An additional tax bill of over £210,000 and combined penalties exceeding £32,000 for the incorrect claim to relief.

The Penalty Paradox: Why “Good” Taxpayers Pay More

The most significant takeaway from the Cox case concerns the suspension of penalties, which was the key issue before the Upper Tribunal, the underlying BADR error having been already conceded and determined at the First- Tier Tribunal stage.

Under Paragraph 14 of Schedule 24 to the Finance Act 2007, HMRC has the discretion to “suspend” a penalty. They can do this where there has been a careless inaccuracy, if they can set conditions that help the taxpayer avoid future mistakes. If the taxpayer complies with these conditions for a set period, the penalty may be suspended.

The Coxes argued their penalties should be suspended because they were diligent taxpayers who had simply made a one-off “oversight”. However, the Upper Tribunal upheld HMRC’s refusal to suspend, confirming a frustrating paradox:

1. Specific Conditions Required: A suspension must be tied to a condition that corrects a behavioural flaw.
2. The “One-Off” Barrier: Because the Coxes were already highly compliant and the error occurred during a unique, complex event (the sale of a business), HMRC argued there were no “measurable” conditions they could set that would improve the Coxes’ future behaviour.
3. Judicial Review Standard: The Tribunal confirmed it could only overturn HMRC’s refusal if the decision were “flawed” in a legal sense (irrational or ignoring evidence). Since HMRC followed its own guidance, the penalties stood.

Counterintuitively, a history of clean tax compliance appears to have damaged the Coxes’ claim for suspension.

Essential Takeaways for Shareholders and Advisers

The Cox case highlights three critical lessons:

1. Keep the 5% rule in mind: Gifting even a tiny fraction of shares can be fatal to a BADR claim if it tips you below the 5% mark. The 5% rule is a “bright line” test; there is no leniency for being close (e.g., 4.9%).
2. Seek continuous advice: The Coxes relied on advice given at a meeting before they changed their shareholding. Crucially, the Tribunal found they were “careless” because they failed to seek fresh advice once the facts changed (i.e., after the gift).
3. Do not rely on a clean record: Do not assume that a clean tax history will protect you from paying penalties. If a mistake is a “one-off” and your systems are already perfect, HMRC may argue there is nothing to “fix,” and therefore no grounds to suspend the penalty.

The Bottom Line: If you are planning to gift shares—whether for succession planning or employee incentives—verify the impact on your Section 169S TCGA 1992 status immediately before and after the transfer. As the Coxes discovered, a few percentage points can be the difference between a 10% tax rate and an expensive lesson in tax law.

If you have any queries regarding this note or require further information about anything covered in it, do get in touch with Alex Shah or Henry Braithwaite in our specialist Private Client team or your usual contact at the firm on +44 (0)20 7526 6000.

This article is for general purpose and guidance only and does not constitute legal advice.  It should not replace legal advice tailored to your specific circumstances.

[1] In the tax year 2025/26, the reduced rate is 14%. Previously, it was 10%. From 6 April 2026, it will be 18%.

The UK property landscape is undergoing transformational change across residential lettings, commercial leasing, building safety, housing standards and taxation. Below we summarise key reforms, relevant consultation and implementation timelines, and practical implications for landlords, investors, developers and property professionals in England and Wales.

1.Renters’ Reform & Abolition of Section 21 “No-Fault” Evictions

The Renters’ Rights Act 2025 received Royal Assent on 27 October 2025 and introduces one of the key fundamental overhauls of the private rented sector in a generation.

Implementation Phases

• 27 December 2025: Strengthened investigatory and enforcement powers for local authorities come into force ahead of tenancy reforms.
• 1 May 2026:
  • Abolition of section 21 no-fault evictions under section 21 of the Housing Act 1988 conversion of assured shorthold tenancies into periodic assured tenancies with rent periods not exceeding one month
  • Reformed possession grounds which have been amended and expanded, requiring landlords to give valid reasons for seeking possession. Evictions of tenants without cause will therefore become increasingly difficult.
  • Tenants will benefit from a 12-month protected period at the start of a tenancy, where they cannot be evicted on grounds relating to the landlord seeking reoccupation or sale of the property.
  • The Act also places limits on rent increases to once per year, prohibits discrimination against prospective tenants with children or those receiving benefits, and on rent bidding.
  • Provides tenants with the right to request consent to keep pets, which landlords cannot unreasonably refuse.

• Late 2026: Roll-out of the Private Rented Sector (PRS) Database and establishment of the PRS Landlord Ombudsman. This is expected to be mandatory by 2028.
• Future updates: Consultation outcomes will determine timing of Decent Homes Standard, Awaab’s Law extension to the PRS, and enhanced housing standards.

Deadlines & Transitional Rules

• Landlords should serve valid section 21 notices before 30 April 2026 if they intend to rely on them. Possession proceedings must be commenced within the applicable period to rely on the notice, being six months from the date the notice was served, or three months from 1 May 2026 whichever is sooner. If the notice is served under Section 21(4)(b) of the Housing Act 1988, then the applicable period is four months from the date specified in that notice or three months from 1 May 2026, whichever is sooner. Failure to serve valid Section 21 notices before 1 May 2026 will result in the assured shorthold tenancy converting to a periodic assured tenancy and the existing tenancy will be subject to the new regime.
• Government guidance for landlords and tenants is being published in the run-up to May 2026 to support compliance.

 

2. Proposed Ban on Upward-Only Rent Reviews in Commercial Leases

The Government has proposed a statutory prohibition on upward-only rent review (UORR) clauses in new and renewal commercial leases as part of the English Devolution and Community Empowerment Bill, first introduced into Parliament on 10 July 2025. The intended aim of these provisions is to safeguard tenants from inflated rents during difficult economic climates and market downturns.

• Clause 71 of the Bill seeks to amend the Landlord and Tenant Act 1954 (LTA 1954) by adding Schedules 7A and 7B, prohibiting upward-only rent reviews in new commercial leases and renewal leases in England and Wales and prohibiting put options that require tenants to enter into new leases where the initial rent cannot be determined at the time the option is agreed (requiring the starting rent for the new lease to be equal to the rent payable under the previous lease) respectively.
• The prohibitions in Schedules 7A and 7B would only apply to new leases. Index-linked rent reviews would still be permitted if the resulting rent can be lower than the passing rent. Stepped rents (pre-determined rent levels ascertained at the start of the lease) would also not be caught by this prohibition.
• Draft provisions (Schedule 31 of the Bill) would bar clauses that prevent downward movement of rent on review and introduce rights for tenants to trigger rent reviews.
• The Bill passed its Committee stage and has progressed to the Report stage in the House of Commons (as at late 2025). The Bill is currently in its Committee stage in the House of Lords (as at 15/01/2026).
• This reform, if enacted, is likely to affect rental income predictability and asset valuations, forcing landlords and occupiers to rethink rent review mechanics and potentially adopt fixed or flexible market-adjusted reviews instead of traditional upward-only mechanisms.

 

3. Building Safety Levy (England) — Effective 1 October 2026

The Building Safety Levy (BSL) is set to be introduced from 1 October 2026 following introduction of the Building Safety Levy (England) Regulations 2025 (SI 2025/1236).

• The BSL is a new tax introduced under the Building Safety Act 2022 that will apply when developers seek permission to develop certain residential buildings in England.
• The Government has published guidance on how the levy is expected to operate enabling developers and local authorities to plan accordingly.
• The levy may be subject to changes before its expected implementation in October 2026.

 

4. Leasehold & Freehold Reform Act 2024 — Enfranchisement Changes

The Leasehold and Freehold Reform Act 2024 has introduced a range of enfranchisement and lease extension reforms following longstanding pressure from leaseholders and industry groups.

• Key provisions (including changes to qualification periods and marriage value treatment) have commenced or are in the process of being brought into force via secondary legislation.
• The legislation prohibits the grant of new long residential leases for houses, subject to certain permitted exceptions (yet to come into force).
• Qualifying tenants of houses and flats will be entitled to extend their leases by 990 years, replacing the previous 50 years for houses and 90 years for flats respectively. The lease extensions are required to be granted at a peppercorn rent.
• Restrictions on tenants from bringing a new claim to enfranchise or extend their lease within 12 months of an earlier failed lease extension have been removed, together with restrictions on limiting lease extensions of houses to only one lease extension is also removed.
• From 31 January 2025, qualifying tenants no longer need two years of ownership to issue a claim to extend their lease through the statutory process.
• The Act also introduces new valuation methods for calculating the premium payable for freehold enfranchisement or lease extensions with the abolition of marriage value calculations (yet to be implemented).
• The threshold for non-residential use in a mixed-use building was increased from 25% to 50% of internal floor space (excluding communal areas).
• Shared ownership leaseholders will gain rights to extend their leases (excluding rights to enfranchise and acquire the freehold or participate in collective enfranchisement claims).
• Disputes related to enfranchisement and lease extension claims will primarily be dealt with by the First Tier Tribunal (Property Chamber) in England and the Leasehold Valuation Tribunal in Wales, removing claims to the High Court.

 

5. Section 10A of the Landlord and Tenant Act 1985

The Social Housing (Regulation) Act 2023 created a new Section 10A of the Landlord and Tenant Act 1985, creating an implied covenant in relevant social housing leases that require landlord to comply with prescribed requirements regarding hazard, such as damp and mould.

• The Hazards in Social Housing (Prescribed Requirements) (England) Regulations 2025/1042 defined “significant hazards” as a risk that a reasonable landlord would urgently address (such as mould, damp or fungal growth) and “emergency hazards” as imminent and significant risks requiring action within 24 hours.
• Landlords are required to investigate and complete relevant safety works as soon as reasonably practicable (and within 24 hours for emergency hazards) to make the home safe and prevent the recurrence of the hazard.
• Breaches are enforced as a breach of implied covenant against landlords.

 

Our team remains ready to support you with tailored advice on compliance, risk mitigation and strategic planning in response to these reforms.  If you have any queries regarding this note or require further information about anything covered, do get in touch with Sharado Watson or your usual contact at the firm on +44 (0)20 7526 6000.

This article is for general purpose and guidance only and does not constitute legal advice.  It should not replace legal advice tailored to your specific circumstances.

 

In our previous article on the Renters’ Rights Bill, we highlighted the sweeping reforms set to reshape the private rented sector (PRS). At that time, much of the detail and timing of implementation remained uncertain. The Bill has since received Royal Assent on 27 October 2025, becoming the Renters’ Rights Act 2025 (RRA), and the Government has now confirmed that the changes will be rolled out in three phases, giving landlords, tenants and agents time to prepare.

For landlords, the RRA is a landmark shift affecting tenancy agreements, possession rights, rent increases, and compliance obligations. Understanding the timetable and preparing now is essential.

Possession: Fewer routes, not no routes

Many landlords are concerned that, with the end of Section 21 “no-fault” evictions, the right to recover possession will be hollowed out and investment risk will spike. The position is more nuanced. Section 21 will end from 1 May 2026 and landlords will need to use the revised statutory grounds going forward. Any landlord intending to rely on a Section 21 notice should act promptly: 30 April 2026 is the final date on which a valid Section 21 notice can be served. Early planning is advisable for any landlords with upcoming possession needs.

From May 2026, all assured shorthold tenancies convert to periodic tenancies. That change removes fixed end dates but does not remove the ability to regain possession; it changes the mechanics. Landlords will need to evidence the ground relied on and ensure procedural compliance. Tenants will be able to end the tenancy by giving two months’ notice, which may reduce void risk profiling for some portfolios while requiring tighter rent and repairs controls for others.

Certain possession grounds will interact with the new regulatory infrastructure. In Phase 2, landlords must be on the PRS Database and, in some cases, registration will be a prerequisite to using specified possession grounds. Failure to register may shut off a route to possession and expose the landlord to penalties, so database compliance becomes part of the possession strategy.

Is renting now “riskier” for landlords?

The risk profile changes, but risk can be managed with preparation.

Rent control by procedure, not price-cap: From May 2026, rent can be increased only once every 12 months to market rate via a Section 13 notice. Clauses that try to do something different will be ineffective. This places a premium on evidence of market comparables and on-cycle reviews. Poor paperwork will translate to revenue drag.

Front-end affordability tactics narrow: From Phase 1, landlords may accept up to one month’s rent in advance only, and cannot invite or accept offers above the advertised rent. Pricing discipline and transparent advertising will be essential to avoid enforcement risk.

Pet requests and discrimination rules bite: Landlords must consider pet requests and not unreasonably refuse, with statutory challenge rights for tenants. Combined with strengthened protections for tenants who receive benefits or have children, screening and decision-making must be documented and objectively justified to mitigate dispute risk.

More scrutiny, more paper: Local authorities gain greater powers, including higher civil penalties and wider rent repayment orders. Robust records and prompt responses move from good practice to risk control.

The new infrastructure landlords must plug into

From late 2026, the PRS Database becomes mandatory for assured and regulated tenancies. Unregistered properties cannot be marketed or let, with civil and criminal penalties for non-compliance. The database will also hold safety certificates, EPCs and contact details, and landlords will in some cases need to be registered to use certain possession grounds. Treat database accuracy as a gateway compliance.

All landlords must also join the PRS Landlord Ombudsman. Tenants can raise disputes about standards, repairs and conduct, and determinations are binding. Keep audit trails for repairs, communications and inspections; they will decide outcomes.

Standards on the horizon

Longer term, the Decent Homes Standard will extend into the PRS through regulations, with councils given effective and proportionate enforcement powers. Planning capex against DHS criteria now will smooth compliance and protect value.

What to do now

Map your possession contingencies. If a Section 21 route is needed before transition, take advice immediately and work to the 30 April 2026 deadline. After May 2026, plan to use the revised statutory grounds and align your evidence and processes accordingly.

Convert your tenancy strategy for periodic-only lets and rework house rules and pet policies to reflect the RRA framework, with fair, documented decision-making and clear timelines.

Reset rent governance. Move all reviews to a 12‑month cycle, build a comparables file for Section 13 notices, and strip out inconsistent rent-review clauses from templates to avoid unenforceability.

Get database- and ombudsman-ready. Assemble compliance packs now—EPCs, gas and electrical safety, licences, contact details—and prepare workflows so properties can be registered and disputes handled efficiently once Phase 2 opens.

After a long period of uncertainty, the government has now provided a clear roadmap for the Renters’ Rights Act 2025. Landlords can now see exactly what changes will take effect, when they will be phased in, and what steps are required to prepare. Taking action early will be crucial to ensure compliance, manage risk and navigate the transition smoothly.

If you have any queries regarding this note or require further information about anything covered in this briefing, do get in touch with Aoife Reid, Paul Twomey, or your usual contact at the firm on +44 (0)20 7526 6000.

Over the last decade, report after report has made clear the need for IHT to be reformed. The Institute for Fiscal Studies, the Office of Tax Simplification, and an All-Party Parliamentary Group have all come to this conclusion. Yet the Chancellor’s appetite for change, it seems, has so far been simply to increase the burden on farmers, business owners, and the middlingly wealthy without making the tax fit for the modern day.

As such, there are tools in the chest that have not yet been used, and families should be aware of them.

What changes did the Budget 2025 make?

• The nil-rate band (NRB) of £325,000 and the residence nil-rate band (RNRB) of £175,000 will remain frozen until April 5, 2031.
• The £1 million cap for combined Agricultural and Business Reliefs, effective from April 2026, will be transferable between spouses or civil partners.
• Relevant property trust charges for historic trusts settled by formerly non-domiciled individuals will be capped at £5 million from April 6, 2025.
• Payments from Infected Blood Compensation Schemes will be exempt from IHT.
• The IHT exemption for gifts to charity will only apply to gifts made directly to UK charities and Community Amateur Sports Clubs.

What widely recommended measures were not in the Budget?

1. The ‘seven-year rule’ survives another day.

As other routes are closed off one-by-one, the best IHT mitigation strategy is increasingly for wealthier individuals to pass assets down to their families whilst they are young and in good health. As a general rule, if such gifts are made over seven years before death, they are free from IHT. Reports often call for the removal of this rule. Some call for a simple ‘gifting tax’ to be created to remove lifetime gifts from the IHT regime entirely.

 

2. The RNRB remains in place.

Criticized for its complexity, and for favouring individuals with children and property, there are frequent calls for this relief to be abolished, and for the ordinary NRB to be expanded.

 

3. Reliefs such as Business Relief and Agricultural Relief, though limited, remain in place.

Many stakeholders have called for reliefs to be abolished entirely, and the rate of tax lowered. Instead, across her Budgets to date, the Chancellor has chosen to bring more assets into the tax, and hold the rate.

How should families interpret this Budget?

As we enter an era of political populism and economic uncertainty, with potentially significant disruption brought about by transformative technologies, it seems unlikely that IHT in its current form will hold. This Budget was a relatively soft-landing for those worried about further changes, but they should not sit on their hands as a result. Wealthier individuals should use the next year to consider their families’ needs and put gifting plans in place, whilst they still can.

If you have any queries regarding this note or require further information about anything covered in it, do get in touch with Alex Shah, Henry Braithwaite or your usual contact at the firm on +44 (0)20 7526 6000.

This article is for general purpose and guidance only and does not constitute legal advice.  It should not replace legal advice tailored to your specific circumstances.

 

Inheritance Tax (“IHT”) is often referred to as the UK’s most hated tax.  The tax rate of 40% is very unpalatable for those that it hits. So, it is no surprise that those families who may have to pay IHT seek ways around it. It is also no surprise, given how much wealth is tied up in property in the UK, that the ‘family home’ is often the asset that people want to protect.

Any professional who encounters IHT knows that trying to remove the family home from your taxable estate is fraught with risk. The recently reported case of Chugtai v The Commissioners for His Majesty’s Revenue & Customs [2025] UKFTT 00458 (TC) provides a helpful reminder.

What was the case about?

Mr Mohammed Chugtai (the ‘Deceased’) died on 26 February 2017, leaving an estate valued at £401,711. On 16 February 2000 he executed two deeds creating discretionary trusts. One trust had an account with Abbey National, later Santander Bank (the ‘Santander Trust’). The other trust (the ‘Property Trust’) held the Deceased’s property in Caversham, Berkshire (the ‘Property’). The Property was mixed-use, containing the Deceased’s home and a retail unit that the Deceased ran at the time. The Deceased was excluded from benefitting from both trusts.

HMRC determined that the transfers to both Trusts were gifts with reservations of benefit (‘GROBs’) and so were included in the Deceased’s taxable estate for IHT purposes. The family appealed against this determination.

 

 Gifts with Reservation of Benefit

Where an individual makes a gift of an asset and either:

o             Bona fide possession and enjoyment of the asset is not assumed by the recipient at or before the date of the gift; or

o             At any point in the 7 years prior to death (or between the date of the gift and the date of death, if shorter) enjoyment of the asset is not at the exclusion (or virtually to the exclusion) of the donor

For as long as that remains the case, there is a reservation of benefit and the donor is to be treated as beneficially entitled to the asset at the date of his death.

 

At the date of death, the Santander Trust held £62,239, and the Property was valued at £380,000 (though this value was contested).

After creating the Trusts, the Deceased briefly moved out of the Property, but returned at the request of his daughter, who resided in the Property, to provide care for her. He did not pay rent. The Deceased continued use the retail unit (rent-free) until it was leased to another business, which paid rent into the Santander Trust. The Deceased continued to use the account in the Santander Trust.

What did the Tribunal find?

The First-Tier Tribunal agreed with HMRC that: (i) the use of the bank account constituted a benefit to the Deceased, such that the value of the Santander Trust was included in the Deceased’s estate; and (ii)the Property Trust, too, was included in the Deceased’s estate because:

1. The Deceased did not pay rent for his use of either the residential property or business unit.
2. His reason for returning to the property did not meet the exemption given in paragraph 6 of the schedule 20 to the Finance Act 1986.
3. The Deceased received (via the Santander Trust) the rent from the retail unit.
4. The trust documents may have stated that the Deceased was excluding from benefitting, but he did, in fact, benefit.

As a result, the appeal was dismissed.

What does this mean for the family?

This case illustrates the dangers of an imperfect gift.

1. The Santander Trust and Property Trust will form part of the Deceased’s estate for IHT purposes. This brings the total estate to £843,950, exceeding the maximum tax-free Nil-Rate Band (‘NRB’) of £650,000.
2. The Residence Nil-Rate Band (‘RNRB’) was not available. Although the value of the Property was added back into the Deceased’s estate, his children did not receive a beneficial interest in the Property because of his death; the gift into the trust is not undone, it is just imperfect for IHT purposes.
3. Furthermore, when the Property is sold, the trustees of the Property Trust will face a charge to Capital Gains Tax (‘CGT’). Given rising house prices in the southeast of England at a rate of 24% the CGT due is likely to be substantial; trustees only have a tax-free CGT allowance of £1,500.

If the trusts had never been created, the Deceased’s estate would be valued at £843,950. However, it would have had a greater tax-free allowance, up to £1m (assuming a full NRB, transferred NRB, RNRB and transferred NRB). Furthermore, the value of the Property would be re-based at the date of death. On sale, CGT would only be charged on the gain from the date of death.

What are the lessons?

Lesson 1: Be aware of the risk of imperfect gifts, particularly of family homes.  Ensure you obtain professional advice.  In some circumstances, depending upon timing, it may be possible to undo or perfect a GROB.  If neither of those options are available, the family need to be prepared for the tax that will be payable.

Lesson 2: Trusts are often created to save tax, but the failure to achieve a tax goal does not undo such trusts. The consequence of such failure can often be that, when all taxes are taken into consideration, a family pays more tax than they would have in the first place. As asset values increase and tax allowances shrink, these traps bite harder and deeper. Families and their advisors should always take full advice from a certified tax advisor before making such arrangements.

 

If you would like any help or advice on a gift with a reservation of benefit, or any issues relating to inheritance tax or probate do get in touch with Alex Shah or Henry Braithwaite in our specialist Private Client team or your usual contact at the firm on +44 (0)20 7526 6000.

 

This article is for general purpose and guidance only and does not constitute legal advice.  It should not replace legal advice tailored to your specific circumstances.

Overview of the Bill

The most noticeable proposals of the Bill are as follows:

1. The abolition of Section 21 evictions.
2. The end of Assured Shorthold Tenancies (ASTs).
3. Changes in rent increases.
4. The establishment of a new private rental sector Landlord Ombudsman.
5. The right for tenants to request permission to keep a pet.
6. The establishment of a Private Rented Sector Database

 

The Abolition of Section 21 evictions

The abolition of the section 21 ‘no-fault’ eviction was widely expected and is designed to provide greater security to tenants, allowing them to reside in their properties without fear of eviction, except in a few circumstances, namely:

Rent Arrears

Ground 8 of the Housing Act 1988 (the ‘1988 Act’) is to be amended so that:

• if rent is payable weekly/ fortnightly, at least thirteen weeks’ rent must be outstanding (up from eight weeks), and
• if rent is payable monthly, at least three months’ rent must be outstanding (up from two months).

The notice period that landlords must give tenants will increase from two to four weeks. After this period, tenants must either vacate the property, or landlords may start court proceedings to regain possession.

Sale of Property

A new statutory provision enables a landlord to regain possession if they intend to sell their property.  This is a mandatory ground and therefore if evidenced, the court must award possession.  Notice of four months is required, but possession cannot be obtained until after the first 12 months of the tenancy.  Once possession has been recovered, landlords are unable to re-let their property for a period of 12 months from the date on which the notice period expires.

Occupation of Property

Possession can be obtained if the landlord or their family intend to occupy the property as their only or principal home. Possession cannot be obtained during the first 12 months of the tenancy and landlords are prohibited from re-letting their property for a period of 12 months from the date on which the notice period expires.  Notice of four months must be given to tenants.

The s.21 procedure will remain effective until the Bill comes into force.  The transition provisions of the Bill confirm that if a valid s.21 notice is served prior to the commencement date of the Bill, landlords will be able to bring proceedings to request an order for possession before the date that is the earlier of (i) six months from the service of the notice, or (ii) three months from the commencement date of the Bill.

The end of ASTs

ASTs are to be abolished and replaced by periodic tenancies with a rental period not exceeding one month.  There are to be no transitional provisions, but rather a single date when all private tenancies will automatically revert to periodic assured tenancies, save for tenancies which are the subject of existing possession proceedings.

Tenants will be entitled to terminate their periodic tenancy at any time by giving two months’ notice.  To mitigate losses arising from tenants terminating their tenancy early, landlords could seek to agree with agents that any fees paid will be refunded if the tenant does not stay in occupation for at least 6 months.

Rent increases

Landlords are entitled to serve a statutory notice to increase rent not more than once in each calendar year, with the increased rent taking effect two months after the date of service of the notice.

Tenants are entitled to dispute the increase in rent if they consider it to be more than the market rate for the property. Such dispute shall be referred to and determined by the First Tier Tribunal (FTT).  The FTT’s determined rent can only be the lower of (i) the market rent for the property, or (ii) the landlord’s proposed rent.  The FTT no longer has the power to determine a rent that is higher than the landlord’s proposed rent.

The rent determined by the FTT will take effect from the date of determination or such other date as the FTT directs, but not later than two months from the date of determination by the FTT.

By removing the risk of the FTT determining that the open market rent is higher than the landlords’ proposed rent, the Bill may incentivise tenants to challenge even the fairest of rent increases, as the new rent will only be payable once the FTT has made its determination, which could take several weeks, and will in any case be either the landlord’s proposed rent or a lesser amount.

All existing rent review clauses that are not in line with the Bill will be of no effect.

Establishment of a new private rental sector Landlord Ombudsman

The creation of an Ombudsman is designed to offer tenants greater access to redress services through which they can challenge the conduct of their landlords, particularly to issues relating to property standards, repairs, maintenance and poor landlord practices.  The Ombudsman shall have the power to compel landlords to take remedial action, issue apologies, provide information, and/or pay compensation of up to £25,000 and their determination shall be binding on all parties.

All landlords with assured and/or regulated tenancies will be required to join the Ombudsmen service, regardless of whether an agent has been appointed to manage the property on their behalf. The Ombudsman service will be introduced shortly after the Bill receives Royal Assent and it is expected that landlords will contribute a fee towards its operating costs. A failure to join the Ombudsmen service will lead to possible financial and criminal sanctions.

Whilst the introduction of the Ombudsman will benefit tenants, it is an additional cost for landlords which, coupled with the introduction of the Private Sector Rental Database (see section 6 below) and the increase in the number of local authorities requiring landlords to obtain licences to rent, will add further economic uncertainty.

Right to keep a pet in a rental property

The Bill will give tenants right to request a pet, which landlords must consider and cannot unreasonably refuse.  The Bill provides two examples of circumstances in which it would be reasonable for a landlord to refuse consent, both of which relate to situations where granting consent would place them in breach of an agreement with a superior landlord.  Such examples are not exhaustive.

Landlords will be advised to judge requests on a case-by-case basis, and where there is disagreement, a tenant may escalate their complaint to the Ombudsman.

As a condition for granting consent to keep a pet at the property, a landlord is entitled to demand that either (a) the tenant has insurance to cover the risk of pet damage against the property, or (b) the tenant contributes towards the landlord’s costs of having insurance that covers against the risk of pet damage. The latter option appears to be most sensible to ensure that satisfactory cover is in place for the duration of the tenant’s occupation of the property.

Private Sector Rental Database

All landlords of assured and regulated tenancies will be required to register themselves and their properties to a new private rented sector database.  For landlords, this will provide a centralised database where they can access guidance to better understand their obligations.

Tenant’s will benefit from being able to access key information prior to agreeing a tenancy.  It is likely that the database will include gas safety certificates, EPCs, electrical installation certificates, as well as any penalties, banning orders or similar adverse orders made against the landlord.

Landlords will be required to pay to register on the database but no indication has been given as to the anticipated cost.  If a landlord fails to register their property and/or is in breach of the requirement to keep active entries up to date, they are not permitted to market or advertise their property and a court is not permitted to make an order for possession. Local housing authorities will have the power to fine landlords between £7,000 and £40,000 if they are satisfied beyond reasonable doubt that a landlord has breached a requirement of the act or knowingly or recklessly provided false information to the database operator.

 

Landlords, tenants and letting agents are advised to follow the Bill’s progression closely.  If enacted in its current form or thereabouts it will have far reaching consequences.  It is important to understand your rights and obligations once the Bill comes into force, but also, it may be prudent to consider what steps ought to be taken now, in anticipation of that date, in relation to any existing tenancies to protect your position.

The Government is clearly keen to push the Bill through and, as mentioned above it seems likely that it will become law by Summer 2025.  It remains to be seen if the (limited) protections built into the Bill will be sufficient to keep a nervous landlord in the market for much longer.

If you have any queries regarding this note or require further information about anything covered in this briefing, do get in touch with Paul Twomey, Henry Braithwaite or your usual contact at the firm on +44 (0)20 7526 6000.

This article is for general purpose and guidance only and does not constitute legal advice.  It should not replace legal advice tailored to your specific circumstances. 

The government’s Employment Rights Bill, described by prime minister Sir Keir Starmer yesterday as “the biggest upgrade of workers’ rights in a generation”, has been released today. There are a number of regulations proposed intended to help employees, the most significant of which are:

 

• Unfair dismissal becoming a right from the first day of employment (a protection which is currently only achieved after two years’ continuous service). There will still likely be a degree of flexibility for employers to assess new employees’ suitability for a role with a statutory probationary period in which it is suggested employees could be fairly dismissed. It now seems like the length of this probationary period could be up to nine months (up from the six previously mentioned) but there will now be a period of consultation with businesses on this and how this probationary period will work and what could constitute a fair dismissal.

 

• Employees will be entitled to receive statutory sick pay from the first day of employment (currently, they are only entitled to it from their fourth day of sickness).

 

• “Exploitative” zero-hours contracts will be banned. Preventing the ‘exploitative’ nature of these appears to be addressed through rights including to guaranteed hours, to reasonable notice for shifts and to payment for cancelled, moved or curtailed shifts.

 

• Flexible working rights will be strengthened and the default position, where this is practical, and requests will seemingly harder for employers to refuse. There is however no increased penalty against employers for any breaches, which had been a possibility.

 

• Pregnant women and new mothers will receive further protections from dismissal while they are pregnant, on maternity leave, or on return to work within the first six months.

 

• Enhanced rights to paternity leave, unpaid parental leave and bereavement leave (widening the scope from its current form ‘parental bereavement leave’).

 

• Almost stopping altogether the use of the controversial practice of dismissing and re-engaging employees on new terms (i.e. ‘fire and rehire’), other than in limited and exceptional circumstances. A new Statutory Code (set in motion by the former government) setting out employers’ responsibilities when carrying out this practice was released in July. Labour have deemed the Code inadequate and want to stop the practice entirely.

 

There has been a great degree of concern from businesses that this raft of new and enhanced rights will deter businesses from taking on new hires. They say that economic growth, which is the key driver behind these reforms, will in fact be stymied by this. While they may not necessarily discourage new hires, and employees will feel emboldened to take up and change roles more frequently if they achieve unfair dismissal protection sooner (positive for economic growth), the more likely adverse impact that will be felt by small to medium size businesses from these reforms is a financial one. This could particularly come from the right to sick pay from day one and banning of zero hours contracts. Small to medium sized businesses, whose requirements for a role often change and need to remain flexible (which zero hours contracts give them), lose that degree of flexibility.

 

The Bill will not be passed until summer 2025, and many of the new rights (including unfair dismissal from day one) is not expected to be implemented until autumn 2026 (according to the BBC), so there are no immediate changes coming into force. There will also be a period of consultation for the finer details.

 

Other employment law pledges that have been made by Labour during the election campaign, in their manifesto, or in the July King’s Speech, which are not part of this Bill include the right to switch off and a ‘simplified’ status of worker (as part of a two-tier framework self-employed). These are not included in this Bill and will be implemented in the future, as set out in the ‘Next Steps’ document published by the government.

 

It is a busy time in employment law reform – new laws on employers’ obligations to prevent sexual harassment come into effect shortly on 26 October 2024 and new legislation on tipping came into force on 1 October 2024.

 

If you require further information about anything covered in this briefing, please contact Michael McDonnell, William Gubbins or your usual contact at the firm on +44 (0)20 7526 6000.

 

This article is for general purpose and guidance only and does not constitute legal advice.  It should not replace legal advice tailored to your specific circumstances

Following the recent release of Labour’s possible plans for compressed four-day working weeks (which we covered in a previous post), Labour’s significant plans for employment law reform have had further light shed on them by business secretary Jonathan Reynolds in an interview with The Times published late yesterday evening. Reynolds endorsed Labour’s upcoming Employment Rights Bill and defended their plans to enhance flexible working laws, pledging to end the “culture of presenteeism” in offices which will, according to Reynolds, boost productivity in the workplace.

 

Employees have had the right to request flexible working for years, and from their first day of employment since 6 April 2024, but the government would like to go further to ensure that flexible working becomes a default right for employees from the first day in their job. There is also a proposed right to switch off, where businesses will be compelled to set out their normal working hours and allow staff to be uncontactable after a specified time.

 

While the government have said that employers will only be required to accommodate any flexible working requests so far as they are reasonably practicable, what this exactly means with regards to the specific changes that will be made to the legislation is unclear at present.

 

Some campaigners in favour of flexible working reform have argued that “reasonably practicable” is unlikely to be enough to prevent employers from refusing flexible requests on the grounds of business needs. However, there will be concern to employers if there is an introduction of a presumption in favour of a flexible working request or a narrowing of the grounds on which an employer can refuse a request and an increase in the powers of the tribunal when reviewing those decisions.

 

Reynolds accepted that there was a balance to be struck both in terms of the right to switch off and how employers will be required to accommodate requests for flexible working, such as working from home or a four-day working week. The government is adamant that their proposed rights and Employment Rights Bill will improve the work-life balance of employees and consequently encourage more resilient, loyal and productive staff. Yet, there are the competing concerns of employers as to how productivity, client expectations and operational costs might be impacted.

 

Therefore, when Labour present the framework of their Employment Rights Bill next month, which will meet the 100-day deadline they committed themselves to, they will have to fully and comprehensively consult with businesses to ensure that the resulting legislation achieves that balance that Reynolds mentions. He said that “there is genuinely nothing to worry about for any business in this area”. Time will reveal whether that is the case.

 

If you require further information about anything covered in this briefing, please contact William Gubbins, Michael McDonnell or your usual contact at the firm on +44 (0)20 7526 6000.

 This article is for general purpose and guidance only and does not constitute legal advice.  It should not replace legal advice tailored to your specific circumstances. 

The contents of any plans for legislative change are just that – speculation – at this stage and will likely remain that way until October 2024 and the release of the government’s draft Employment Rights Bill, which will then be consulted on. This Bill should cover a number of Labour’s ‘Make Work Pay’ employment law proposals, some of which we covered in our article in June earlier this year.

 

Labour’s four-day working week plans appear to comprise of compressing contracted working hours into fewer working days, i.e. for an employee who works 8 hours a day for five days (40 hours a week), they could then compress their hours by working 10 hours a day for four days. Employees would still receive the same full pay.

 

This is nothing new and employees have been able to request such compressed hours for years under the statutory flexible working regime, and which employees have been able to do from the first day of employment since earlier this year (6 April 2024). The right to request flexible working consists of an employee making a written request, the employer then having two months to consider the request, consult with the employee, and inform them of the outcome, dealing with the request in a reasonable manner. If the employer refuses the request, they must do so for at least one of eight prescribed reasons. If the employee disagrees, they can make a tribunal claim. Employees are limited to two flexible working requests in a 12 month period.

 

The concept of four-day working weeks is also not unheard of. These have been trialled by a number of firms and companies over the past two years, with mixed results and employers and employees split as to the benefits and drawbacks.

 

It therefore remains to be seen what the government’s plans are in respect of compressed hours working and how the law in this area may be changed or strengthened. Currently, the possible compensation that the tribunal can award in the event of a breach is low (8 weeks’ pay), so this may be raised. Alternatively (or additionally), the tribunal’s ability to scrutinise the employer’s decisions may be enhanced. Currently, a tribunal cannot question commercial or business decisions for a request being refused, nor can they form their own view as to whether the request should have been granted or not. Their review is limited strictly to the employer’s following of the statutory procedure only, so their remit may be extended in this regard.

 

For businesses and employees, there is no change at this stage. It is very much a case of watch this space for October 2024 and the months of consultation that follow.

If you require further information about anything covered in this briefing, please contact William Gubbins or your usual contact at the firm on +44 (0)20 7526 6000.

 

This article is for general purpose and guidance only and does not constitute legal advice.  It should not replace legal advice tailored to your specific circumstances.