Taking stock of UK and overseas property

Property valuations and holiday logs are top of the list for expats and owners of overseas holiday homes under new rules

British expats and people with foreign holiday homes must take stock to deal with the new tax regime that came into force this month.

Capital Gains Tax (CGT) has been extended to non-UK residents selling UK residential property and as the tax will be calculated on the gain made after 5th April 2015, owners need to record the value of the property and its general condition now, so they have best evidence for dealing with the tax when they eventually sell.   HMRC are likely to challenge any valuation considered unrealistic and a real-time valuation by a professional is likely to present a stronger case to HM Revenue & Customs than an estimate made historically when the property is actually sold.

The changes are designed to close the loophole that benefited non-residents making a gain on the sale of a UK property where it was not their main home and whilst the headline was about tackling the wealthy investors in the UK property market, it’s also affecting British expats working overseas.

Until now, CGT on such gains was paid only by people resident in the UK, but now those based overseas will be treated in the same way. Individuals will have the same CGT annual exemption, which is £11,100 in 2015/16, and be taxed at the same rate, 18% or 28% depending on the individual’s UK income and the amount of any gain on disposal of the property.

The April 2015 valuation is important as the tax will only apply to gains made above the market value at the time the new rules came into force. The alternative option for calculating any gain is that owners can choose to use the original cost of buying the property and then time-apportion from that figure.

The other change tied to the new regime relates to the principal residence relief (PPR) rules, which now apply to non-residents disposing of a UK property and also to UK residents disposing of a property abroad. Now, a property will not be eligible to be counted as the principal residence, and therefore free of CGT, unless either the person making the disposal was resident for tax purposes in the same country as the property for that tax year, or the person spent at least 90 overnight stays in the property, and the overnight stays must be fully documented so evidence can be shown to HMRC.

The impact for owners of holiday homes abroad is that they can no longer qualify for PPR on their foreign home or be able to elect for that property to qualify for PPR, unless they spend at least 90 days there in any tax year.  And for those who had planned to make a more permanent move abroad and become non-resident, the new NRCGT means they are likely to have a CGT bill when they sell their UK property, possibly without the benefit of full PPR.

Said Brendan O’Brien Managing Director of Breeze & Wyles Solicitors Limited: “The 90-day stay can be split between spouses if they are joint owners of a property, but it’s likely to be difficult for anyone to achieve the qualification criteria unless they are semi-retired or able to work flexibly.   Equally important is the impact on letting out property – if an owner needs to spend 90 days in the property, it is likely to put a stop to long term letting.

“Certainly the changes are going to have a big impact on future planning for both UK expats living abroad and UK residents with holiday homes overseas, although expats who have had a spell overseas as a work requirement will still be able to claim PPR relief if they return to live in the UK in what was their main UK property.   There may be other options, such as setting up a trust but that’s something that needs professional advice and is very much dependent on personal circumstances.”

He added: “For now, the important thing is to make sure you’ve taken stock and have valuations in hand and systems in place to record time spent in the property.”

ENDS

Web site content note: 

This is not legal advice; it is intended to provide information of general interest about current legal issues.

https://www.gov.uk/tax-sell-property/selling-overseas-property

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/380397/Implementing_a_capital_gains_tax_charge_on_non_residents_disposing_of_UK_residential_property-_summary_of_responses_FINAL.pdf


Nailing down agreements on divorce

A Supreme Court ruling will allow a former wife to make a claim for a share of the fortune amassed by her husband 30 years after they parted, as no binding consent order was made when they divorced.

Kathleen Wyatt has been granted permission to lodge a belated claim against multi-millionaire Dale Vince, who made his fortune through a green energy company founded in the 1990s, which is said to be worth £57m.

The couple met and married in 1981 and had a child in 1983, separating just one year later. The wife became a full time single parent with little income, and had little contact with her ex-husband.

There is no time limit in the UK within which a spouse must seek an order for financial provision following a divorce and in 2011 the wife put forward an application. This was dismissed by the Court of Appeal and the application was taken to the Supreme Court to decide whether due consideration had been given to section 25 of the Matrimonial Causes Act 1973.

Having given Ms Wyatt permission to apply, it will be up to the trial judge when the case is heard as to whether any financial order is made. The wife could argue that she cared for the child leaving her ex-husband free to succeed in his business.

Explained family law expert Olive McCarthy, Director and Head of Family Law at Breeze & Wyles Solicitors Limited: “It is certainly unusual to hear of a claim being made after all this time but without a consent order in place, the opportunity remains open.

“More people are thinking about pre or post nuptial agreements, following media coverage of high profile cases where these have been involved, such as German heiress Katrin Radmacher. Certainly they are a sensible option for anyone getting married, but they are for use at the start of the relationship to set out what you wish to have happen if things go wrong. They are not legally binding in the UK, but will be a persuasive factor if both parties received independent legal advice at the time.

“What’s involved here is the way in which a divorce is finalised. Once you’ve reached agreement, you can get the court to make it legally binding, by applying for what is known as a consent order and that’s what was missing in this case.”

A consent order confirms what has been agreed and can include details on how assets will be divided, including cash, property, pension funds and other investments, and can also include arrangements for maintenance payments, including child maintenance. Both parties have to agree and sign the draft consent order and a judge will consider the terms to see if they appear fair and reasonable, and if so will approve the agreement to make it legally binding.

She added: “Going through the process of obtaining a consent order should mean that both parties come out with a fair settlement and there will be no surprises some years down the line.”

WYATT V VINCE [2015] UKSC 14

ENDS

Web site content note: 

This is not legal advice; it is intended to provide information of general interest about current legal issues.


Social Media comes to the rescue in Service of Proceedings

A Supreme Court Judge in New York City, Justice Matthew Cooper has this week ruled that a wife may serve divorce papers on her estranged husband via Facebook. Justice Cooper had found that the wife in the case only had contact with her husband via telephone and Facebook and that the husband had moved from his last known address in 2011. The husband had also claimed to the wife that he had no fixed address and was unemployed. As the husband had refused to make himself available for service, Justice Cooper ruled that the papers could be served via the private message facility on the social networking site. A message with the divorce papers attached would be sent to the husband once a week for a period of three consecutive weeks or until he acknowledged receipt. After the three weeks, service will be deemed to have occurred.

In England and Wales, once a divorce petition has been filed with the Court by the applicant, a copy of the paperwork is then sent to the respondent to the proceedings by post together with an ‘acknowledgement of service’ which is a form which the Respondent is asked to sign to confirm that they have received a copy of the petition. A divorce cannot progress until the respondent has signed and returned the acknowledgement of service or until it is proved that the respondent has in fact received a copy of the petition.

It is quite often the case that the respondent may choose to simply ignore the divorce papers or refuse to sign and return the acknowledgement of service. In these circumstances, it may be necessary to employ a private agent or Court bailiff to personally serve the documents and confirm service to the Court.

But what is the situation where a husband or wife seeking a divorce is no longer aware of the whereabouts of the other party? If service can be proved then the Court will view this as deemed service, but it is extremely rare that a Court will dispense with service altogether.

In England and Wales, service of documents in the Family Court is generally made by first class post, by personal service via an agent or on occasion, a Court may allow service via email. In times of improving technology, social media and world travel, it makes sense that the procedures we use reflect the entirety of the resources at our disposal and the manner in which we routinely seek to communicate to each other.  It is not unusual for one party to be on the other side of the world and in these circumstances; service via email or social media may be preferable.

In addition to New York, other countries such as South Africa and Malaysia have previously allowed service of Court documents via Facebook and even by text message. This recent case in New York City may provide a persuasive argument in future cases in England and Wales where it appears impossible to serve an estranged husband or wife with divorce papers and underlines the need to sometimes think outside the post box.

Lisa Honey is a Trainee Solicitor at Breeze and Wyles Solicitors Ltd and is currently undertaking her third seat in the Family Department. Lisa has gained experience in all  aspects of family law, including divorce, financial settlements and matters relating to children. Lisa has also undertaken seats in Private client and Conveyancing


Shadow Directors - “Pulvis et umbra sumus (We are but dust and shadow)”

Any person who elects to become a Director of a Company is likely to be aware of the onerous fiduciary duties that will be imposed upon them, and the serious implications that can follow from a breach of these duties. A person can become a shadow director without realising that they have done so (and indeed with very little appreciation of the consequences) – but the obligations placed upon them can actually be as strenuous as those of an appointed Director.

In the case of Vivendi SA and Centenary Holdings Ltd v Murray Richards and Stephen Bloch [2013] EWHC 3006 the Court held that a shadow director can be subject to the same fiduciary duties as any other director. This case involved a shareholder who dishonestly used his influence over one of the directors of the company in order to extract substantial amounts of money, whilst the company was in financial trouble. The shadow director was found to have breached his duty to act in the best interests of the company and its creditors.

A shadow director is defined as “a person in accordance with whose directions or instructions the directors of the company are accustomed to act” (s. 251(1) Companies Act 2006) and there are limited exceptions to the general rule in relation to professional advisors and parent companies.

In recent months, legal commentators have become increasingly certain that even lenders could be considered to be acting as shadow directors, in certain circumstances. Although there has not yet been a case in which a lender has been held to be a shadow director, there is certainly evidence that lenders should proceed with caution. In Re PFTZM Limited (in liquidation) [1995] BCC 280 the Court decided against holding the lender liable as a shadow director on the basis that the lender was simply protecting their own position, but they acknowledged that a lender could potentially become a shadow director if their actions went beyond this remit. When a company is at risk, it is reasonably common for their major creditors to take an interest in the running of the company. It is important for creditors to take legal advice at this stage, so that they can develop strategies in order to protect themselves from the possibility of being considered to be a shadow director.

This serves as a warning to those who have a strong influence over the management of a company, and highlights the necessity of seeking legal advice in order to ensure that both the individuals concerned and the company are protected.

Donna Bromyard
Business Services Department
Breeze & Wyles Solicitors Ltd

Tel: 01992 558411
Email: donna.bromyard@breezeandwyles.co.uk