The Private Wealth & Private Client Review: United Kingdom


The United Kingdom of Great Britain and Northern Ireland constantly strives to maintain a state of harmony between contradictory policy objectives. The United Kingdom maintains a level of government spending of between 40 and 50 per cent of GDP by being a high-tax jurisdiction for its own nationals. This is illustrated by a top rate of income tax of 45 per cent, among the highest in the Organisation for Economic Co-operation and Development countries, and capital gains tax of 20 per cent (other than for residential property).

However, for non-UK-domiciled persons it maintains a status as a relative tax haven, taxing only income and gains arising in or remitted to the United Kingdom, potentially allowing non-working individuals to become resident in the United Kingdom without any direct tax liability at all. In this way, the UK tax system works to attract non-UK persons, in particular those with capital resources or unearned income, while at the same time imposing significantly greater tax burdens on UK nationals. Cecil Rhodes counselled Englishmen to remember that they had won the lottery of life, but clearly did not have the 21st century's income tax rules in mind.

Historically, the United Kingdom has always had a significant role as a mercantile centre, reflected in the position of the City of London as a major global financial centre, and the cosmopolitan and multicultural make-up of the individuals who live and work there. Building on its commercial strengths, the United Kingdom has sought to maintain a benign tax regime for business, to encourage investment and fund managers, lawyers, accountants and other wealth advisers to establish business in the United Kingdom, with the country being repaid in the tax on the profits of those businesses, rather than tax on the funds or persons advised. It has not sought to attract funds under management into the jurisdiction, but instead to position itself as a centre for the management of such assets. Indeed, with so many of its remaining dependencies and overseas territories being dependent on the revenues they generate from their role as offshore financial centres, the United Kingdom could be seen to have a vested interest in maintaining this distinction.

The outcome of this is that the United Kingdom exists as a relative tax haven and as a home jurisdiction of choice for many wealthy individuals, while at the same time applying some of the highest levels of marginal taxation on its own citizens. It does not seek to attract investment assets but actively courts the managers and advisers of those assets. However, recent changes and proposals for future changes have started to erode this status and the UK is becoming less favourable to longer-term residents. It remains to be seen whether it will maintain this position.

The current watchword of UK tax policy is 'fairness'. This does not seem to be applied, however – to paraphrase Marx – in each contributing to the exchequer in accordance with his or her ability to pay, or even progressively, but rather the policy is that every resident or taxpayer should be seen to make a contribution and, where unfairness is perceived, steps should be taken to correct it.


It has been this desire to achieve a perceived fairness that has characterised the development of the UK tax system in recent years. Efforts have largely been concentrated on ensuring the fair and efficient operation of the existing tax system, closing loopholes, seeking to maximise the collection of existing liabilities and countering the abuses of avoidance and evasion.

i Personal taxation for individuals

Individual taxation

Individual taxation in the United Kingdom is administered on a self-assessment basis. On this basis each taxpayer is required to give Her Majesty's Revenue and Customs (HMRC) sufficient information for HMRC to be able to determine that individual's liability to tax in any tax year, which by quirk of history runs from 6 April to 5 April in the next year.

Income and capital gains are assessed and taxed separately. Income tax is charged progressively, with individuals earning more than £150,000 per year paying a marginal rate of tax of 45 per cent. Interest income benefits from a £5,000 exemption and dividend income is charged at lower rates.

Capital gains tax also currently has a progressive element, with higher earners paying a higher rate of tax. In recent years, the United Kingdom has moved from a headline capital gains tax rate of 40 per cent (aligned with income tax rates) that reduced to a minimum of 24 per cent (or 10 per cent for certain assets) depending on the length of time that the asset had been owned (known as taper relief) to, in 2008, a lower flat rate (initially 18 per cent, increased to 28 per cent in 2010 and then reduced to 20 per cent in 2016 for higher rate taxpayers) and with no reduction for long-term capital gains.

For savings, a starting rate applies to the first £5,000 of such income as well as a tax-free dividend allowance of £2,000

A summary table for the tax year 2018–19 follows:

Income taxOther incomeDividends
Personal allowance£11,500Tax-free
Basic rate£11,501 to £45,00020%10%
Higher rate£45,001 to £150,00040%32.5%
Additional rateAbove £150,00045%37.5%
Capital gains taxOther assetsResidential property
Annual allowance£11,000Tax-free
Basic rateUp to £31,86510%18%
Higher rateAbove £31,86620%28%

Since 6 April 2018, the Scottish government has exercised its powers to vary the rate of tax for Scottish residents, introducing a 'starter' rate at 19 per cent and 'intermediate' rate at 21 per cent of tax between the basic and higher rates that apply to the rest of the UK.

For the purposes of assessing the thresholds, total income is calculated and assessed first, with the thresholds for capital gains tax being calculated in addition to income.

The remittance basis

As discussed above, the defining characteristic of the United Kingdom's personal tax regime for high-net-worth individuals moving to the United Kingdom is the remittance basis of taxation. The remittance basis essentially provides that, for those who claim it in any particular tax year, only income and capital gains arising in or remitted to the United Kingdom are subject to taxation. The remittance basis (or versions thereof) has existed within the United Kingdom's income tax system since it was first introduced in 1799, originally perhaps largely as a result of the administrative problems of assessing foreign income. Only from 1914 was the remittance basis restricted to persons not domiciled in the United Kingdom.

Domicile is a concept of UK law that seeks to identify an individual's home. Every person acquires a domicile of origin at his or her birth, usually the domicile of his or her father when he or she was born. A domicile of origin can be replaced by a domicile of choice in another jurisdiction if the individual moves to that jurisdiction and decides to remain there permanently or indefinitely. In determining whether a domicile of choice has been acquired, the individual's intention is key, and it is possible to remain resident in a jurisdiction for many years without becoming domiciled there.

The continued existence of the remittance basis remained a point of controversy and, when a Labour government came to power in 1997, it committed itself to a review of the remittance basis. This review did not produce any significant change until 2008 when the remittance basis charge was introduced. The remittance basis charge is applied to non-domiciled individuals who have been resident in the United Kingdom for seven out of the previous nine tax years. From that point on, in any year in which they wish to claim the remittance basis, they must pay an annual charge of £30,000. From the tax year 2012–13, this was increased to £50,000 for individuals resident in the United Kingdom in 12 of the previous 14 tax years.

Recent developments

Since 2010, a number of changes have been introduced to seek to make the United Kingdom's tax system simpler and fairer. In 2015, it was announced that non-domiciled individuals resident in the UK for more than 15 years would no longer be able to claim the remittance basis. These rules were due to be implemented from April 2017.

The rules will provide that once a non-domiciled individual has been resident in the UK in 15 of the previous 20 years, he or she will no longer be able to claim the remittance basis and will be subject to income and capital gains tax on a worldwide basis. As a concession to these 'long-term non-doms', the legislation will also provide for an exemption for this charge for income and gains (other than UK-source income) on assets held in trust after 15 years of residence, providing no further sums are added to such trusts, after 15 years of residency.

Residency rules

The previous rules on when an individual was considered to be resident in the United Kingdom were defined partly by statute, but largely by common law. They could be summarised as follows: an individual who was physically present in the United Kingdom in any tax year for a permanent purpose was to be considered resident, whereas an individual who was physically present in the United Kingdom only for a temporary purpose was not. Determining what was a temporary or permanent purpose and for those who wished to give up UK residency when a permanent purpose ceased proved a matter of some contention in which every factor of an individual's life had to be considered.

In response to this, a statutory test was introduced on 6 April 2013 that seeks to provide a strict day-count test to determine whether an individual is resident in the United Kingdom. The number of days that will determine whether an individual is resident will depend on five potential ties to the United Kingdom:

  1. whether the individual has a partner or minor children in the United Kingdom in the tax year;
  2. whether the individual has a home available to them in the United Kingdom in the tax year;
  3. whether the individual works in the United Kingdom for more than 40 days in the tax year;
  4. whether the individual has spent more than 90 days in the United Kingdom in either of the previous two tax years; and
  5. whether the individual has spent more days in any other single jurisdiction than in the United Kingdom in the tax year.

The number of days that individuals can spend in the United Kingdom without being treated as resident will depend on whether they have previously been resident in the United Kingdom and how many ties they have to the United Kingdom in any tax year. Any individual spending less than 15 days in the United Kingdom in any tax year will not be considered resident for that year and any individual present for more than 183 days is conclusively resident.

To decide whether an individual is a 'leaver' or 'arriver' under the new rules, HMRC has confirmed that the individual may elect to use the old pre-6 April 2013 rules or the new statutory residence test on the basis that the statutory residence test was deemed to be in place for the tax years 2012–13, 2011–12 and 2010–11.

Tax avoidance

It had been thought that an established principle of English law was 'Every man is entitled, if he can, to order his affairs so that the tax . . . is less than it otherwise would be.'2 However, in recent years the morality if not the legality of tax avoidance has been questioned by both politicians and the press, culminating in the then Chancellor of the Exchequer announcing in March 2012 that he regarded aggressive tax avoidance 'morally repugnant' and would take steps to counteract what might otherwise be regarded as legal tax planning.

For a number of years, the courts have been invoking a doctrine, known as the Ramsay principle after a leading case, that allowed transactions to be recharacterised to deny a particular tax result when it was felt that it was not the purpose of the legislation that it should deliver that result.

However, this approach by the courts was generally felt to be uncertain and unsatisfactory for taxpayers and government. As a result, the government introduced a general anti-abuse rule (GAAR), which applies to tax arrangements entered into on or from 17 July 2013. The purpose of this GAAR is to target artificial and abusive arrangements and counteract them to deny any tax advantage sought. It will apply to, inter alia, income tax, national insurance contributions, capital gains tax, inheritance tax and the annual tax on enveloped dwellings (ATED).

It is the intention that the GAAR should introduce greater certainty and fairness into the UK tax system, giving taxpayers and tax collectors alike greater clarity as to what is permitted and what is not. Considerable doubt remains as to whether it will achieve this, however. It is notable that there is no clearance procedure for GAAR and a lack of complete independence between the GAAR advisory panel and HMRC. It is still too early to say how exactly the GAAR will apply and indeed how HMRC may choose to apply it. However, suffice to say at this stage there is a degree of additional caution surrounding UK tax planning.

At a more general level, the distinction between (illegal) tax evasion and (legitimate) tax avoidance is becoming increasingly blurred in the political arena. A clear manifestation of this is the moral outrage exhibited when the Panama Papers revealed in April 2016 that the then Prime Minister's father had managed a (UK tax-compliant) non-UK resident investment fund. There is increasing social pressure on companies and individuals to conduct their affairs, not just within the letter of the law, but also in a spirit of not reducing their liability to taxation.

Taxation of residential property

The rate of transfer tax (stamp duty land tax (SDLT)) that applies to residential property has been progressively raised over recent years to increase the level of tax paid by owners of high-value residential property. As of 1 April 2016, a surcharge of 3 per cent applies to the rate of SDLT on the purchase of second homes. This surcharge, which will apply to almost any non-resident purchasing a residential property in the UK, raises the top rate of SDLT paid by individuals to 15 per cent.

The current rates of tax, which apply on increasing portions of the property price above £125,000, are set out in the table below:

Purchase price of propertyRate of SDLT (%)Rate of SDLT on second homes (%)
£925,001–£1.5 million1013
Above £1.5 million1215

There have been a number of targeted measures designed to counter particular perceptions of tax avoidance, notably with regard to the ownership of high-value residential property. To counter a concern that structures whereby residential properties owned by non-UK companies were facilitating the transfer of ownership in those properties without the payment of SDLT, in March 2012, a number of new rules applying to residential properties worth more than £2 million were announced:

The rate of SDLT paid by certain non-natural persons purchasing UK residential properties for more than £2 million was raised from 5 to 15 per cent, and the rate for all other purchasers was raised to 7 per cent. The Finance Act 2013 introduced a number of important reliefs that effectively restricted the 15 per cent rate of SDLT to private residential property. The 15 per cent rate was extended by the Finance Act 2014 to properties over £500,000, with effect from 20 March 2014.

From 1 April 2013, an annual charge known as the ATED was levied on up to 0.75 per cent of the gross value on certain non-natural persons who own UK residential properties worth more than £2 million. The Finance Act 2013 again introduced reliefs that limited the effect of the ATED to broadly those structures holding private residential property. The Finance Act 2014 introduced two new ATED bandings: an annual charge of £7,250 applying to properties worth over £1 million up to £2 million from 1 April 2015 and, from 1 April 2016, an annual charge of £3,600 for properties valued at between £500,000 and £1 million.

Certain non-resident non-natural persons selling interests in UK properties, subject to the ATED, for more than £2 million, will be subject to capital gains tax in the United Kingdom on post-6 April 2013 gains. The value subject to the charge to tax will be extended to disposals of properties worth over £1 million to £2 million from 6 April 2015 and between £500,000 and £1 million from 6 April 2016.

From April 2016, individuals (or married couples) purchasing a second residential property are subject to a 3 per cent surcharge above the standard rates of SDLT, with limited exceptions for de minimis property interests and the replacement of an existing main residence.

These rules are effectively limited to owner-occupied residential properties, with 'genuine businesses' that own residential property largely being exempt, and, while highly targeted, these rules represent two dramatic shifts in UK tax policy. For the first time, the United Kingdom has an annual tax based on the value of assets owned – a wealth tax in all but name. Wealth taxes have been proposed in the United Kingdom previously but never enacted, and while there was considerable discussion in advance of the 2010 general election, the idea seemed to have been discarded. The question will be whether, once introduced, the wealth tax will be extended to cover other assets and taxpayers.

The stated objective of these changes is to encourage property owners to own UK property directly rather than through non-UK structures, primarily to ensure that the SDLT is not avoided on sale. However, this will also have the consequence of bringing those persons within the scope of UK inheritance tax on death, which can give rise to much more significant tax charges.

Further, UK capital gains tax has previously only been assessed on persons resident in the United Kingdom. The extension of capital gains tax to non-residents again represents a significant departure from the previous norms of UK tax policy. Up to 2012, the United Kingdom had been highly unusual in that it did not seek to tax non-residents on profits derived from the alienation of real (or indeed any other form of) property in the United Kingdom. As of 6 April 2015, all non-resident owners of UK residential property are subject to capital gains tax on the sale of such properties at 28 per cent.

Inheritance tax and property

From July 2013, new conditions were placed on the deductibility of loans for inheritance tax-planning purposes. It was previously standard planning practice to reduce the liability to UK inheritance tax (IHT) by using loans to finance the acquisition of assets that benefit from advantageous reliefs (business property relief, agricultural property relief and woodlands relief) and excluded status from IHT. The new conditions and restrictions significantly restrict the ability to claim a liability as a deduction for inheritance tax purposes, unless the liability was (originally) used for the original purchase of a residential property.

The impact of these rules is also more widespread following further changes announced in 2015, which should have come into effect in April 2017. As with the new rules for long-term non-doms, the legislation for these rules is yet to be enacted, although again, it should be presumed that this will occur at some point in 2018. Up to this point, UK residential property owned directly by non-UK domiciliaries or non-UK residents has always been subject to IHT, but shares in a non-UK company that in turn owns UK property have not. In this way, many owners of houses in the UK have fallen outside the scope of IHT.

With effect from April 2017, it is proposed that the IHT rules will be amended so that the value of any interest in a company or other entity that indirectly owns residential real estate in the UK, or did at any time in the preceding two years, is brought within the scope of IHT for non-UK resident individual shareholders or shareholding trusts, on death, where gifts are made in the seven years preceding death, or on the 10-year anniversaries of a trust (as set out below).

These rules will only apply to residential property, or 'dwellings'; however, there is still some confusion as to what constitutes a dwelling. There is no exemption for principal residences (such as applies to non-resident capital gains tax) or any de minimis values or reliefs for property rental businesses (such as apply to ATED).

These rules will also apply to certain loans advanced (or guarantees given) to individuals or trusts to purchase residential property, so that the lender will be treated as holding an asset within the charge to inheritance tax.

ii Gift and succession taxes

Since 1984, the United Kingdom has applied an estate tax rather than an inheritance tax, but it is called inheritance tax. As an estate tax, IHT is applied to the deceased's estate on death and (usually) must be paid before the deceased's property can be distributed among his or her heirs. A single rate of 40 per cent is applied across a UK-domiciled deceased's worldwide estate, above a tax-free 'nil rate band' currently of £325,000.

Unlike jurisdictions that apply a genuine IHT, in the United Kingdom differential rates do not apply to legacies to different persons (e.g., reduced rates for gifts to family members) other than to spouses, who are exempted from IHT providing they are UK-domiciled or share the domicile of their spouse. There are further exemptions, including for gifts of property to charity or political parties and reliefs (up to 100 per cent of the tax payable) for closely held businesses and agricultural property.

There is no gift tax in the United Kingdom. However, IHT will apply to some transfers made during a lifetime. Any gift made in the seven years prior to death will be included in the value of the deceased's estate for the purposes of assessing the total IHT liability, although the rate of tax is reduced on gifts made at least three years before death. Since 2006, most transfers into trusts are immediately subject to IHT at the lifetime rate of 20 per cent, with additional tax to pay, up to the 40 per cent rate, if the donor dies within seven years of the transfer. The same exemptions for gifts to spouses and charities and reliefs for closely held businesses and agricultural property will be available, as on death.

As is the case in respect of personal taxation, non-UK-domiciled persons (whether resident or non-resident) enjoy a privileged position in that they are only subject to IHT on their UK situs assets, subject to the exception for indirectly held UK residential property set out above. However, unlike with direct taxation, there is a sunset provision, so that non-UK-domiciled persons who have been resident in the United Kingdom in 15 of the preceding 20 tax years are deemed domiciled in the United Kingdom for the purposes of IHT in any event (again subject to the enactment of the necessary legislation).

This has caused some quirks in the administration of IHT. However, to address one long-standing anomaly, a non-domiciled spouse may now elect to be domiciled for UK IHT purposes, and the limited spouse exemption for transfers between domiciled and non-domiciled spouses has been extended from £55,000 to £325,000 and linked to the value of the nil rate band.

Since 2006, when the treatment of lifetime transfers into trusts was changed so that most transfers became subject to an immediate charge to IHT, UK inheritance tax has recently remained largely unaltered. One consequence of the current fiscal austerity has been that the nil rate band of £325,000 that was previously increased each year in line with inflation has been frozen since 2009 and is planned to remain frozen until 2018.

iii Cross-border structuring

The United Kingdom has been at the forefront of the international moves to recover unpaid tax liabilities in respect of funds held outside the home jurisdiction. In addition to a number of general and targeted amnesties in the United Kingdom, it has entered into high-profile agreements with Switzerland, Jersey, Guernsey, the Isle of Man and Liechtenstein to enable it to recover unpaid tax liabilities, in respect of funds held offshore.

The UK–Swiss agreement

The Swiss agreement provides that there will be a one-off withholding tax applied on funds held in Switzerland that have not been disclosed to HMRC in respect of all past tax liabilities.

From 2013, withholding taxes of 48 per cent on interest income, 40 per cent on dividend income and 27 per cent on capital gains will be applied to all accounts held by UK taxpayers unless the account holder discloses the account to HMRC.

Disclosure facilities and the requirement to correct

The Liechtenstein disclosure facility was the forerunner of the UK–Swiss agreement and provides an alternative mechanism whereby, for five years from 2009, UK taxpayers can regularise their affairs with HMRC.

The facility allows individuals with assets formed, administered or managed in Liechtenstein to disclose past tax irregularities without fear of criminal prosecution; however, unlike the UK–Swiss agreement, there is no provision for ongoing withholding taxes or a general withholding levied on all undeclared accounts. This effective amnesty, now closed, provided for the repatriation of significant undeclared funds.

The United Kingdom also entered into memorandums of understanding with Jersey, Guernsey and the Isle of Man, setting out further respective disclosure facilities providing UK taxpayers with assets in these jurisdictions the opportunity to bring their UK tax affairs up to date. The disclosure facilities ran from 6 April 2013 until 30 September 2016.

The only disclosure facility open to persons with unpaid UK tax liabilities is the Worldwide Disclosure Facility, which opened on 5 September 2016 and which offers taxpayers with unpaid UK tax liabilities relating to non-UK matters a mechanism for making unprompted disclosures.

As of 30 September 2018, a new 'requirement to correct' will oblige all taxpayers with undeclared UK tax liabilities involving offshore matters to disclose these to HMRC or face an enhanced penalty regime, with penalties of up to 200 per cent of the unpaid tax being charged.


The United Kingdom also remains at the forefront of moves to create a new global reporting standard, as well as registers of public ownership of companies and trusts. As of 1 April 2016, UK incorporated companies must prepare a publicly available register of persons with significant control that can be used to identify beneficial shareholders of those companies. Plans have also been announced for a public register of owners of UK residential property owned by non-resident companies.

iv Entrepreneurs and business owners

It is a stated aim of the current government to encourage business and entrepreneurship through the tax system and a number of recent changes have been implemented to achieve this.

When the current government came to power in 2010, it created the Office of Tax Simplification to provide independent advice on reducing the complexities of the UK tax system and the consequential burdens on business. The office has reported this year on a number of issues, but whether it will have any significant effect on the complexity of legislation is not yet clear.

The main rate of corporation tax was reduced from 28 per cent in 2010 to 24 per cent in 2012, 23 per cent in 2013, and now, in 2018, to 21 per cent, with a long-term goal of reducing it to 17 per cent.

From business owners' point of view, the amount of capital gains that can qualify for entrepreneurs' relief, under which the rate of capital gains tax on the sale of businesses or business assets is reduced to 10 per cent, has been kept at the £10 million level that was introduced in 2011; however, a new parallel 'investors' relief' that also reduces the tax rate to 10 per cent on the sale of certain private company shares was introduced in 2015.

Dividends are also subject to more favourable tax rates in the United Kingdom than either interest or earned income, as set out in the table above.


i UK succession rules

A fundamental principle of succession law in the United Kingdom is the freedom of testamentary disposition, so that individuals are generally free to dispose of their estates to whomever they wish and are not subject to forced heirship rules. Only in the absence of a will does the UK mandate how an individual's estate should be divided.

However, for UK domiciliary residents there are some constraints on this freedom under the Inheritance (Provision for Family and Dependants) Act 1975. This Act provides that a surviving spouse or civil partner will have similar rights to provision from a deceased person's estate as he or she would have on divorce. Other family members and dependants also have the right to be provided for from a decedent's estate, although the level of provision is not prescribed.

Non-UK domiciliary residents are again treated differently from UK domiciliary residents. While the United Kingdom will apply UK law to the devolution of real property situated in the United Kingdom, it will apply the law of the deceased's domicile to the devolution of his or her personal property situated in the United Kingdom.

The United Kingdom has not adopted the EU Regulation on Succession and Wills.

ii Matrimonial issues

Division of assets on divorce

In England and Wales, the court has wide powers to make financial provision when a marriage or a civil partnership breaks down, which can include ongoing maintenance payments, provision for children and the adjustment or variation of interests in trusts and other property, as well as the payment of lump sums.

The court has a wide discretion to determine what would be a fair financial outcome for both parties, having regard to all of the circumstances of the case at that time. It will take into account all of the assets of both parties (whether liquid or illiquid and from whatever source and wherever located in the world) including trust interests, and assets acquired prior to the marriage or by way of inheritance, in determining the appropriate financial division and level of provision to be made.

There is no mathematical formula for working out the appropriate division of assets and income. The aim is to achieve a division that is fair, but the court has emphasised that a 50:50 division of assets is frequently the correct result unless there are compelling reasons to the contrary, such as one party having entered a short to moderately long marriage with significantly greater assets than the other. If the court departs from equality, it should give reasons for doing so.

In the joined cases of Miller and McFarlane,3 the House of Lords drew a distinction between matrimonial property (being property and assets acquired during the marriage through common endeavour) and other property and assets (such as that brought into the marriage or acquired by inheritance or gift during the marriage). Relevant factors used to distinguish these categories of the property would involve assessing its nature and value; the time when and circumstances in which it was acquired; and the way in which it was used during the marriage.

To the extent that the pre-acquired and inherited wealth is kept largely separate and not used as a resource for funding lifestyle during the marriage or civil partnership, it may be possible to protect it and for it to be retained intact in the event of future divorce or dissolution proceedings, subject to any needs-based claim of the other spouse or partner. This is less so if pre-acquired or inherited assets have been used as a family resource during the marriage or civil partnership.

In the exercise of its discretion, the court will always strive to meet the needs of both parties, even if that results in the division of value and potential realisation of pre-acquired or inherited assets.

Prenuptial agreements

For many years, prenuptial agreements were not treated as binding or even influential by English courts, but in recent years there have been moves to increase their importance. The leading authority on prenuptial agreements is now the case of Radmacher v. Granatino.4 The essential point of principle arising from the Supreme Court decision in that case is that the Court should give effect to a nuptial agreement that is entered into freely by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement.

The Supreme Court did not set out clear guidelines for judges or lawyers about when and in what circumstances prenuptial agreements would be regarded as fair or unfair. Instead, it said this would depend upon the facts of each particular case and, if a prenuptial agreement is to be entered into, clear advice should be taken on the procedure.

The Law Commission (the body that advises the government about law reform) published a report in February 2014 considering the role of prenuptial agreements under English law. The report proposed, in particular, that nuptial agreements should be legally binding provided they adhere to procedural safeguards and formation requirements.

Same-sex marriage

The Civil Partnership Act 2004 introduced a new legal relationship, distinct from marriage, between same-sex couples. Civil partners have the same legal rights and responsibilities as married couples in many respects, but the institutions are not identical.

A change in the law, which came into effect on 5 December 2011, now enables civil partnerships to be registered on religious premises where religious organisations permit this, and the premises have been approved for the purpose. The new law also states, for the avoidance of doubt, that religious organisations will not be obliged to host civil partnership registrations if they do not wish to do so.

The Marriage (Same Sex) Couples Act 2013 came into force on 13 March 2014, enabling same-sex couples to marry and civil partners to convert their partnerships into marriages.

The government published a formal review on the future of civil partnerships on 26 June 2014, as required by the Act, announcing that it did not intend to make any changes to their operation.

Wealth structuring and regulation

i Onshore wealth structuring

Historically, the most commonly used vehicle for wealth structuring onshore in the United Kingdom was the trust, which provided a tax-efficient mechanism through which to separate legal ownership from the beneficial enjoyment of assets; however, following changes to the taxation of trusts in 2006, they have declined in popularity.

The 2006 changes meant that most transfers into trusts above the amount of the zero rate band are taxed to IHT at the lifetime transfer rate of 20 per cent, and further IHT charges, at a rate of up to 6 per cent, are imposed every 10 years. In addition to this, UK-resident trusts are now subject to income and capital gains tax at the highest individual rates: 45 per cent for income and 28 per cent for capital gains.

This has led UK practitioners to look increasingly for alternative structures for wealth structuring. The objective of many structures is now to implement a control structure, while retaining the tax profile of direct ownership. This has led, for example, to the increased use of family limited partnership and family investment company structures.

For individuals seeking to achieve a more beneficial tax profile, the reduction in the rate of corporation tax has increased the attraction of the use of family holding companies. Where profits are accumulated, these can benefit from the lower rates of corporation tax and the exemption from corporation tax of dividends. In addition, by creating different classes of shares with different rights it is possible to achieve a variety of estate planning objectives.

ii Offshore wealth structuring

The United Kingdom's anti-avoidance rules have largely precluded UK domiciliary residents from structuring wealth offshore, but for non-UK domiciliary residents residing in the United Kingdom, offshore trusts can offer very significant advantages in terms of protecting assets from UK capital gains tax and inheritance tax.

Foundations, which are being adopted in other common law jurisdictions such as the Channel Islands, have no parallel in UK law and are treated for tax purposes either as trusts or companies, depending on the particular structure employed.

Outlook and conclusions

The United Kingdom's response to the credit crisis and subsequent recession has largely been to increase the burden of indirect taxation (by an increase in value added tax) and to reduce corporation tax rates in a bid to encourage enterprise. Although the higher rate of income tax at 50 per cent was introduced in 2010, this was reduced to 45 per cent in 2013, and the United Kingdom has not seen the more draconian proposals put forward by some of its neighbours.

At the macro level in particular it seems to have struck a better balance in its tax system. The introduction of the remittance basis charge allows non-domiciliary residents to demonstrate that they contribute to the UK exchequer and has largely defused the debate as to whether the regime should be abolished in its entirety. At the same time, the United Kingdom has sought to increase the perception of its tax system as one that is friendly and stable, not necessarily seeking to be a low-tax jurisdiction but a stable one in which individuals can base themselves for the long term, without undue concern as to the risk of legislative change. This, however, has not been borne out in practice, with successive governments introducing progressive changes, particularly to the taxation of high-net-worth individuals, that have made long-term planning challenging.

At a micro level, the continued emphasis on countering tax avoidance has made planning for individuals more complicated, as advisers have to take into account not only the relative certainties of the letter of the law, but also in considering the GAAR, and the spirit and intent of that legislation in analysing appropriate planning techniques.

In the coming years, the key driver for UK policy will likely be the outcome of the negotiations regarding its exit from the European Union. Pending completion of those negotiations, there remains considerable uncertainty in the UK as to the future direction of tax policy. It seems likely, however, that once outside the European Union, the United Kingdom will seek to consolidate its position as a relatively low-tax jurisdiction among the large developed economies, especially for corporates. While pressure may continue on tax revenues, it seems that any further legislative change will be in the form of targeted measures, such as taxes on UK property, rather than a general increase in tax rates.


1 Christopher Groves is a partner at Withers LLP. The information in this chapter was accurate as at August 2018.

2 IRC v. Duke of Westminster [1936] 19 TC 490.

3 Miller v. Miller, McFarlane v. Mcfarlane [2006] UKHL 24, [2006] 2 AC 618, [2006] 1 FLR 1186, [2006] 3 ALL ER 1, HL.

4 [2010] UKSC 42.

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