Month: November 2022

In this article, Richard Gray barrister takes a brief look at the differences between a Deed of Assignment and a Notice of Assignment and the effect of the assignment on the contracting party

At the end of 2020, Elysium Law were instructed to act for a significant number of clients in relation to claims made by a company known as Felicitas Solutions Ltd (an Isle of Man Company) for recovery of loans which had been assigned out of various trust companies following loan planning entered into by various employees/contractors.

Following our detailed response, as to which please see the article on our website written by my colleague Ruby Keeler-Williams, the threatened litigation by way of debt claims seem to disappear. It is important to note that the original loans had been assigned by various Trustees to Felicitas, by reason of which, Felicitas stood in the shoes of the original creditor, which allowed the threatened action to be pursued.

After a period of inertia, Our Clients, as well as others, have been served with demand letters by a new assignee known as West 28^th Street Ltd. Accompanying the demand letters is a Notice of Assignment, by reason of which the Assignee has informed the alleged debtor of the Assignees right to enforce the debt.

Following two conferences we held last week and a number of phone call enquiries which we have received, we have been asked to comment upon the purport and effect of the Notice of Assignment, which the alleged debtors have received. Questions such as what does this mean (relating to the content) but more importantly is the ‘Notice’ valid?

Here I want to look briefly at the differences between the two documents.

There is no need for payment to make the assignment valid and therefore it is normally created by Deed.

 The creation of a legal assignment is governed by Section 136 of the Law of Property Act 1925:

136 Legal assignments of things in action.

(1)Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal thing in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to claim such debt or thing in action, is effectual in law (subject to equities having priority over the right of the assignee) to pass and transfer from the date of such notice—

(a) the legal right to such debt or thing in action;

(b) all legal and other remedies for the same; and

(c) the power to give a good discharge for the same without the concurrence of the assignor:

Some of the basic requirements for a legal assignment are;

• The assignment must not be subject to conditions.
• The rights to be assigned must not relate to only part of a debt, or other legal chose in action.
• The assignment must be in writing and signed by the assignor.
• The other party or parties to the agreement must be given notice of the assignment.

Notice of assignment

To create a legal assignment, section 136 requires that express notice in writing of the assignment must be given to the other contracting party (the debtor).

Notice must be in writing

Section 136 of the LPA 1925 requires “express notice in writing” to be given to the other original contracting party (or parties).

 Must the notice take any particular form?

The short answer is no. Other than the requirement that it is in writing, there is no prescribed form for the notice of assignment or its contents. However, common sense suggests that the notice must clearly identify the agreement concerned.

Can we  challenge the Notice?

No. You can challenge the validity of the assignment assignment by ‘attacking the Deed, which must conform with Section 136. In this specific case, the Notice sent by West 28^th Street in itself is valid. Clearly, any claims made must be effected by a compliant Deed and it is that which will require detailed consideration before any right to claim under the alleged debt is considered.

Can I demand sight of the assignment agreement

On receiving a notice of assignment, you may seek to satisfy yourself that the assignment has in fact taken place. The Court of Appeal has confirmed that this is a valid concern, but that does not give an automatic right to require sight of the assignment agreement.

In Van Lynn Developments Limited v Pelias Construction Co [1969]1QB 607  Lord  Denning said:

“After receiving the notice, the debtor will be entitled, of course, to require a sight of the assignment so as to be satisfied that it is valid…”

The Court of Appeal subsequently confirmed this  stating the contracting party is entitled to satisfy itself that a valid absolute assignment has taken place, so that it can be confident the assignee can give it a good discharge of its obligations

Summary

The important document is the Deed of Assignment, which sets out the rights assigned by the Assignor. The Notice of Assignment is simply a communication that there has been an assignment. The deed is governed by Section 136 of the LP 1925. It should be possible to obtain a copy of the Deed prior to any action taken in respect of it.

For more information on the claims by West 28^th Street or if advice is needed on the drafting of a Deed, then please call us on 0151-328-1968 or visit www.elysium-law.com.

In this article Richard Gray Barrister gives an overview on the use of Employee Benefit Trusts and considers, even though the aggressive EBT schemes are a thing of the past, whether they are still being considered principally as a vehicle to avoid Inheritance Tax (IHT) and the potential pitfalls should that occur.

Having just finished a lengthy conference with a client, I was reminded of something a colleague of mine said, namely that; “Google is not kind to EBTs”.  If you were to Google the point, that appears to be correct and in this case the Client threw many questions at me surrounding the abusive arrangements for which they had previously been used. We now know all too well the effect of those arrangements and the misery they generated.

Aggressive schemes apart, there is very much a place for an EBT within the context of proper business planning and recently, Elysium Law has advised upon their use in the sale of a trading company where, prior to implementation, HMRC gave clearance.

Regrettably, there is still a temptation to use them purely as a vehicle for avoiding IHT and in this article I look at the consequences of the misuse of an EBT and simply ‘getting it wrong’.

Be warned of the use of an EBT in, for example, a small family company who just after incorporation of an investment portfolio now wants to avoid IHT by placing the shares into an EBT. It won’t work!

What is an EBT?

An EBT is a type of discretionary trust set up to fall within the definition of a trust for the benefit of employees within the provisions of Section 86 of the Inheritance Tax Act 1984 (IHTA 1984). This provides exemptions from inheritance tax (IHT) for certain transactions involving qualifying EBTs.

Special Treatment of Section 86 Trusts

The following should be noted in relation to a section 86 trust

It is not a relevant property trust;

A section 86 trust is not a relevant property trust.  Relevant property trusts are subject to the specific inheritance tax regime in Chapter III, Part III of the Inheritance Tax Act 1984. Therefore, a section 86 trust it is not subject to the IHT charges such as the exit charge and the ten-yearly charge.

Transfer of Value to an EBT

If a close company makes a transfer of value to an EBT, this will be a chargeable transfer, apportioned to the participators under section 94, IHTA 1984.

There are, however, four possible reliefs and exemptions that may be available:

• Dispositions not intended to confer a gratuitous benefit;

• Dispositions allowable for corporation tax.

• Disposition for the benefit of employees.

• Business property relief.

Section 13 of the Act deals with transfers of value into the Trust.

Consideration is then to be given to the effects of Section 239 of the Taxation of Chargeable Gains Act 1992., which gives the exemption of CGT for the ‘transfer in’ of the assets.

Inheritance tax

Section 28, IHTA 1984 provides that a transfer of value by an individual to an EBT will be an exempt transfer where the following condition is satisfied:

• The EBT is a section 86 trust with restricted beneficiaries.

However, the reliefs granted are subject to anti avoidance provisions without which it would be easy to use the EBT exemptions to transfer wealth from one generation of a family to another without adverse IHT and CGT consequences

Should an EBT be considered abusive by HMRC, then the trust will be treated as a Relevant Property Trust and a short contrast with that regime, as opposed to EBTs, must be considered.

Inheritance Tax considerations

Lifetime gifts into discretionary trusts are chargeable lifetime transfers (CLTs).  IHT will be charged at the lifetime rate of 20% on the amount above the settlor’s nil rate band. There is

10-year periodic charge

Discretionary trusts are ‘relevant property’ trusts because the trust assets are not included in the taxable estate of any of the beneficiaries, the trust itself will be assessed to IHT. That means that on each 10-year anniversary the trust is taxed on the value of the trust less the nil rate band available to the trust. The rate they pay on this excess is 6% (calculated as 30% of the lifetime rate, currently 20%).

Capital Gains Tax – Gifts into trust

Lifetime gifts of existing assets into trust, other than gifts of cash or the assignment of investment bonds, will be disposals for CGT.

During the life of the trust

If the trustees dispose of trust assets the gains are calculated in the same way as for an individual and taxed at the trust rates of CGT. The trust rates are 20% or 28% for residential property.

If the EBT is reclassified by HMRC as a Relevant Property Trust, then penalties and interest will apply and therefore extreme caution must be exercised when advising on the set up of the EBT

DoTAS and the final word

Again, a detailed consideration of these provisions is beyond the scope of this article, but advisors should consider whether placing shares in a small investment company with no employees will fall within the DoTAS legislation. In my view it does and the temptation to do this must be avoided

IHT hallmark a revision from the previous legislation

The IHT arrangement Regulations 2017 were made on 29 November 2017 and came into force on 1 April 2018, replacing the previous IHT hallmark.

Arrangements to which the IHT hallmark applies

The IHT hallmark applies to arrangements if it would be reasonable to expect an informed observer to conclude that both of the conditions below are met.

Condition 1

The main purpose, or one of the main purposes, of the arrangements is to enable a person to obtain one or more of a list of specific advantages in relation to IHT (tax advantage).

The specific advantages are:

• The avoidance or reduction of a relevant property entry charge, the ten-year anniversary and exit charges.

(Regulation 4(2), IHT Arrangements Regulations 2017.)

Condition 2

The arrangements involve one or more contrived or abnormal steps without which a tax advantage could not be obtained.

(Regulation 4(3), IHT Arrangements Regulations 2017.)

EBTs if used properly have a significant place in Tax and Business planning. If you want further advice upon the use EBTs, EOTs and of an EBT upon the proposed sale of trading company, then contact us via email at clerks@elysium-law.com or call 0151 328 1968