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Digital Makeover: Estate Planning Edition

To avoid disappointment at the outset and be totally up front, I’m not here to announce some digital asset rebooted version of Extreme Makeover: Home Edition, although the mere thought of that show does bring a flood of youthful nostalgia my way.

I do, however, find bricks and mortar terminology useful when discussing estate planning with clients. First, you have to prepare the site, then lay the foundation, build the structure (comprising several levels perhaps), and eventually construct the roof to enclose and protect the entire structure. Sometimes, in estate planning, we build ab initio. In other cases, it’s an extension or perhaps just a much needed facelift or renovation.

So why do I mention digital assets? This is not simply a consideration for crypto enthusiasts and proponents of all things decentralisation. Digital is going mainstream, not simply by reference to the current value of BTC or ETH but also by the more widespread adoption of blockchain technology through areas like tokenisation and the use of NFTs to determine the provenance and authenticity of goods.

Digital may even mean simply the passwords to access your moderately successful side hustle business on eBay or Amazon.

So, as we move into an era of increased digitisation both in terms of how we store personal information and, of course, store value, enquiries from clients are building on how to approach digital assets from a trust and succession planning perspective. So, let’s see how the good old world of law is adapting and navigating in this space.

Wills: The Foundation

Enter the foundational piece of estate planning – the Will. A Will is not simply for old people as, sadly, it is not just the elderly who are vulnerable to kicking their mortal coil. Some might ask what a document, which derives its essential legal framework from the year 1837, has to say on digital assets. However, this is not about making bequests of the ancient family heirlooms or even preventing an intestacy scenario, but about ensuring that your cryptoassets do not end up in the digital abyss.

Without access to the access key, where is the value? Fundamentally, without a key to the safe, its contents are rendered worthless.

Lifetime Trusts: The Next Level Of Protection

Now, let’s talk about lifetime trusts. The word gets thrown around, but what exactly is a trust?

In short, a trust is a legal arrangement where one person or entity (the trustee) holds and manages assets for the benefit of another person or persons (the beneficiary), in accordance with certain rules or terms.

With a trust, as with a Will (albeit in a more existential sense with a Will), you have to accept a degree of control being lost. Setting up a trust for your cryptoassets means appointing a trustee, a guardian or custodian for your digital fortune. The trustee will navigate the crypto maze, ensuring your assets are in safe hands, and held for the benefit of your loved ones.

This trust might be established with tax, asset protection and succession planning in mind, or perhaps even a combination of all these factors.

Communication: The Roof

Legal structures and documents do not serve merely as the framework for rules. If done correctly with the advisor understanding the asset class, the legal work also serves as an effective communication tool. Whether it’s a traditional family business or the family home, communication is arguably as important as the legal framework itself. What good is the structure without the roof on top? So remember, communication is the key to a smooth transition and this is no less applicable to digital assets.

Create a digital treasure map, an inventory of your cryptoassets, passwords, and access codes. Share this map with your chosen executor or trustee. It’s like passing on the key to the crypto kingdom, ensuring your heirs do not end up in a digital maze brought about less by your doing and more by your inaction.

Let that oft-quoted crypto term be true, WAGMI. We’re All Gonna Make It, indeed, but what is your legacy plan and is it time for a digital makeover…estate planning edition?

For tax and private client advice and services, please contact Ben Rosen via our contact form below.

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A Tax Guide for Hong Kong Residents Moving to the UK

It is imperative that Hong Kongers seeking to relocate or invest in the UK ensure that they have a clear understanding of the UK tax system and seek pre-arrival tax planning advice. Income tax rates are generally much higher in the UK than in Hong Kong, and the UK also levies tax on capital gains and inheritance.

However, depending on eligibility, the UK permits non-UK individuals to benefit from a favourable tax regime while resident in the UK.

The UK’s tax system for individuals hinges on two crucial concepts: residence and domicile. These factors determine an individual’s liability to UK taxes, and they are distinct from immigration status.

Residence

An individual’s UK tax residency status is determined by the UK’s Statutory Residence Test, taking into account factors such as:

• The number of days spent in the UK
• Ownership of a home in the UK
• Employment inside or outside the UK
• Presence of UK-resident close family members
• Previous days spent in the UK in prior tax years

Non-resident individuals generally face limited UK tax liability, primarily related to UK-source income, such as earnings from UK properties, as well as capital gains on specific categories of assets.

Becoming a UK tax resident significantly expands this tax exposure to a global level; it is, therefore, crucial to plan carefully and far in advance to avoid inadvertently becoming a UK tax resident or becoming a UK tax resident having already put in place measures for UK tax optimisation for your global assets.

Domicile

Domicile, an English common law concept, centres on the place of an individual’s permanent home. A status generally inherited from one’s father at birth, domicile may change if a person relocates to a new jurisdiction with the intention to reside permanently/indefinitely. UK tax rules also deem individuals domiciled in the UK under specific circumstances, notably for long-term residents.

Domicile plays a vital role in UK taxation because:

• Non-UK domiciled individuals who are resident in the UK can claim the remittance basis of taxation for non-UK income and capital gains and
• Non-UK domiciled individuals are subject to inheritance tax only on UK-situated assets and certain offshore assets linked to UK residential property.

With longer-term residents of the UK, there is merit in building up evidence that they have not acquired a domicile of choice in the UK. Nevertheless, the UK tax authorities (His Majesty’s Revenue and Customs) may challenge domicile claims.

As Hong Kongers who relocate to the UK under the BNO visa program do so with the intention to settle in the UK indefinitely, their worldwide income and gains could be brought into the scope of UK taxation, including UK inheritance tax, highlighting the need for such individuals to obtain advice as soon as possible before they intend to come to the UK or shortly after.

Pre-Arrival Planning

Pre-arrival planning aims to arrange assets tax-efficiently in relation to their UK residence, including:

• Segregating accounts and creating a pool of funds for UK use without tax consequences, known as ‘clean capital’;
• Reviewing investments, trusts, and company holdings from a UK tax perspective; and
• Considering the tax benefits of the remittance basis of taxation for the first 15 tax years of UK residence.

The Remittance Basis

By default, UK residents are taxed on worldwide income and capital gains, known as the ‘arising basis’. However, UK resident non-UK domiciled individuals can elect to be taxed on the ‘remittance basis’. This means that such individuals are taxed on UK source income and gains as they arise, but non-UK source income and gains remain untaxed, unless remitted or brought back to the UK.

Under current rules, the remittance basis can be claimed for no charge during the first seven out of nine years of UK residence, making the UK an attractive destination in comparison to other jurisdictions. After this time, a charge applies, starting at £30,000 and increasing to £60,000. The remittance basis cannot be claimed after 15 out of 20 years of residence.

Property

For most individuals moving to the UK, purchasing a family home is a significant investment. Tax implications, as well as funding methods, should be carefully considered. Stamp duty land tax (SDLT) applies to property purchases in England and Northern Ireland, with higher rates for non-UK residents and additional rates applying for those who already own property worldwide. Seeking advice is crucial to navigating SDLT and other potential taxes related to property acquisition.

Conclusion

Relocating to the UK is a monumental decision with potentially far-reaching tax implications. The UK’s favourable tax regime, especially for non-UK domiciled individuals, presents a wealth of opportunities.

However, to ensure the most favourable tax outcomes, it is essential to seek expert advice and plan strategically, both before and after arriving in the UK. Whether you are considering the BNO visa route or other immigration options, understanding and optimising your tax position can significantly enhance your financial prospects in the UK.

To discuss any of the points raised in this article, please contact Ben Rosen or fill out the form below.

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The New Duty on Employers to Prevent Sexual Harassment

The Worker Protection (Amendment of Equality Act 2010) Act 2023) is coming into force in October 2024 and places a new duty on employers to take action to prevent sexual harassment in the workplace.

In summary, the new law:

• Introduces a duty on employers to take reasonable steps to prevent sexual harassment of their employees.
• Gives the Employment Tribunal power to uplift compensation by up to 25% where an employer is found to have breached the new duty to prevent sexual harassment.

This duty will apply to employers irrespective of the size of the business or the number of staff (although a tribunal will take the size and resources of an employer into account when assessing what is considered `reasonable’).

What Is Sexual Harassment?

Sexual harassment is defined in section 26(2) of the Equality Act 2010 as:

“unwanted conduct of a sexual nature that creates an intimidating, hostile, or offensive environment for the person on the receiving end and/or violates their dignity.”

There are a variety of incidents and behaviours that might constitute sexual harassment, but some obvious examples include:

• Making sexually suggestive comments.
• Altering a pornographic image by adding a picture of a colleague’s head, then sending it to other co-workers.
• Touching someone in an inappropriate or unwanted manner, e.g., pinching someone’s bottom.

The Employment Appeal Tribunal has held that what constitutes sexual harassment is subjective, and there does not need to be a series or number of incidents – a one-off incident may be enough to constitute harassment:

The law does also not require the potential victim to have made it clear in the past that the sexual conduct was unwanted. In Insitu Cleaning Co v Heads [1995] IRLR 4, the EAT stated that would-be harassers could not be allowed to “test the water” without consequence to see whether their conduct was objectionable to the receiver(s) if their behaviour is serious enough to reasonably constitute harassment.

What Is The New Duty On Employers?

Employers are required to take “reasonable steps” to prevent sexual harassment of workers in the course of their employment.

The current law already provides a defence to a harassment claim if the employer can show they have taken all reasonable steps to prevent sexual harassment from happening. However, the new law places a legal obligation on all employers to take proactive measures to prevent sexual harassment in the workplace.

It is important to note that this law does not only protect women but applies equally to people of all genders.

What Constitutes “Reasonable Steps”

There is no guidance on this in the new law. The employer’s defence in the Equality Act uses similar wording – that the employer took “all reasonable steps” to prevent the discrimination or harassment. The word “all” has been removed from the new legal duty, meaning this may be a lower threshold. However, employers should be aware that it is likely that Employment Tribunals will interpret the duty in a similar way to the employer’s defence under the Equality Act 2010.

Policies Alone Are Unlikely To Be Enough

A recent Employment Tribunal decision in Fischer v London United assessed what would be expected of an employer to make out the “all reasonable steps” defence. The employer in this case had appropriate policies in place, however, they had failed to take other steps such as keeping the policies up to date, making them available to all staff, and implementing regular training.

Compensation

A worker can only claim that the employer has breached this new duty of taking reasonable steps as part of a wider claim for sexual harassment. They cannot bring a free-standing claim.

If an employee succeeds in a claim for sexual harassment and the employer is found to have breached its duty to take reasonable steps to avoid the sexual harassment, the Employment Tribunal has discretion to uplift the compensation payable to the worker by up to 25%. Although this uplift can only be applied in a successful claim for sexual harassment, the uplift will apply to all of the compensation that has been awarded including that for any other type of harassment that has also been added as part of the tribunal claim. A failure to take reasonable steps’ therefore can become very costly for an employer.

What About Harassment Of Staff By Third Parties?

The new duty to take reasonable steps does not extend to taking steps to prevent third-party harassment. However, employers are still at risk of discrimination claims or claims of harassment itself if complaints from workers about harassment by third parties are ignored. Additionally, there is a significant risk of damage to reputation if an employer fails to prevent staff from being harassed at work.

What Next Steps Should Employers Take?

We recommend the following steps be taken over the coming months to comply with upcoming new legal duty to prevent:

• Have a separate sexual harassment policy detailing a non-exhaustive list of behaviour that might amount to sexual harassment and incorporating a speak up policy to ensure staff feel safe to report incidents of sexual harassment.
• Ensure your reporting systems for harassment incidents are fit for purpose and allow you to identify patterns, for example, a particular activity, such as a sales conference, which always results in harassment complaints. When creating the complaints register, make sure it complies with data protection rules.
• Update and roll out harassment training to all staff, ensuring line managers understand how to deal with complaints and employees know what constitutes harassment so they can avoid committing it.
• Place signs in areas where third parties such as customers, contractors, and suppliers encounter employees, stating that threats, violence, and harassment will not be tolerated.
• Conduct targeted risk assessments regarding situations or events where there may be a higher risk of sexual harassment and put in place measures to eliminate risks or mitigate them (if the former cannot be achieved).

To discuss any of the points raised in this article, please contact Dipti Shah or fill out the form below.

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