Legal Practice Notes

A clear line should be drawn between disclosure by trustees under trust law, arising from beneficiaries’ rights to receive information, and ‘non-party’ disclosure by trustees in litigation, whether given voluntarily or compelled by a court order. Trustees owe beneficiaries a duty to account, as stated by Millet LJ in Armitage v Nurse, and so should act co‑operatively when dealing with proper information requests. Properly exercising disclosure forms part of the trustees’ fiduciary obligations. When asked to disclose, trustees ought to consider whether there is any sound reason to refuse. Beneficiaries do not have a proprietary entitlement to inspect trust documents; rather, they have the right to require disclosure of documents and information rooted in the trustees’ duty of accountability. The decision in Dawson Damer v Taylor Wessing LLP may allow a beneficiary to obtain material not available under trust law if the request can be...

Settlements Pursuant to section 18(1)(h) of the Mental Capacity Act 2005 ( MCA 2005), the court is empowered to sanction the settlement of any of P’s property, either for P’s advantage or for the benefit of others. Mirroring the position on statutory Wills, authorising a settlement for P is a function exclusively for the court and does not come within a deputy’s ordinary powers to administer P’s property and affairs; distinct permission must always be sought by way of a dedicated application for specific authority. In assessing any such application, the court must be assured that P’s financial standing will not be prejudiced in any respect by creating the settlement. It will evaluate P’s income and capital requirements, allowing a prudent and ample contingency margin, before determining whether the proposed arrangement accords with P’s best interests. The court may judge a...

At times, a beneficiary seeks to reclaim a particular asset. In such a scenario, tracing is the remedy of choice, as the claimant aims to demonstrate a proprietary entitlement to the item. A crucial distinction must be drawn between pursuing the very asset once owned and identifying a replacement property that now stands in for what was formerly held. A clear illustration is an attempt to prove title to a house purchased with the proceeds from selling a house that formed part of a trust. In the first situation, the claimant need only show that the property was theirs; in the second, the path is less direct, because equitable principles are engaged. Although the expression tracing is commonly used, and will be used here, it is often clearer to describe the former as ‘following’ and the latter as ‘tracing’. As a leading case...

The statutory framework for trusts in the British Virgin Islands ( BVI) comprises both the Trustee Ordinance (as amended) ( Cap 303, Laws of BVI) along with the Virgin Islands Special Trusts Act 2003 (as amended) (the VISTA Law) (copies of the legislation are also available via the further reading links to Spitz & Clarke Offshore Service in the related documents pod and also on the BVI FSC— Legislation web page). Trusts created under the VISTA Law ( VISTA Trusts) must generally observe specified formalities as prescribed and can incorporate various distinctive features enabled by the flexible and pioneering nature of the VISTA Law. Express application The VISTA Law is not of general application to all BVI law governed or administered trusts. To benefit from the unique opportunities it provides, the drafter of the trust instrument must insert an express clause confirming that the regime...

This Practice Note offers an overview of trusts in the British Virgin Islands ( BVI). For broader BVI background, see Practice Note: Private Client— British Virgin Islands— Q& A guide. The principal legislation is the Trustee Ordinance ( Cap 303, Law of BVI), as amended ( TO), and the Virgin Islands Special Trusts Act 2003, as amended ( VISTA Law). The texts are available via the further reading links to Spitz & Clarke Offshore Service in the related documents pod and on the BVI FSC— Legislation web page. Types of trusts The most frequently used BVI trusts include: discretionary trusts VISTA trusts life interest trusts fixed interest trusts Discretionary trusts A discretionary trust typically affords maximum flexibility and is the most commonly adopted and, in many cases, the most effective arrangement for both settlor and beneficiaries. Trustees are granted wide discretion regarding when distributions are made, in what amounts, and to which...

The framework governing trusts in the British Virgin Islands ( BVI) is set out in the Trustee Act (as amended) ( Cap 303, Laws of the BVI) together with the Virgin Islands Special Trusts Act 2003, as amended (the VISTA Law). Trusts formed under the VISTA Law ( VISTA Trusts) commonly hold shares, whether directly or through holding structures, in operating companies rather than purely passive investment vehicles, often trading in fields unfamiliar to the trustee and regularly located at a distance from the BVI. Addressing such demanding circumstances was the very reason the VISTA Law was designed and enacted, which in turn makes VISTA Trusts a highly effective tool within international wealth structuring. This Practice Note considers selected aspects of the management and administration of VISTA Trusts. Separation of trust and corporate governance The VISTA Law acknowledges that trustees are seldom natural...

There are numerous structures used to hold wealth, with many set up beyond the UK. This Practice Note explains the UK tax treatment of foreign entities. Each tax must be analysed on its own. An entity might amount to a settlement for inheritance tax ( IHT), yet fail to be settled property for capital gains tax ( CGT). Under UK tax law, foreign entities fall into three forms: companies, trusts or partnerships. Companies are treated as opaque; partnerships as transparent; and trusts follow a distinct regime. Classification of foreign entities: transparent or opaque For a transparent vehicle, a member is viewed as entitled, as they arise, to a proportionate share of the entity’s underlying profits and gains. By contrast, a member of an opaque vehicle is, in broad terms, taxed only when the entity makes distributions to that member; there is no look through to the...

For wider background on Guernsey, see Practice Note: Private client— Guernsey— Q& A guide. Guernsey as a trust jurisdiction Although Guernsey acknowledged the trust concept as early as the eighteenth century, the island’s modern trust services industry took shape in the 1960s and 1970s, prompted by foreign exchange controls, tax and succession planning, and the movement of wealthy residents. It has since adapted to serve an increasingly mobile international client base and to meet a changing international regulatory environment, and now hosts approximately 150 professional licensed fiduciaries (based on primary licensee statistics), spanning large international firms through to independent boutique companies. Trusts were commonly created in Guernsey before the Trusts ( Guernsey) Law, 1989 (the 1989 Law), as evidenced by statutes and court decisions. The 1989 Law affirmed the validity of both Guernsey and foreign trusts and set out the principles applying to them. It has been...

This Practice Note This Practice Note explains when a settlement will be treated as nuptial under section 24(1)(c) of the Matrimonial Causes Act 1973 ( MCA 1973), or as ‘relevant’ for the purposes of Schedule 5, Part 2 to the Civil Partnership Act 2004 ( CPA 2004). It examines the court’s jurisdiction to alter a nuptial or relevant settlement and the associated practice and procedure. It also outlines the court’s approach, particular issues concerning international trusts, and pertinent case law, including the Supreme Court decision in Prest v Petrodel Resources. A nuptial (marriage) or relevant (civil partnership) settlement is one established for the benefit of one or both parties, or their children, and made in contemplation of, or during, their marriage or civil partnership. The courts have adopted a broad construction of the expression; see: What is a nuptial settlement? The court may make a...

A stricter penalty framework applies to an individual’s tax position where non-compliance concerns an offshore matter or an offshore transfer, with heightened consequences. This Practice Note covers the following: the definition of offshore matter and offshore transfer requirement to correct and failure to correct penalties penalties for offshore matters or offshore transfers penalties for moving offshore assets asset-based penalties This Practice Note addresses matters specific to the civil penalties and sanctions arising from offshore tax non-compliance, in particular. For the general penalty framework, see: Tax penalties, interest and time limits—overview, which signposts more detailed material and resources. For guidance on measures targeting offshore tax evaders committing a criminal offence, those enabling offshore tax evasion, or companies and other relevant entities facilitating UK and offshore tax evasion, see Practice Note: Offshore penalties, sanctions and criminal...

A co-operative or community benefit society ( CCBS), previously termed an industrial and provident society ( IPS), is a limited liability corporate body that organisations may use to run a business either as a co-operative serving members’ mutual interests, or as a community benefit society operating for the good of a community. This Practice Note sets out the legal framework, organisational structure and the registration process for these societies. It also makes extensive reference to the FCA’s finalised guidance on registered societies, with sections addressing governing rules, share capital, name, transfer of engagements, conversion, amalgamation, dissolution and winding up. What is a co-operative or community benefit society? A co-operative society or community benefit society (historically called an industrial and provident society) is a registered society—also described as a society—and a corporate body with limited liability that can be used by...

The Finance Act 2014 ( FA 2014) FA 2014 brought in accelerated payment notices ( APNs) and partner payment notices ( PPNs) to tackle tax avoidance by discouraging participation in avoidance arrangements, notably by stripping out any cashflow advantage. The regime is intended to deter taxpayers from joining avoidance schemes by removing the cashflow benefit that would otherwise be enjoyed whilst a dispute is ongoing or under appeal before FTT. In direct tax disputes where no APN has been served, HMRC frequently consents to a taxpayer’s request to defer collection of the contested sum until the First-tier Tribunal ( Tax Chamber) ( FTT) has determined the issue. Once an APN or PPN is issued, postponement of the disputed tax is not permitted and any existing postponement falls away. As a result, APNs or PPNs oblige taxpayers to settle the amount under challenge before their appeal is...

This Practice Note explores certain matters that can arise when enforcing security by appointing a receiver over property held on trust. It also addresses trust considerations in the setting of security granted by a partnership. Several banks have experienced issues when relying on standard-form security documents where their client is a partnership and the secured property is either used by the partnership or constitutes a partnership asset. Commonly, enforcement pitfalls have not been anticipated when the security is taken, and the standard documentation has not been modified to accommodate this. Trusts of land HM Land Registry’s Land Register records ownership of the legal estate in land—the ‘paper title’—that is, the rights of the registered proprietors to execute a valid transfer passing ownership to another person. The Land Register does not record the beneficial (equitable) interest and, as a result, the Land Registrar is not fixed with...

Under the Human Rights Act 1998 ( HRA 1998), all public authorities in the UK are required to act consistently with the European Convention on Human Rights ( ECHR), namely the ‘ Convention rights’. For further reading, see Practice Note: Convention rights. If this obligation is breached, the HRA 1998 allows any victim to bring proceedings against the public authority at fault ( HRA 1998, s 7(1)(a)). Additionally, a victim may rely on their Convention rights in any legal proceedings ( HRA 1998, s 7(1)(b)). Background—the relationship between the ECHR and the HRA 1998 The ECHR (the ‘ Convention’, as set out in HRA 1998, Sch 1 Pt 1) is an international treaty concluded by the member states of the Council of Europe. Under Article 1, each contracting state must secure the Convention rights for everyone within its jurisdiction. The Convention also...

This Practice Note applies to the majority of applications to the Court of Protection. Do note, though, that applications to appoint a property and financial affairs deputy follow a separate route. Since January 2023, after a successful pilot, an upfront notification process has been adopted as the default for all property and affairs deputyship applications. As detailed in Practice Direction 9H— Property and Affairs Deputyship Applications, the applicant must notify the person concerned and three individuals who know the person affected, using the combined notification and acknowledgement forms, COP14PADep and COP15PADep, and obtain their replies before lodging the application. Responses and any records of the notifications must be filed with the court alongside the application, together with copies of any recordings of those notifications. If applying via the online portal, a COP1 application form is not required. For paper...

Financial abuse of the elderly by carers or members of their own family sadly seems to be on the increase. This may involve: individuals stealing cash or belongings from vulnerable people obtaining digital access to the person’s bank account and taking funds that do not benefit the person an older person sharing a PIN with someone they trust due to difficulty reaching a cash machine, and that trust being abused to take cash vulnerable adults being encouraged or pressurised to change their Wills people being pressurised to sign over land or property worth thousands of pounds to relatives driven by self-interest rather than the older person’s best interests losing money to telephone scammers who claim a bank account is compromised and must be moved urgently, or other calls where control of the person’s phone is taken to access...

Most charities possess some level of liquid holdings and an ambition to optimise the return those funds can generate. In this setting, it is vital that trustees understand the boundaries of what is permitted and prohibited in relation to investing. The word ‘investment’ is commonly taken to mean any asset that yields income, yet it must be separated from the notion of ‘income’ in trust law, which excludes capital gains. For charities, however, the concept may embrace both income in the usual sense and capital gains. Definition of investment Curiously, the principal statute governing investment in a trust or charity setting, the Trustee Act 2000 ( Tr A 2000), offers no definition of investment. At present, the legal understanding of ‘investment’ is confined to the formulation in Harries v Church Commissioners: property held by trustees to generate money—whether income or capital growth—to advance the work of the...

Mental capacity is the ability to carry out a particular juristic act by understanding it and deciding to do something that attracts legal consequences, for example making a Will, putting in place a power of attorney, making a gift, or giving consent. A lack of mental capacity is the inability to take such action or to give consent because of a mental disorder or disability. This absence of capacity may well fluctuate. It will also differ according to the specific task in question that calls for the choice or consent and, for that reason, mental capacity is described as being 'function-specific'. The common law presumption of capacity In the common law, every individual is presumed to possess mental capacity until the opposite is proved. Where it has been proved or accepted that someone was so mentally disordered as to lack the capacity to enter a...

This Practice Note sets out what acts an unincorporated association, together with its members or office-holders, may undertake in a finance transaction. Any mention of an association refers to an unincorporated association. It also explains the steps to investigate capacity and authority under English law. Unincorporated associations are often used by clubs, societies and charities. This Practice Note does not address the charity law issues that apply to unincorporated associations which are charities. For information on charities, see: Practice Note: Charitable incorporated organisations Practice Note: Taking security over charity assets—key considerations Practice Note: Mortgaging charity land—mortgagee’s considerations Practice Note: Mortgaging charity land—charity's considerations Charity regulation—overview What is an unincorporated association? The courts have described an unincorporated association as ‘an association of persons connected by identifiable rules and with an identifiable membership’. An unincorporated...

This Practice Note sets out: why companies adopt employee ownership models the principal types of share ownership models, and issues to weigh when implementing a share scheme For a more detailed analysis of why companies use share schemes, see Practice Note: Why do companies use share schemes? Why do companies have employee ownership? Employee ownership usually arises in the following situations: business succession or ownership succession — private owners, such as an entrepreneur or a family business, choose to sell all, or more often, part of their shareholdings to their workforce insolvency or closure threat — employee buyouts can be an effective route to recovery for businesses that might otherwise fail independence — companies may determine that a significant, even majority, employee stakeholding will signal and help protect the company’s independence privatisation — the privatisation of various companies has occasionally created opportunities for employee buyouts, and owner vision and...