Category: Articles

Why Volunteer Agreements Are Crucial for Charity Protection and Success

Posted on by Katherine Pipe

Volunteers play a vital and often irreplaceable role in the charity sector. Many organisations simply couldn’t deliver their services or achieve their objects without them. However, although volunteers give their time freely, it’s still important for charities to set clear expectations through a thoughtfully prepared volunteer agreement.

Too often, charities see volunteer agreements as an administrative extra — but in reality, they are an important tool for managing risk, protecting the charity, and supporting a positive and professional experience for volunteers.

Why Volunteer Agreements Matter

A volunteer agreement helps to define the boundaries of the relationship between the charity and the volunteer. It sets out what is expected from the volunteer and what they can expect from the charity in return. More importantly, it gives the charity a framework to rely on if things don’t go as planned. From safeguarding concerns to reputational issues, a properly structured volunteer agreement can help reduce the risk of liability, clarify responsibilities, and ensure consistency across your volunteer programme

Common Risks Without an Agreement

Here are some examples of where problems can arise when a charity does not have adequate volunteer agreements in place:

1. Safeguarding and Misconduct

A volunteer is working with vulnerable beneficiaries but has not completed safeguarding training or undergone background checks. If concerns arise, the charity may struggle to show it took reasonable steps to prevent harm.

➡ A volunteer agreement can require volunteers to comply with safeguarding policies and complete relevant training, helping to demonstrate the charity’s proactive approach.

2. Health & Safety Incidents

A volunteer is injured while carrying out a task they weren’t properly trained or equipped for. There is no record of risk assessments or role-specific guidance being provided.

➡ An agreement can set out the charity’s approach to health and safety and reference any induction, training, or supervision that volunteers should receive.

3. Unauthorised Media Statements

A volunteer posts on social media or speaks to the press, giving the impression they are representing the charity’s official view.

➡ A volunteer agreement can stipulate that volunteers are not authorised to speak on behalf of the charity, helping to minimise the risk of unauthorised media statements.

4. Disputes Over Expenses

A volunteer incurs costs and expects reimbursement, but the charity has no policy in place. The result can be confusion or disappointment.

➡ Agreements can clarify what expenses will or won’t be reimbursed, helping to prevent misunderstandings or disputes.

What Should a Volunteer Agreement Include?

A good volunteer agreement should still be clear, consistent, and reflect your charity’s policies and practices. It should typically include:

  • A description of the volunteer’s role and responsibilities
  • The expected time commitment and any agreed hours or availability
  • Details of supervision, support, or training provided
  • Reference to key charity policies which the volunteer needs to abide by (e.g. safeguarding, confidentiality, data protection)
  • A clause covering insurance, including what cover (if any) is in place for volunteers
  • Information on speaking to the media and use of social media while representing the charity
  • A clear expenses policy
  • Health and safety information, including duties of care and risk management
  • A process for resolving issues or ending the volunteering arrangement

Final Thoughts

Volunteer agreements are essential tools for managing risk, while also fostering a positive and supportive environment for your volunteers. By setting expectations clearly from the outset, charities can build stronger, safer, and more sustainable relationships with the people who give their time and energy so generously.

For trustees and senior staff, reviewing your current volunteer agreement (or implementing one if it doesn’t exist) is a small but crucial step in safeguarding your charity’s operations and reputation.

If your charity needs assistance with drafting or updating its volunteer agreement, or would like a review of your volunteer management policies, please contact our charity experts Peter Spencer at Peter.Spencer@wellerslawgroup.com and Kate Pipe at Kate.Pipe@wellerslawgroup.com.

Inheritance Disputes and Market Volatility: Market Uncertainty is the New Normal

Posted on by Krishna Patel

Inheritance Disputes and Market Volatility: Market Uncertainty is the New Normal

Economic uncertainty affects more than just your portfolio, it can lead to serious family disputes over inheritance. These types of disputes often fall under contentious probate, where disagreements arise over the administration or distribution of an estate. When a loved one dies leaving shares, investments, or business interests, sudden market changes can distort the value of an estate.

This article explores why market volatility matters in probate, how events like Trump’s 2025 tariff proposals impact estate values, and how families can protect themselves.

Why do stock market fluctuations matter in probate?

When a Will divides an estate between fixed and residuary beneficiaries, the value of shares at the date of death or sale can dramatically affect outcomes. For example:

  • If shares drop after death but before sale, the total estate value may shrink
  • If a fixed legacy is paid first, residuary beneficiaries may receive less or nothing

Disputes often arise when executors delay selling shares, beneficiaries allege poor decision-making and family members believe they’ve been treated unfairly.

Trump’s tariff proposals

More recently you will have seen Donald Trump proposed 10% tariffs on all imports and 25% duties on UK steel and car exports. This news caused a sharp drop in some FTSE-listed manufacturing and export stocks. This is a prime example of how global politics can impact local estates. If a deceased person held stocks in affected companies, their value may have plunged, creating tensions between beneficiaries.

Executors can face accusations of negligence if they wait too long to act or fail to seek professional advice. Yet they also risk criticism for selling too early. It’s a fine balance.

The Broader Economic Impact on Probate

Please be aware that market volatility is not limited to breaking news stories. Economic downturns, inflation, interest rate changes, and sector instability all affect estate valuations. This matters most when:

  • The estate includes a large share portfolio
  • The Will lacks guidance on investment strategies
  • There is no professional executor with financial expertise

During recessions or inflation spikes, disputes often arise over timing, valuations, and asset distribution. Estate planning that once made sense may seem outdated or unfair in new economic conditions. This is why it is important to review wills regularly to ensure that they are drafted as best as they can be.

Legal considerations for executors

Executors have many duties, one such duty is fiduciary. They must act in the best interests of all beneficiaries. Of course, volatile markets make this harder. Claims for breach of duty, maladministration, or unfair distribution are increasing.

Particularly common are applications under section 50 of the Administration of Justice Act 1985 to remove executors seen as ineffective or conflicted. Problems arise when:

  • Executors fail to diversify or liquidate high-risk holdings
  • There’s a delay in estate administration
  • Beneficiaries are not kept informed about losses

Practical tips on avoiding disputes

To reduce the risk of contested probate:

  • Ensure valuations are obtained promptly and professionally
  • Consider early liquidation of volatile shares
  • Keep beneficiaries regularly updated
  • Document all decisions and advice taken
  • Use independent advisors for high-value portfolios

Looking Ahead: Market Uncertainty Is the New Normal

Whether triggered by political decisions like Trump’s tariffs, inflation shocks, or global events, market instability is here to stay. That means families and executors must be prepared to act swiftly and transparently.

Get Expert Advice

Preparation, communication, and legal guidance are the best tools to avoid long, costly probate battles. If you’re administering an estate that includes shares or business assets or concerned about how to protect your family’s inheritance, we’re here to help.  With offices across London, Kent, and Surrey, Wellers has a dedicated team of probate and probate dispute solicitors ready to support you.

Contact us at enquiries@wellerslawgroup.com or click here to complete an enquiry form or call us on 01732 457575

Can you enforce a broken promise ?

Posted on by Krishna Patel

A guide to Proprietary Estoppel and Contested Probate

Many people assume that if a promise is not in a will, then there’s nothing they can do but that’s not always true.

Perhaps you have spent years relying on this promise whether by working in a family business, caring for a relative, or investing time and money into a property only to be left with nothing. This issue often arises in contested probate cases where individuals have relied on assurances from a family member or a close friend only to discover that the will or estate distribution does not reflect those promises.

Where does that leave you? In these situations, proprietary estoppel can provide a way to enforce that broken promise, ensuring you aren’t unfairly cut out. If this sounds familiar, you may have a legal right to claim what was promised, legally known as proprietary estoppel.

Proprietary estoppel in probate disputes

Proprietary estoppel allows the courts to enforce promises even if they weren’t formally written down. To establish a successful proprietary estoppel claim, the following elements must be proven:

  1. A clear representation or promise: the deceased gave you an assurance that certain property or inheritance would be received;
  2. Reasonable reliance: you acted in reliance on the promise, believing it to be genuine; and
  3. Detriment: you suffered financial or personal disadvantage based on the promise.

This approach was reinforced in Cleave v Cleave [2024], where the court ruled that promises must be clear enough to justify reliance, and the person claiming estoppel must show real loss if the promise isn’t upheld.

How have courts enforced verbal promises in the past?

Many people have successfully challenged estates based on broken promises. Here’s how the courts have ruled in different situations:

I. Guest v Guest [2022] UKSC 27: A son worked for years on the family farm for little pay, believing he would inherit it. When the father changed his will, the court ruled in the son’s favour, granting a financial remedy to reflect his expectations.

II. Thorner v Major [2009] UKHL 18: A farmer spent decades working on his relative’s farm based on vague assurances. The court ruled that, despite the lack of an explicit promise, the overall context made it clear that he should inherit.

III. Gillett v Holt [2001] Ch 210: An employer made repeated verbal promises to an employee about inheritance. When he later cut the employee out of his will, the court ruled that breaking those assurances was unfair.

IV. Henry v Henry [2010] UKPC 3: A man cared for a family member for decades, believing he would inherit their property. The court upheld his claim but reduced his award because he had also benefitted from the arrangement.

V. Winter v Winter [2023] EWHC: Courts won’t uphold claims based on casual remarks or vague conversations. The promise must be serious enough to justify real reliance.

When might a promise not be enforced?

•Existing agreements: In Horsford v Horsford [2020], the court ruled that a claimant cannot “have two bites of the cherry”. If a partnership or shareholder agreement contradicts the alleged promise, an estoppel claim may be significantly weakened or even struck out.

• Unclear or vague promises: If the assurance was too uncertain, or there’s no real evidence that the deceased intended to transfer ownership, a claim may fail.

• Lack of detriment: If you didn’t suffer a real loss, the courts may decide that the promise should not be enforced.

What if proprietary estoppel is not an option?


Even if proprietary estoppel isn’t the best route, you may still have alternative legal claims, such as:
• The Inheritance (Provision for Family and Dependants) Act 1975: If you were financially dependent on the deceased but left out of the will, you may be entitled to a fair share of the estate.

• Trusts of Land and Appointment of Trustees Act (TOLATA) 1996: If you contributed financially to a property expecting ownership, you may have a claim.

• Challenging the Validity of the Will: If the will was made under undue influence, fraud, or without proper mental capacity, it may be possible to challenge its validity.

What should you do next?

If you believe you were made a promise but have been left out of a will, acting quickly is crucial. Here’s what you can do:

• Identify key witnesses: Who heard the promises? Did the deceased discuss it with anyone else?
• Gather evidence: Are there emails, texts, or documents that support your claim?
• Assess alternative legal routes: Could another type of claim strengthen your case?

Take action today, don’t wait until it’s too late. Don’t let a broken promise leave you with nothing. Get expert advice now. For an initial consultation, contact me, Krishna Patel

Call: 01732 446371

Email: krishna.patel@wellerslawgroup.com

Special Guardianship – looking out for your child’s best interests

Posted on by Diane Flowers

What is Special Guardianship?

There are circumstances when it is decided that it is not in a child’s best interests to live with their parents and the decision is made that they must live with someone else e.g. a grandparent, aunt or uncle.  To help ensure this new living arrangement provides long-term security for the child, the Government introduced The Adoption and Children Act 2002 which created Special Guardianship and Special Guardianship Orders.

Special Guardianship is considered by the court when looking to secure the long-term arrangements for a child living with a person who is not their parent.  Under this arrangement, the individual who will be taking care of the child is known as a Special Guardian. 

An individual will become a Special Guardian when they are granted a Special Guardianship Order by the court.

What is a Special Guardianship Order?

A Special Guardianship Order is an order appointing one or more individuals to be a child’s “special guardian” (or special guardians). 

When a special guardianship order is granted by the court, the Special Guardian will acquire parental responsibility for the child until the child reaches the age of 18. The order does not remove parental responsibility of the parents.

The Special Guardianship order gives the Special Guardian the permission to make day to day decisions for the child and to be the one responsible for making important decisions regarding the long-term care of the child e.g. where the child goes to school.

A special Guardianship order is there to provide long-term stability for the child and enable the Special Guardian to care for the child until the child reaches 18 unless the order is discharged sooner.

An special guardianship order can be varied or discharged by the court.  Some applicants to such an application will  require permission from the court before making the application. The court cannot grant permission unless it is satisfied that there has been a significant change of circumstances since the making of the special guardianship order.

The court may vary a special guardianship order of its own initiative in any family proceedings in which a question arises in relation to the welfare of the child who is the subject of the special guardianship order.

Who can apply for a Special Guardianship Order?

The individual must be eighteen and over and must not be a parent of the child in question. Joint applications may be made.

It is possible to apply for a Special Guardianship Order if:-

  1. You are a guardian of the child;
  2. You are an individual who has been granted a Child Arrangements Order recording that the child is to live with them;
  3. You are a local authority foster parent with whom the child has lived for a period of at least one year immediately before the application for a special guardianship order is lodged with the court;
  4. You are a relative of the child and the child has resided with the you for at least one year immediately before the application for a special guardianship order is lodged with the court;
  5. You are an individual whom the child has lived with for three of the last five years (and the child has not stopped living with you for more than three months before the application for a special guardianship order is lodged with the court);
  6. You are an individual who wishes to be a special guardian for a child in the care of the Local Authority and the Local Authority consents to the application for a special guardianship order to be granted by the court.
  7. You are an individual who has been granted permission by the Court to make an application for a special guardianship order.

Notice to the Local Authority and Assessment Report.

Before an individual applies to the court for a Special Guardianship Order, they must first write to the Local Authority of their intention to proceed with the application.  Notice must be given to the Local Authority three months before the application for a special guardianship order is lodged with the court.  The Local Authority must then carry out an investigation and the results of that investigation must be recorded in an assessment report to be considered by the court along with the application for a Special Guardianship Order.

The Assessment report, produced by the Local Authority, should include information about the child and if possible their wishes and feelings, information about the child’s family, information about the individual looking to be a special guardian, information about the Local Authority producing the report, any input for medical professionals, the implications of making the Special Guardianship Order and recommendation regarding contact with the parents and any other family members.

Under The Adoption and Children Act 2002 support services may be available to Special Guardians.  If the child concerned is a looked after child by a Local Authority then the Local Authority should include in the assessment report an assessment for special guardian support services and examples of those services are:

  • Financial Assistance;
  • Mediation to assist with contact arrangements;
  • Counselling;
  • Access to support groups;
  • Therapeutic services.

If the child concerned is not a looked after child by a Local Authority there is not an automatic entitlement for the Local Authority to include in the assessment report an assessment for special guardianship support services.  A request will need to be made to the Local Authority to carry out an assessment for special guardianship support services.

Making a Special Guardianship Order

Before the Court make a Special Guardianship Order, the court must consider whether if the order were made:

  1. A contact order should also be made with respect to the child and their parents or other members of the birth family; and
  2. Any order under Section 8 of the Children Act 1989 in force with respect to the child should be varied or discharged.

The Court will also need to consider the “welfare checklist” which asks the court to consider the following:-

  1. The ascertainable wishes and feelings of the child (in light of his age and understanding).
  2. The child’s physical, emotional and educational needs.
  3. The likely effect on the child of any change in his circumstances.
  4. .The child’s age, sex, background and any characteristics of his which the court considers relevant.
  5. Any harm which the child has suffered or is at risk of suffering.
  6. How capable each of the child’s parents (and any other person in relation to whom the court considers the question to be relevant) is of meeting his needs.
  7. The range of powers available to the court under the Children Act 1989 in the proceedings in question.

The court will also have regard to what is known as the “no order” principle. This is the principle that the court should make no order unless it considers that doing so, would be better for the child than making no order at all.

If you need any advice, please call us on 020 8464 4242 or email enquiries@wellerslawgroup.com

When a success fee becomes a financial need

Posted on by Sasha Burl

On 18 December 2024, the long-awaited Judgment in Hirachand v Hirachand and another [2024] UKSC 43 was handed down.

By way of a brief background, Navinchandra Dayalal Hirachand (“the Deceased”) died, leaving a widow (“the widow”), a daughter (“The daughter”) and a son, Katan Hirachand (“Respondent two”). The daughter had severe mental health problems and made a claim against the Estate for financial provision under the Inheritance (Provision for Family and Dependants) Act 1975 (“The 1975 Act”). S3(1)(a) of the 1975 Act allows certain parties to make a claim against an Estate for financial provision. The Court shall have regard to the “financial resources and financial needs which the applicant has or is likely to have in the foreseeable future…” when exercising its power in determining the financial provision that should be awarded, if any, to a party.

The daughter entered into a Conditional Fee Agreement (“CFA”) with her solicitor to fund the litigation proceedings. The CFA specified that if the daughter lost, the solicitors (and counsel) would not be paid but if she won, they would receive their fees and a success fee of 72%.

The High Court ruled in the daughter’s favour and concluded that the Will of the Deceased did not make reasonable financial provision for the daughter and she was awarded a lump sum of £138,918, which included a sum in respect of the success fee payable under the CFA, concluding that the success fee was a liability of the daughter and therefore a “financial need”.

The award in respect of the success fee was appealed to Court of Appeal (“COA”) on the basis that a success fee should not be considered a financial need and that under Section 58A(6) of the Courts and Legal Services Act 1990, the daughter would not have been able to recoup the success fee as part of a costs order. The COA upheld the decision of the High Court and determined that the CFA success fee was a debt required to be paid by the daughter and therefore was considered a “financial need” within Section 3(1)(a) of the 1975 Act.

The widow appealed to the Supreme Court (“SC”). The Supreme Court allowed the appeal and excluded the award in respect of the success fee to the daughter. This decision was made for various reasons, taking into consideration whether or not a success fee was considered a “financial need” of the daughter.

Whilst taking in to account the fact that payments to fund legal costs in matrimonial proceedings under the Matrimonial Causes Act 1973 (“MCA”) may constitute “maintenance”, the general rule under the Civil Procedure Rules do not allow for success fees to be claimed as part of a costs order (S58A(6) Courts and Legal Services Act 1990) and that in any event costs should be dealt with under a separate costs order and should not form part of a substantive award. Given claims under the 1975 Act are civil proceedings, the CPR apply and not this case is not a case being brought under the Matrimonial Causes Act but a case under the 1975 Act.

It was argued by the daughter’s legal counsel that S58(A) only applies to costs orders and that provision, such as the success fee award in this case, as part of a substantive award is left open. The SC argued that the order made was a “costs order” as it included a provision of payment towards the daughter’s success fee.

In conclusion, this case will set precedent in 1975 Act cases going forward in that these cases are still civil proceedings, and are bound by the rules set out therein, and success fees are not to be included in any relief awarded under the 1975 Act. Therefore, any success fee would need to be paid by the Claimant and the rules under Section 58A (6) of the Courts and Legal Services Act 1990 would apply.

Judgment can be found at https://www.bailii.org/ew/cases/EWCA/Civ/2021/1498.html

if you have any queries or wish to discuss any potential claims you may have under the Inheritance (Provision for Family and Dependents) Act 1975, then contact Sasha Burl at sasha.burl@wellerslawgroup.com or on 01732 457 575.

Are you ready for the 2025 Stamp Duty Land Tax Changes?

Posted on by Wellers

The 2025 Stamp Duty Land Tax (SDLT) changes are an important topic in UK property law.

Stamp Duty Land Tax (or SDLT) is a tax payable to HMRC when an individual or corporate entity buys property or land in England and Wales (in Wales, it’s called the Land Transaction Tax).

SDLT uses thresholds for the calculation, so you pay an increasing percentage rate of SDLT according to the property’s value. How much you pay also depends on factors including whether you’re a first-time buyer, whether you will own any other property anywhere else in the world at the date of completion, and whether you’re a non-UK resident.

In her most recent Budget statement, the Chancellor of the Exchequer announced changes to SDLT, which will come into force on 1st April 2025. If you’re buying or considering buying a property at the moment, these changes could have a significant effect on the amount of SDLT payable. 

First time buyer – SDLT up to 31st March 2025

If you’re a first-time buyer purchasing a property valued at less than £625,000, currently you would pay no SDLT up to £425,000 but 5% on the portion between £425,001 and £625,000. If the purchase price is over £625,000, then first-time buyer’s relief cannot be claimed

If you’re buying an additional property, other rates of SDLT will apply. 

First time buyer – SDLT from 1st April 2025

The Chancellor announced significant changes to Stamp Duty Land Tax in her latest Budget. In most cases, it will result in purchasers paying more in SDLT.

Under the new rules coming into effect on 1st April 2025, a first-time buyer will not pay SDLT on a purchase price up to £300,000, with 5% SDLT due upon the portion from £300,001 to £500,000. If the purchase price is over £500,000 then first-time buyer’s relief cannot be claimed.

Why you need a good conveyancer ?

Stamp Duty Land Tax can appear quite complex, particularly if you’re a first time buyer or you’re not making a standard property purchase. When you buy a property, you rely on your solicitor to calculate the SDLT on your transaction and transfer it to HMRC in time, so you can avoid a fine.

Having a good conveyancing solicitor in your corner has never been more important. 

For more information on how the Stamp Duty Changes might affect you, visit the Government website here

IR35 – Are you at risk?

Posted on by Tara Edwards

Are you concerned about the new IR35 rules and how they may affect your business or subject to an HMRC investigation? Tara Edwards explains what you need to look out for.

The extended off-payroll workers rules now often referred to as the new IR35 rules came into effect on 6th April 2021. They are intended to reduce the number of off-payroll workers (‘contractors’) who treat themselves as being self-employed by taxing them as employees. 

This is achieved by placing responsibility for determining the employment status of the contractor with the organisation receiving the contractor’s services. If your organisation receives services from individuals who are not on your payroll and who work through an intermediary then the new IR35 rules may apply.

Who do the Rules Apply to?

The new IR35 rules apply to organisations which are in the private sector, medium or large in size and connected to the UK.

A company (or an LLP) is small if it satisfies two or more of the following requirements:

  • It’s annual turnover is not more than £10.2m;
  • It’s balance sheet total is not more than £5.1m;
  • It has no more than 50 employees.

For a group company to be a small company the small business test must be applied to the group as a whole.  There are rules to aggregate the turnover of connected persons, so for complex structures external advice may be needed to confirm the position.

An organisation will have a UK connection if immediately before the beginning of the relevant tax year the entity is either UK tax resident or has a permanent establishment in the UK.

Only contractors who are either resident in the UK or perform their services in the UK can be caught by the new IR35 rules.  The jurisdiction of the contractor’s intermediary company is not a relevant factor.  The IR35 rules are targeted at working arrangements which involve intermediaries acting as the contractor’s personal entity.

Personal Service Companies

Personal service companies are the most common intermediary through which businesses engage with contractors. A contractor would only be caught by the new IR35 legislation if he or she owns the material interest in the personal services company.

Material interest

Material interest is defined as beneficial ownership of or the ability to control more than 5% of the ordinary share capital of the company;

  • An entitlement to receive more than 5% of any distributions that may be made by the company; or
  • An entitlement to receive more than 5% of the assets on winding up.

This can cause problems in that it is often difficult to independently identify corporate ownership structures.

Companies House can confirm whether an individual owns over 50% in the corporate entity.  It will not however identify ownership between 5% and 50% of the intermediary. It will also not identify whether the contractor is entitled to distributions or assets on winding up. It is therefore essential that the engager of the contractor’s services request detailed information and evidence of ownership structure, often coupled with contractual indemnities. The new rules apply if the intermediary is a company in which the contractor (or his associates or together with his associates) have a material interest.  A material interest is a 5% ordinary shareholding in the company.

A second type of intermediary company caught under the rules is a company from which the contractor has received (or has the right to receive) a ‘chain payment’.  A chain payment is the amount paid for the services which the contractor has provided to the client.  The legislation makes it clear that where PAYE is already applied to a contractor’s earnings the new IR35 rules will not apply.

The new IR35 rules do not apply where the agency employs the contractor and operates PAYE on earnings paid to the contractor.  However if the agency contracts with the contractor’s intermediary, ie personal service company, rather than with the contractor directly then the new IR35 rules can still apply.

The new IR35 rules apply where a contractor personally performs (or is under an obligation personally to perform) services for an engager.  Where your organisation contracts with a service provider for a fully outsourced service typically it is not entering into a contract for the supply of a particular contractor.  Your organisation is not therefore the ‘client’ for the purposes of the new IR35 rules.  In an outsourced arrangement the service provider is the client and it is therefore the service provider that must apply the new IR35 rules.  Advice should be taken on whether this is an outsourced service.

If the contractor and personal service company fall within the scope of the rules then you must examine whether the contractor would have been an employee or your organisation had it not been for the existence of the intermediary.  This is known as a ‘status determination’.  If it is decided that the contractor would have been an employee they are referred to as being ‘deemed employed’ by the client.

Who’s responsibility is it to determine employment status of contractor?

It is up to the engager to determine whether the IR35 legislation applies.  HMRC will seek underpaid Income Tax and NIC from the engaging entity.  Engagers must ensure that where they are relying on the representations made by contractors that they have processes in place to validate the information provided, requesting detailed back up documentation from the contractor and checking the data as much as possible against Companies House.

The obligation to determine the contractor’s employment status and the preparation of the status determination statement falls on the engager of the services of a contractor.  If these obligations are not complied with the engager becomes liable for any underpaid Income Tax and NIC as well as interest and penalties.

Determining who the engager is may have its own complexities where there are multiple agencies and outsourced services. Where the outsourced service primarily relates to the provision of specific individuals (possibly naming them) there is a risk that it may not be an outsourced service.

Careful consideration of mixed service contracts and bespoke payment agency arrangements, for example where it is commission based, should be carefully analysed.  The engager when analysing these arrangements needs to consider whether the contractor’s services are similar to those of employees.  If this is the case then this may not be an outsourced service. HMRC have given guidance on this point stating that where the service provided by the worker sits squarely with the nature of the business this indicates this is not an outsourced service. It is essential that businesses and their suppliers agree where the responsibility lies for undertaking employment status assessments.

Engagements with small companies fall outside the scope of the new IR35 rules

All decisions and their rationale should be documented in case of HMRC enquiry. Periodic reviews should be undertaken since arrangements may change over time.   Procedures need to be put in place to ensure this occurs.  Contracts should be revisited to ensure they reflect the true nature of the engagements.

It is clear that a determination by the engager that a contractor is employed under the IR35 legislation will not be welcomed by the contractor because their remuneration would be subject to Income Tax and NIC deductions.

Contractors have historically challenged their employment status determinations, completing HMRC’s check of employment status tool, leading to dispute resolution.  The new legislation states that the engager is required to consider these challenges within 45 days of receipt and to provide a statement either confirming the original decision with supporting reasons or to amend the original decision, unless there was a corresponding day rate increase.  They would leave.

VAT and Contractors’ Invoices

Regardless whether the contractor’s invoice is subject to a further payment of PAYE and NIC, the VAT element is still payable to HMRC. Procedures need to be in place to identify these invoices so that only the amount due to the contractor under the IR35 rules is paid and the VAT element processed through the ultimate engager’s VAT Return.

Employment Rights

These changes do not entitle the contractors to employment rights.  This has been specifically stated by the Government.  However, since the contractor will be treated as an employee there is a risk that they will request holiday pay, sick pay and other employment benefits.

Conclusions

Engagers should review whether their contractors come within IR35 and a procedure set up for deadlines for the acceptance of new engagement terms.  It will be necessary to review all supply chains to ascertain whether those suppliers use contractors. 

Due diligence of supply chains because of the transfer of liability provisions within the new legislation.  Underpaid Income Tax and NIC can transfer to the first agency in the contractual chain but if not collected by them to the end engager itself.  Contracts need to be reviewed to ensure there are adequate indemnities and obviously the liquidity of the agency ascertained.

Umbrella companies have been used as a substitute for personal service companies to eradicate the need of undertaking employment status assessments, however, contractors may not agree to do so and the engager’s costs could escalate.

There are however further risks if the umbrella company is not registered in the UK.  HMRC is focusing on non-compliant umbrella companies and so there is still a risk that the Income Tax and NIC could pass to the ultimate engager.

To determine the status of the contracts the ‘on the ground’ working arrangements between the parties must be analysed.  Where an agency is involved this will entail understanding the terms of the contract between the agency and the contractor’s intermediary. If the contractor is an office holder of the client organisation they will automatically be a ‘deemed employee’.

The new IR35 rules put an obligation on the client to provide a status determination statement to the contractor and to the intermediary (eg the recruitment agency).  If the client fails to do so and the contractor is working through an intermediary the client will automatically be treated as the ‘deemed employer’ and will be obliged to account for PAYE.

There is no prescribed format for the status determination statement.  If the CEST test has been used HMRC will accept the results of the test. The client must take ‘reasonable care’ in the making of the status determination otherwise they will automatically be treated as the ‘deemed employer’. The status determination statement must be issued before the payments on or after 6 April 2021 are made. The statement can be appealed in writing or orally.

Where there is a chain of entities between the client organisation and the contractor’s intermediary, it will usually be the entity that pays the intermediary (rather than the client) that will be the ‘deemed employer’ and responsible for the payment of tax.

PAYE must be deducted from the amount of the payment made by the ‘deemed employer’.  This will usually be a fee invoice by the intermediary, net of VAT.  The ‘deemed employer’ may also, if it chooses, deduct expenses that would be tax free if paid to an employee such as free subsidised meals provided on their premises.

It may be possible to terminate existing contracts with contractors and enter new contracts with a reduced fee to reflect the fact that the client organisation will now assume responsibility for employer’s NIC. Alternatively the contractor may be willing to abandon their intermediary entity and provide the services to the client via an umbrella company or agency. 

A third option would be for the client organisation to offer the contractor a fixed term contract of employment. This publication is a general summary of the law.  It should not replace legal advice tailored to your specific circumstances. If you would like to discuss your tax situation please call us on 020 7481 2422 or you can email enquiries@wellerslawgroup.com.

Life Interest Will Trusts

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When planning your estate, a life interest will trust can provide income for loved ones while preserving capital for future beneficiaries. Understanding the tax implications and how these trusts work is essential for effective estate planning.

What is a life interest trust?

A life interest trust (sometimes called an Interest in Possession Trust) gives a beneficiary the right to receive all income from trust assets for a specified period – often their lifetime. Unlike discretionary trusts, trustees must pay out all income and cannot accumulate it within the trust.

Key features of life interest trusts:

  • The income beneficiary (life tenant) has an absolute right to trust income
  • Capital is preserved for future beneficiaries (remaindermen)
  • Commonly used to provide for surviving spouses while protecting children’s inheritance
  • Can include property, investments, or other income-producing assets

The life tenant receives income after taxes and expenses. Despite the name, a “life” interest doesn’t always last a lifetime – it might end at a specific age, on remarriage, or another triggering event. When the life interest ends, capital passes to the remaindermen.

A right to occupy property rent-free also creates a life interest, even though no income is generated. Trustees often have powers to advance capital to beneficiaries if needed, providing flexibility.

How does a life interest trust work?

Life interest trusts operate on a simple principle: separating the right to income from the right to capital.

Example: Sarah leaves her estate in a life interest will trust for her husband John, with their children as remaindermen. John receives all rental income from properties and dividends from investments during his lifetime. When John dies, the children inherit the capital.

This structure achieves several goals:

  • John has financial security for life
  • The children’s inheritance is protected
  • Assets are shielded from potential remarriage claims
  • Tax planning opportunities are available

Life interest trusts and inheritance tax

Understanding the relationship between life interest will trusts and inheritance tax is crucial for estate planning. The treatment depends on who receives the life interest and when it ends.

Inheritance tax on creation

Spouse exemption: Life interests for spouses or civil partners are exempt from inheritance tax, just like outright gifts.

Non-UK domiciled spouses: Limited to £325,000 exemption if the deceased was UK domiciled.

Other beneficiaries: Life interests for anyone else are chargeable transfers, potentially subject to 40% inheritance tax.

Tax on the life tenant’s death

When the life tenant dies, the trust assets are treated as part of their estate for inheritance tax purposes – even though they only received income, not capital.

The calculation includes:

  • The life tenant’s personal assets
  • The value of trust assets (or their share if partial)
  • Less any debts
  • Standard inheritance tax exemptions apply

Important advantage: Unlike discretionary trusts, life interest will trusts avoid 10-year anniversary charges and exit charges.

Life interest trust pros and cons

Before choosing a life interest will trust, consider these advantages and disadvantages:

Pros:

  • Income security for the life tenant
  • Capital protection for remaindermen
  • No 10-year inheritance tax charges
  • Spouse exemption available
  • Can qualify for residence nil-rate band
  • Protects against sideways disinheritance

Cons:

  • Life tenant taxed on all income at their rates
  • Limited flexibility once established
  • Trust assets included in life tenant’s estate
  • Administrative costs and complexity
  • Potential family conflicts
  • Capital gains tax implications

Life interest trust disadvantages in detail

While life interest trusts offer benefits, understanding the disadvantages helps you make informed decisions:

Inflexibility: Once created, the life tenant’s right to income is absolute. Trustees cannot withhold income even if the life tenant becomes financially irresponsible.

Tax burden: The life tenant pays income tax on all trust income at their marginal rates, which could push them into higher tax brackets.

No accumulation: Unlike discretionary trusts, income cannot be accumulated for future needs or reinvested to grow capital.

Relationship tensions: Conflicts can arise between life tenants wanting income and remaindermen wanting capital growth.

Administrative burden: Ongoing costs include trust tax returns, professional fees, and potential disputes requiring legal intervention.

What happens when a life interest ends?

A life interest can end during the life tenant’s lifetime through:

  • Reaching a specified age
  • Remarriage (if stated in the trust)
  • The life tenant giving up their interest
  • Other triggering events in the trust deed

Tax implications of ending a life interest

Assets leaving the trust: Usually a potentially exempt transfer (PET) – no immediate tax but the life tenant must survive seven years.

Exceptions:

  • Transfer to spouse: Exempt
  • Transfer to the life tenant: No tax

Trustees typically pay any tax due, though the life tenant’s estate may become liable.

Creating a new life interest: Immediately chargeable at 20% on amounts over the nil-rate band.

Life interest trust tax implications

Life interest will trusts face specific tax treatment across income tax, capital gains tax, and inheritance tax. Understanding these implications helps with planning.

Income tax treatment

Trust tax rates:

  • Rental income: 20%
  • Interest: 20%
  • Dividends: 7.5%

These rates apply regardless of income levels. No personal allowances or dividend allowances apply.

Important: Trust management expenses cannot be deducted before calculating tax.

Life tenant taxation: The life tenant receives income with tax credits and includes it on their tax return. They can reclaim tax if their personal rate is lower than the trust paid.

Life interest trust capital gains tax

When trustees dispose of assets, capital gains tax may apply. Key points include:

  • Annual exemption: £6,150 (half the individual allowance)
  • Shared between multiple trusts from the same settlor
  • Special reliefs may be available (Business Asset Disposal Relief, Investors Relief)
  • Tax-free uplift on the life tenant’s death

Principal Private Residence Relief: Available if beneficiaries occupy trust property as their main home.

Life interest will trust cost

The costs of establishing and running a life interest will trust include:

Initial costs:

  • Legal fees for will drafting with trust provisions
  • Tax planning advice
  • Asset valuation if needed

Ongoing costs:

  • Annual trust tax returns
  • Accountancy fees
  • Investment management (if applicable)
  • Legal advice for significant decisions
  • Property maintenance (if property held)

While costs vary by complexity, life interest will trusts are generally less expensive to run than discretionary trusts due to simpler tax treatment and fewer compliance requirements.

Life interest trust explained – practical examples

Understanding how life interest trusts work in practice helps clarify their benefits:

Example 1 – Second marriages: David has children from his first marriage and marries Susan. His life interest will trust gives Susan the right to live in the family home for life, with the property passing to his children on her death. This balances Susan’s security with the children’s inheritance.

Example 2 – Vulnerable beneficiaries: Mary’s son has learning difficulties. Her life interest will trust provides him with income for life while protecting the capital from potential financial abuse. Professional trustees manage the investments.

Example 3 – Business assets: Tom owns a successful company. His life interest will trust allows his wife to receive dividend income while his children (who work in the business) ultimately inherit the shares.

Life interest will trust taxation – key considerations

When planning life interest will trust taxation, consider:

  • The life tenant’s existing income and tax position
  • Whether spouse exemption applies
  • Potential for capital gains on trust assets
  • The seven-year rule for lifetime transfers
  • Available reliefs and exemptions
  • Professional trustee requirements

Get expert advice on life interest will trusts

Life interest will trusts offer valuable estate planning opportunities but require careful consideration of tax implications and family dynamics. Our experienced private client team can help you understand whether a life interest will trust suits your circumstances.

We advise on:

  • Choosing between life interest and discretionary trusts
  • Inheritance tax planning strategies
  • Protecting vulnerable beneficiaries
  • Second marriage planning
  • Business succession arrangements
  • Wills and probate matters

Contact our specialist team on 020 3993 4988 or email wellers.wealth@wellerslawgroup.com

Incorporation Relief

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You currently run your business as a sole trader or partnership and want to know the advantages and disadvantages of incorporating that business.

One of the advantages is that a company has limited liability whereas as a sole trader or partnership you have unlimited liability.

As an individual, your trading profits may be taxed at 45%, whilst a company pays tax at 19% for 2019/20 and 2020/21.

A disadvantage is that you will no longer be able to set your trading losses in the future against other income, once you have incorporated.

You also need to consider what your stamp duty land tax bill will be on transfer of land and buildings to the company.  If it is too great, you may instead wish to consider Gift Relief as an alternative.

This article explores the Capital Gains Tax implications when a sole trader transfers his business to a limited company by transferring the business assets to the company, through which he continues to trade. 

The sole trader and the company are connected persons and therefore there is a deemed disposal by the individual to the company at market value.

Usually the only Chargeable Assets are land, buildings and goodwill.  Plant and machinery, other than exceptionally, suffer losses, which are dealt with under the Capital Allowances regime.

If any buildings transferred have benefited from structures and buildings allowance (where they have been used for business purposes such as offices, retail premises, factories and warehouses), having met the conditions of the allowance, the consideration for the disposal is increased by the total amount of allowance already claimed when calculating the gain for Capital Gains Tax purposes.

The object of Incorporation Relief is the deferral, wholly or partly, of gains on chargeable assets. 

The deferred gain is rolled over and set against the base cost of the sole trader’s shares in the company. The gain will be charged when the shareholder sells his shares in the company.

The calculation is as follows:

£
Deemed gain on transfer of land and buildingsx
Deemed gain on transfer of goodwill x
Total gains x
Less: 
Incorporation Relief   x
Gains x (value of shares received) divided by total consideration    (x)
  
 £
The base cost of the shares in the new company: 
Market value of shares at incorporation x
Less:  
Incorporation Relief  (x)
Base cost of shares x===

Usually the value of the shares received is the same as the total consideration received by the individual from the new company and the Incorporation Relief fraction will be one.  In these circumstances, the whole of the gain is deferred and no gain is chargeable.

If the company pays for the business with loan stock i.e. something other than shares, a Chargeable Gain will arise.

The mechanics of this is usually achieved by the company opening a Directors’ Loan Account. The sole trader who then becomes a director can then withdraw money from the loan accounts once the company is profitable.

To qualify for Incorporation Relief the following conditions must be met:

  • The business must be a going concern.
  • All assets of the sole trader’s business must be transferred, with the exception of cash, to the company.  If the sole trader wishes to retain land and buildings outside of the company e.g. to save Stamp Duty Land Tax, he will not be eligible for the relief.
  • The consideration received by the sole trader must be wholly or partly in shares.

The relief applies automatically when the above conditions are met.

In order not to waste the sole trader’s Capital Gains Tax annual exempt amount, it is possible to calculate the amount of Directors’ Loan required to generate a gain equal to it.

If the sole trader decides to utilise Entrepreneurs’ Relief, he can organise his consideration so that a Chargeable Gain above the annual exempt amount is triggered and he can take advantage of the relief at this stage. He may wish to do this if the shares in the company on sale would not qualify for Entrepreneurs’ Relief.

Entrepreneurs’ Relief is available on any Chargeable Gains on the transfer of land and buildings but not goodwill where the sole trader receives 5% or more of the shares in the company.  The rationale behind this is that if the sole trader is retaining less than 5% of the shares then he is truly selling the business and reducing his involvement in it and therefore in those circumstances Entrepreneurs’ Relief would be available on the gains attributable to the transfer of goodwill.

Provided, the company is the shareholder’s personal trading company and the shareholder works for the company and meets the other criteria for Entrepreneur’s Relief, you can look through the incorporation and include the period during which the business was owned by the sole trader, when considering the two-year qualification period for Entrepreneurs’ Relief, prior to the sale of the shares. Entrepreneurs’ Relief will be available provided shares were issued wholly or partly in exchange for the transfer of the business as a going concern.  Provided the business and the shares in the personal company have been owned for a combined period of 2 years and the individual shareholder works for the company. A subsequent sale of the shares would qualify for Entrepreneurs’ Relief.

Dis-applying Incorporation Relief

The sole trader can elect to dis-apply Incorporation Relief if they want to use full Entrepreneurs’ Relief or have Capital Losses to use.  This may be the preferred route where the shareholder no longer works for the company at the date of the subsequent sale of the shares and so Entrepreneur’s relief would not be available at that stage.

Gift relief

To avoid paying Stamp Duty Land Tax on the transfer of the building to the company at market value, the sole trader can alternatively gift the assets to the company.  The deferred gain is rolled over and reduces the base cost of the assets in the hands of the company. The deferred gain does not reduce the base cost of the shares.

If you do not transfer all of the business assets except cash to the company, Incorporation Relief is not available.

This is a complex area and the advice of your accountant or tax advisor should be obtained in advance of any transaction.  We are very happy to advise you either separately or in conjunction with your accountant or legal advisor.

Wellers Wealth are very happy to work in conjunction with your independent financial advisor, accountant or legal advisor on such matters.

Please call us on 020 7481 2422 or email us at enquiries@wellerslawgroup.com if you would like to know more.

This article was written by Wellers Law Group LLP and the law is correct as at 24th November 2020. Please note that tax legislation changes frequently, so this article should not be relied upon without seeking further legal advice.

Entrepreneur’s Relief

Posted on by Wellers

How to use Entrepreneur’s Relief? 

The budget 2020 announcements reduced the lifetime limit for gains qualifying for Entrepreneurs’ Relief from £10 million to £1 million for qualifying disposals made on or after 1 March 2020. So how should you make use of this important tax benefit?

The Government’s rationale for this reduction is the relief has done very little to generate additional entrepreneurial activity, primarily benefitting a small number of very affluent tax payers.

John Cullinane, the Tax Policy Director of the Chartered Institute of Taxation is calling for MPs to look closely at the Government’s plans for Entrepreneurs’ Relief and in particular why the review was not carried out in public.  He goes on to say “there are people affected by the March 2020 budget change who have reinvested money in the expectation of the relief that they will no longer receive”.

Under the budget 2020 proposals, Entrepreneurs’ Relief is to be re-badged “Business Asset Disposal Relief”.

Entrepreneurs’ Relief is a Capital Gains Tax Relief available to taxpayers who sell or give away their businesses. 

The relief operates by reducing the Capital Gains Tax payable on the gain (or deemed gain in the case of a gift) to 10%.  This is regardless of whether the taxpayer is a basic, higher or additional rate taxpayer. 

Up until the budget 2020 there was a lifetime limit of the gains qualifying for Entrepreneurs’ Relief of £10 million, but this has now been reduced £1 million. 

The relief is available to sole traders or partners selling or gifting the whole or part of their business, company directors and employees who dispose of shares or securities in a personal trading company that they work for and directors and employees who acquired shares under the EMI Option Scheme.

To qualify there must have been material disposals of business assets. 

A business asset is defined as:

  • The whole or part of a sole trader or partnership business.
  • A disposal of an asset used in a business at the time the business ceases to be carried on.
  • A disposal of shares (securities, loan stock etc.) in a company.
  • A material disposal means that the business must have been owned by the taxpayer for at least two years prior to the disposal.
  • A disposal of furnished holiday lettings qualifies for Entrepreneurs’ Relief, provided the other conditions are satisfied.  A residential property business would not qualify.

In respect of assets used in the business at the time the business ceases, the asset must be sold within 3 years of the cessation of trade. 

Shares in a personal company

The conditions are that the individual owns at least 5% of the ordinary share capital and at least 5% of the voting rights which is exercisable by the individual by virtue of that holding. 

The second condition is that the taxpayer must work for the company or for another company in the same group.  This would include full-time or part-time employees or directors.  There is no minimum number of hours of work required.

In addition, the shareholder must either be entitled to at least 5% of the distributable profits and 5% of the assets available on the winding up and/or be entitled to at least 5% of the proceeds of disposal of the whole of the ordinary share capital of the company.

Associated disposals are also eligible for Entrepreneurs’ Relief:

The associated disposal rules do not apply to sole traders.

To qualify as an associated disposal a number of elements must be satisfied. You must have made a material disposal of the business or shares and securities in a company. As part of the withdrawal from the business you make a disposal of an asset which has been used in that business for at least 2 years and was acquired on or after 13 June 2016. The asset must have been owned by you for 3 years prior to disposal. 

An example: a company director owns at least 5% of the shares of a company and also owns the premises from which the company trades. Provided he sells the building at the same time as he sells the shares, this could be an associated disposal provided the other criteria apply.

Entrepreneurs’ Relief can be claimed on part-disposals of businesses or business assets provided the disposal represents at least 5% of the shareholding (see above) or 5% of partnership assets. Provided the taxpayer has owned 5% or more for three of the eight years prior to the disposal, a material disposal may be of less than a 5% interest provided it is of the whole of the individual’s partnership assets/shareholding. 

The associated disposal must take place within one year of the business cessation or within three years, so long as the assets have not been leased or used for any other purpose.  If the individual taxpayer has charged the business rent for use of the assets, at its full market rent, no Entrepreneurs’ Relief is available.  If less than the market rate rent has been charged for the business, some Entrepreneurs’ Relief will be available.  If no rent is charged, then full relief is available.

Interaction with Rollover Relief

If you make a material disposal of business assets and you re-invest in a new business, you may look at first to see if there is any Rollover Relief available for the investment in the new business and apply Entrepreneurs’ Relief to any gains remaining after the Rollover Relief has been claimed. 

Interaction within Incorporation Relief

If you transfer your business to a limited company you may wish to consider whether Entrepreneurs’ Relief would be available to you on any gains arising on the incorporation.

The main point to note is, that Entrepreneurs’ Relief will not be available in respect of any gain arising on the transfer of goodwill to the company. Under Section 169LA TCGA 1992 where goodwill is disposed of to a close company and the transfer is of 5% or more of the share capital of the company (or the shareholder exercises at least 5% of the voting rights or the shareholder is a beneficiary entitled to at least 5% of the profits available for distribution and at least 5% of the assets on a winding up or would be beneficially entitled to at least 5% of the proceeds on the disposal of the whole company) then goodwill is no longer a relevant business asset for the purposes of Entrepreneurs’ Relief.

In those circumstances, Entrepreneurs’ Relief would not be available for the value of the goodwill but Entrepreneurs’ Relief would be available where the transferor holds less than 5% of the shares of the company and does not meet any of the other tests listed above.  The rationale behind this is that the individual is genuinely selling their business and reducing their involvement in it.

In summary, Entrepreneurs’ Relief is one of the most attractive benefits available to entrepreneurs.  You can claim as many times as you like provided your claims are within the £1 million lifetime limit.  It is available to individuals, not companies.

If you are selling a business, you have to be the sole trader or a business partner for the two year qualifying period. 

If you are selling shares you have to have been an employee or officer in the company as well as owning the shares for the qualifying period.  The company itself must be a trading company or the holding company of a trading group and must have traded within the qualifying period.

There is one case in which you are not required to be working in the business under an extension called Investors’ Relief.

The pitfalls of not dotting your ‘i’s’ and crossing your ‘t’s’

A £1 million tax relief can be lost on a technicality.  It is therefore essential that you seek advice within at least two years prior to your retirement and earlier if possible. This is to ensure that you are eligible for the relief and if you are not eligible, to give us time to see what can be done to ensure you become eligible.  Do not wait until after you have sold your business interests or your shares before checking. 

The sorts of things that you will need to consider are whether you have any evidence that you have worked as an employee or officer for the company because if you can’t prove it you won’t be eligible.  It would be sensible to have a written Employment Contract for example.

There is no set definition of trading given by HMRC.  A company’s trading status is evaluated based on several factors.  Trading can in certain circumstances extend to a one-off transaction resulting in unexpected profits.

Lots of businesses have a mixture of trading and non-trading activities.  Companies with mixed business trading can still be eligible for Entrepreneurs’ Relief provided the non-trading activities are not substantial.  HMRC considers substantial to be anything over 20%.  So for example provided rental income received by the company equates to less than 20% of the company’s total trade and the staff are not spending more than 20% of their time in relation to non-trading activities, then you still may be able to qualify. 

If your company is cash rich you could risk failing the trading status test unless such cash has been earmarked for a trading purpose.

Assets used in the business up to Cessation of Trade and subsequently sold

The business must be owned for at least two years prior to cessation and the asset must be sold within three years of the cessation. In these circumstances, the asset would qualify for Entrepreneurs’ Relief. 

EMI shares

There are additional requirements to comply with if the shares are from an EMI.  To be eligible for Entrepreneurs’ Relief you must have:

  • Purchased the shares after 5 April 2013.
  • Be offered the option to buy them at least two years before selling them.

The requirement to hold 5% or more of the voting share does not apply when it comes to disposing of EMI shares.

One way round the lower limit (the £1 million lifetime limit) would be to consider gifting shares to your spouse, since these are transferred at no gain no loss. Provided your spouse met the criteria, they would also have a full Entrepreneurs’ Relief lifetime limit.  This doubles your tax relief. 

If you are dissolving your company, Entrepreneurs’ Relief can still be claimed provided:

  • The distribution of company assets is taxed as a capital distribution, not as income.
  • Distribution takes place within three years of the date of cessation of trade.
  • In the two years prior to the company ceasing to trade, the usual qualifying conditions were met.  

You will need to discuss this with your accountant but you may find paying the 10% Capital Gains Tax suits you better than seeking out your profits over several years with a traditional small salary of £12,000 or so per year plus dividends on which only 7.5% tax is payable.

There is anti-avoidance legislation that was introduced in April 2016 which prevents individuals from closing companies simply as a way of taking advantage of the tax efficiency of the capital distribution route rather than an income distribution.

Distributions from the voluntary liquidations of a company may be treated as income distributions in the following circumstances:

  • If the company is a closed company (a company with five shareholders or less).
  • If the shareholder receiving the distribution is involved with a similar trade or activity within two years.
  • If the intention of winding up the business appears to be to obtain a tax advantage.

In these instances, the distributions could be subject to income tax and ineligible for Entrepreneurs’ Relief.

The legislation surrounding Entrepreneurs’ Relief is complex and professional advice should be sought well in advance of retirement, incorporation or gifting of business assets.

Wellers are very happy to work in conjunction with your independent financial advisor, accountant or legal advisor on such matters. 

Please call us on 020 7481 2422 or email us at enquiries@wellerslawgroup.com if you would like to know more.

This article was written by Wellers Law Group LLP and the law is correct as at 24th November 2020. Please note that tax legislation changes frequently, so this article should not be relied upon without seeking further legal advice.

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