This edition covers the latest developments in employment, commercial and private client law, including workplace harassment, the online safety act, and the resurgence of the nil rate band for discretionary trusts. It also discusses anticipated trends in ESG and governance, and what we can expect from the litigation landscape. Plus, don't miss our latest podcast featuring an incredible conversation with Abishek Sachev and Nimesh Sanghrajka on the historical basis of borrowing and what borrowers can expect this year. It's a must-listen for anyone with even a passing interest in the economy.
EXPLORING THE LATEST TRENDS AND DEVELOPMENTS IN PROPERTY & CORPORATE LAW
ISSUE #6
KEEPING THINGS SIMPLE. What to expect in 2024.
CONTENTS
In this Issue An introduction by Vijay Parikh, Managing Partner
03
Me Too – The Government addresses sexual harassment in the workplace By Marina Vincent, Partner Dispute Resolution, Employment
04
#TRENDS: The impact of ESG Considerations on Corporate Governenance and Lending Practices By Ozan Zorba, Associate Solicitor, Banking & Finance
06
Impact of the Chancellor's statement and predictions for the year ahead By Yedidya Zaiden, Partner at Raffingers Accountants
10
Looking Ahead: Commercial & Technology - Focus on the Online Safety Act 2023 By James Oxley, Partner & Head of Corporate and Commercial
14
Looking Ahead: Litigation - Emerging trends in Dispute Resolution in the UK By Bhavini Kalaria, Partner Dispute Resolution & International
16
Podcast: Navigating Economic Headwinds in 2024 Featuring Harold Benjamin's John O'Donovan, Abhishek Sachdev of Vedanta Hedging and Nimesh Sanghraijka of Mantra Group
20
Why data matters more in 2024 By Rafael Bloom, Director/Founder at Salavtore Ltd.
22
Looking Ahead: Private Client - The resurgence of Nil Rate Band Discretionary Trusts By Davina Puran, Solicitor, Wills Probate and Estate Planning
26
Events Round-Up A Year of Growth and Engagement
30
Obituary Penny Sones
34
Stay up to date with the latest news & editions. Follow Harold Benjamin on social!
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Our comprehensive content includes discussions on a range of legal areas, such as insolvency-related claims, property litigation in a recessionary environment (with a focus on rent disputes and safety concerns), rising fraud-related litigation, developments in employment law, and what to anticipate in private client matters and online safety legislation. Our podcast features Vedanta Hedging’s Abhishek Sachdev and Mantra Capital’s Nimesh Sanghrajka discussing the economic outlook for 2024 with myself and Harold Benjamin’s Banking & Finance Partner John O’Donovan. We hope you find the discussion on the impact of interest rates and predictions for the year ahead helpful. In this edition, we will also reflect on the events of 2023, a year marked by economic instability, technological advancements, political turbulence, and environmental concerns as well as what we can expect in 2024. Lastly, we commemorate the passing of Penny Sones, one of our longest-standing members of staff, a loyal and cherished colleague whose contributions have left an indelible mark on our firm. We invite you to delve into the pages of our first 2024 issue and explore the wealth of knowledge it has to offer. It’s our hope that this edition will not only inform but also inspires confidence in navigating the complex legal landscape that lies ahead. Thank you for your continued trust in Harold Benjamin, we look forward to another year of serving your legal needs with excellence and dedication.
In this issue As the Managing Partner of Harold Benjamin, it’s with great pleasure that I introduce the first edition of our magazine for 2024, aptly titled "Keeping Things Simple: What to Expect in 2024." This publication embodies our commitment to delivering valuable insights and knowledge to our clients and partners. In the ever-evolving legal landscape, we find ourselves at a juncture where profound changes are taking shape. One of the focal points of this edition is the impact of Environmental, Social and Governance (ESG) standards on corporate governance and lending practices, which holds both immense promise but also many challenges. Companies and lenders face hurdles such as data quality, measurement standards, and the ever-evolving nature of ESG criteria. Our contributors delve into these intricacies and explore how emerging trends in technology, including AI and blockchain, are poised to play significant roles in enhancing ESG data collection and analysis. I would especially like to thank guest contributor, Rafael Bloom for adding his valuable insights to this edition. We also provide an in-depth analysis of emerging trends across in the UK legal sector shedding light on the impacts of global political-economic instability, exponential technological advances and the climate crisis, on litigation in 2024.
VIJAY PARIKH Managing Partner
vijay.parikh@haroldbenjamin.com
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#MeToo: The Government addresses sexual harassment in the workplace.
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BY MARINA VINCENT Partner, Dispute Resolution, Employment
The problem of sexual harassment in the workplace has been placed front and centre by recent scandals ranging from Hollywood to British political parties and from MacDonalds to the CBI. The #MeToo campaign raised awareness of this issue to an extent not seen before, and the Government has responded. The Worker Protection (Amendment of Equality Act 2010) Act 2023 is an important piece of legislation, coming into force in October 2024. This Act amends the Equality Act 2010 and imposes a new positive duty on employers to take reasonable steps to prevent sexual harassment of their employees in the course of their employment. Whilst October 2024 is some way off, employers need to think now about what processes they need to put in place to ensure they comply with the Act. The Equality and Human Rights Commission (EHRC) will be able to take steps against an employer to enforce the Act. If an employee brings a tribunal claim and succeeds in proving sexual harassment, the Tribunal will then have to consider if the employer had breached this positive duty and if so,
degrading, humiliating or offensive environment”. Accordingly, harassment of a non-sexual nature is not covered by this legislation. In the original draft Bill, employees would have had the right to bring claims against their employer relating to harassment carried out by third parties. This could include the employer’s clients or customers, employees, suppliers etc. This wording did not make it to the Act itself. However, as the Act does refer to sexual harassment “in the course of their employment” this wording is likely to be wide enough to encompass third party sexual harassment. The EHRC guidance may deal with this and it will no doubt be developed in case law. The Act requires the employer to protect “employees”, but this has the wider meaning of workers. While we wait for the guidance from the EHRC, employers should begin to consider changes to their policies and procedures, training, and addressing any cultural concerns they may already have. If an employer has existing grievances which raise sexual harassment, or suggest this is taking place, these always needed to be addressed, but there is now the further imperative that a successful Tribunal claim could result in a 25% higher compensation award. Employers may be aware of rumours, rather than formal grievances, and these should be addressed. As this Act introduces a positive duty, a “head in the sand” approach will not protect employers.
the Tribunal will be able to award a compensation uplift of up to 25%.
The duty to take “reasonable steps” is not defined in the legislation, but the EHRC will be updating its guidance on sexual harassment and harassment at work to take account of the new duty. This is expected to include steps employers will need to take to comply with the law. It is worth noting that this legislation does not apply to harassment generally but specifically to “unwanted conduct of a sexual nature which has the purpose of effect of violating the individuals dignity or which creates an intimidating, hostile,
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The Impact of ESG Considerations on Corporate Governance and Lending Practices.
BY OZAN ZORBA Associate Solicitor Banking & Finance
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In today's rapidly evolving business landscape, Environmental, Social, and Governance (ESG) considerations have emerged as pivotal factors influencing corporate governance and lending practices. ESG represents a paradigm shift, transcending traditional profit-centric objectives toward a more holistic approach to business sustainability. This article delves into the profound impact of ESG considerations on corporate governance structures and lending practices, shedding light on how businesses and financial institutions are adapting to these changes.
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Aligning Values with Actions The integration of ESG principles into corporate governance marks a shift from the purely profit-driven model to a more values-driven one. ESG considerations encourage shareholders/boards/executives to consider the broader implications of their decisions, encompassing environmental sustainability, social responsibility, and ethical governance. This shift prompts the re-evaluation of board composition, risk assessment, and strategic planning to ensure alignment with ESG goals. Lending for a Sustainable Future Financial institutions have a crucial role in supporting sustainable practices through their lending activities. Most large banks have made a commitment for their balance sheet to be net zero by 2050, which has seen an increase of lenders assessing their ESG risks and opportunities when extending credit. This includes evaluating a borrower's environmental impact, social responsibility, and governance practices. ESG due diligence has become an integral part of the loan origination process, ensuring that borrowers align with ESG criteria. In 2021, the global loan markets provided over $681 billion of green and sustainability-linked lending.
Lender Perspectives Lenders are reevaluating their risk
assessment models to incorporate ESG factors. They recognize that ESG risks, such as climate change and social unrest, can significantly impact the creditworthiness of borrowers. Financial institutions that adapt their lending criteria to consider ESG are better positioned to navigate the evolving financial landscape. Sustainability-linked loans (SLLs) are being used by Lenders in more and more transactions, whereby the Lender will look to include ambitious KPIs that align with the bor- rower’s own sustainability strategies. Borrower Perspectives Borrowers are also adjusting their practices to meet ESG expectations. Many businesses are adopting sustainable initiatives to enhance their ESG profiles, recognizing that ESG-friendly financing options are becoming increasingly attractive. There are several case studies of companies successfully aligning their operations with ESG requirements that illustrate the tangible benefits of this shift. The examples below illustrate how companies have incorporated ESG principles into their borrowing practices or how
lenders have adapted their lending criteria to account for ESG factors:
1. ING Groep N.V. and Sustainability-Linked Loan (SLLs):
Regulating for ESG Governments and regulatory bodies
worldwide are recognising the importance of ESG considerations. Various jurisdictions have introduced regulations and guidelines that require companies and financial insti - tutions to disclose ESG-related information. Compliance with these standards not only mitigates legal risks but also serves as a signal of commitment to ESG principles. Transparency and Trust Transparent ESG reporting and disclosure have become crucial components of corporate governance. Reporting standards such as the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), and Task Force on Climate-related Financial Disclosures (TCFD) provide frameworks for companies to communicate their ESG performance. This transparency
ING, a Dutch multinational bank, issued a SLL to Philips, the global electronics company. The terms of the loan were tied to Philips' sus- tainability performance, including its progress toward reducing carbon emissions and increasing the use of renewable energy. The interest rate on the loan was adjusted based on the achievement of predefined ESG targets. This case showcases how lenders can incentivise borrowers to improve their ESG performance through financial instruments.
2. BNP Paribas and Danone's ESG-Linked Loan:
BNP Paribas provided Danone, a global food and beverage company, with a €2 billion syndicated loan linked to ESG performance. Danone aimed to improve its ESG practices and reduce its carbon emissions.
fosters trust among stakeholders, including investors and lenders.
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Meeting these goals allowed Danone to benefit from lower financing costs, showcasing how lenders are encouraging ESG initiatives. governance and lending practices is undeniable. ESG is not a mere trend; it represents a fundamental shift in how businesses are managed and financed." "The impact of ESG considerations on corporate
Lenders were not realising their potential in SLLs, however, with increased trust and transparency this could deliver wider uptake. Borrowers were concerned about missing their KPIs, the length of time and costs of entering into a SLL rather than a more conventional loan. Market participants were wary of accusations of greenwashing (exaggerated claims about sustainability). Possible conflicts of interest from Lenders who accept/provide weak terms to Borrowers in order to meet their sustainable finance quota/targets. Conclusion The impact of ESG considerations on corporate governance and lending practices is undeniable. ESG is not a mere trend; it represents a fundamental shift in how businesses are managed and financed. As businesses and financial institutions adapt to this new reality, the focus on environmental sustainability, social responsibility, and ethical governance will continue to shape the corporate landscape. Embracing ESG is no longer an option but a necessity for those looking to thrive in an increasingly sustainable and responsible future. If you are looking at a sustainability-linked loan proposal, Harold Benjamin would be more than happy to assist and advise both lenders and borrowers with any questions or requirements that they have.
3. Toyota's Sustainability-Linked Loan:
Toyota Motor Corporation secured a SLL from Sumitomo Mitsui Banking Corporation, which tied the interest rate to Toyota's sustainability performance, including reducing carbon emissions and promoting diversity. This case showcases how SLLs are being adopted by multinational corporations. These case studies highlight the growing trend of incorporating ESG factors into corporate lending practices, demonstrating the benefits for both borrowers and lenders. They also emphasise the role of financial institutions in encouraging sustainable business practices through innovative financing solutions. Challenges and Future Trends While the integration of ESG into corporate governance and lending practices holds immense promise, it is not without challenges. Companies and lenders face obstacles such as data quality, measurement standards, and the evolving nature of ESG criteria. However, emerging trends in technology, including AI and blockchain, are poised to play significant roles in enhancing ESG data collection and analysis.Further challenges were reported by the FCA following their review earlier this year on SLLs. The FCA’s key findings were:
ozan.zorba@haroldbenjamin.com
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Impact of the Chancellor's statement and
predictions for the year ahead.
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GUEST ARTICLE BY:
Supporting those in Work Alongside this, the message was that the government wants to support those in work. The national living wage will increase in the Spring by almost 10% to £11.40 an hour and eligibility will be ex - tended by reducing the age threshold from 23 to 21, benefitting around 3 million low paid workers. A headline feature of the Autumn Statement was the reduction in National Insurance Contributions (NIC) to 10% for employees and 8% for self-employed individuals, and the removal of Class 2 NIC for the self-employed. This bold move not only eases the financial burden on the working class but also seeks to incentivise entrepreneurship. The reduction in NIC for the self-employed aligns with the government's commitment to supporting the gig economy and small businesses, recognizing their crucial role in the overall economic landscape.
YEDIDYA ZAIDEN Partner, Raffingers Accountants
By the time you read this, the autumn statement delivered by the Chancellor in November 2023 will be likely be a distant memory with the focus turning towards the Spring Budget in March 2024. However, with speculation of a general election in May 2024, the autumn statement was seen by many to be laying the foundations for the tax landscape ahead of the election. A look at some of the key announcements may well hold the key to predictions of future tax policy. Open for Business The underlying theme of the Statement was that Britain is open for business with the Jeremy Hunt boasting that his Statement contained 110 measures which would stimulate growth. The focus of the government to encourage innovation and development was underlined by the decision to extend investment zones and expand the tax reliefs available to “freeports”. By creating environments conducive to investment, the government aims to spur economic growth, attract foreign capital, and foster job creation. Businesses welcomed the announcement that ‘full expensing’ will now be permanent. The relief which was scheduled to be limited to accounting periods ending on 31 March 2026, enables businesses to claim a first-year allow - ance of 100% on qualifying capital expenditure (50% on special rate items) they incur and will allow businesses to plan their investment in capital expenditure with more certainty.
Simplifying the Tax Landscape There were some welcome
announcements which indicated that the government is seeking to simplify aspects of the tax system. The simplified cash basis of accounting which removes the requirement for businesses to make accruals when preparing their accounts has already been adopted by over one million small businesses. Having consulted on this, the treasury have now published four changes to expand the scheme that will apply from 6 April 2024. The self-assessment income threshold will increase from £100,000 to £150,000 with the intention to remove the thresh- old altogether from 2024/25. This means that many who were previously ‘taxed at source’ but were still required to submit tax returns on the basis of their income, will no longer have to do so (or incur penalties for missing deadlines they
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"The freeze on income tax and NIC thresholds, which have been kept unchanged since 2021 and will remain so until 2028, could have a more significant impact on our taxes. This could lead to a larger group of people paying taxed or being pushed into the higher tax brackets, effectively cancelling and benefit they have had from the Autumn Statement giveaways."
were not aware of!). HMRC are also simplifying the process for those who are within the High Income Benefit Charge and need to repay child benefit payments they have received. Impact of the Autumn Statement As noted by several commentators, the freeze on income tax and NIC thresholds, which have been kept unchanged since 2021 and will remain so until 2028, could have a more significant impact on our taxes. This could lead to a larger group of people paying taxes or being pushed into the higher tax brackets, effectively cancelling any benefit they may have had from the Autumn Statement's giveaways. Additionally, the surge in inflationary increases in food and other bills and the soaring energy and fuel prices will further increase costs on businesses. While the announcement of making full expensing permanent is a welcome move towards boosting growth, it may not be beneficial
providers, may find it challenging to pay the increased National Living Wage. Furthermore, the cut in NIC does not extend to employers NI contributions, which could be a disappointment for struggling businesses. Predictions I think that the following quote from Jeremy Hunt’s statement to the House sets out the direction the government is looking to take in the lead up to the General Election. “We cut taxes to help bigger businesses invest, we cut taxes to help smaller businesses grow. We cut taxes for the self-employed and keep our country running and from January we cut taxes for 27m working people whose hard work drives our economy forward.” Which taxes will he cut and how far these cuts will go remains to be seen.
for smaller businesses that do not have significant IT, machinery, or equipment costs.
yedidya.zaiden@raffingers.co.uk
The Chancellor aims to encourage people to return to work through changes in benefits and tax cuts for employees. However, many employers as well as councils and care
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For previous issues of the HB Legal Corner or other legal insights visit our website: haroldbenjamin.com/legal-corner-magazine
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LOOKING AHEAD Commercial & Technology: Focus on the Online Safety Act 2023.
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OFCOM To help facilitate the policing and
BY JAMES OXLEY Partner & Head of Corporate and Commercial
interpretation of the duties imposed by the new legislation OFCOM has been given new powers and functions to act as a regulator. OFCOM have already set out a road map for the phased introduction of codes and guidance starting with:- guidance on illegal arm duties which will address the most significant issues such as terrorism and fraud, plus measures to protect children from sexual exploitation and abuse; then
On 26 October 2023 the Online Safety Act received Royal Assent. The new law has been passed with the aim of dealing with the growth of on-line risks to both adults and children. Breaching the new law can lead to significant fines, and even prison sentences. The new act sets out, right at the start, that to achieve its purpose of making the internet safer for individuals it requires providers of services to manage the risk of harm to individuals from illegal content and activity, and content and activity that is harmful to children. Key duties imposed by the Online Safety Act The act imposes a range of duties on UK providers (and non-domestic providers of services to the UK) of search engines and user-to-user services (such as social media platforms) including:- prevent illegal and harmful content; protect against fraudulent advertising; protect content of democratic importance; and protect content of journalistic content and news publishers. Whilst the act states that privacy rights and freedom of expression must be protected, it is easy to see that the balancing act between the various rights will be a hard line to tread. Whilst the big technology companies are clearly being targeted, smaller platforms and on-line forums where users can interact, and share information are also within the act’s
guidance on child safety, pornography, and protection for women and girls; then
duties on regulated services which are those that meet criteria as set out by the Government in secondary legislation.
OFCOM’s new powers are not dissimilar to those given to the
Information Commissioner’s Office in respect of data protection matters. OFCOM will have the power to fine those who breach the new law up to the greater of £18m or 10% of global turnover. They will also have powers to make information requests from service providers and to prosecute senior managers for breaches. OFCOM will fund their on-line safety regime through fees collected from the providers of regulated services whose revenue meets certain thresholds. Summary The intentions of the Online Safety Act are well overdue and well-intended, but it remains to be seen how well the act, OFCOM and ultimately the Courts, handle the balance of freedom versus restriction.
james.oxley@haroldbenjamin.com
scope and both will need to educate themselves on the duties it imposes.
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Dispute R Emerging trends in
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Resolution
in the UK.
BY BHAVINI KALARIA Partner, Dispute Resolution & International
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2023 proved once more to be a tumultuous year with economic instability remaining a key feature. The impact of global economic and political instability together with exponential technological advances and the climate crisis, are having profound social and financial impacts across all areas. But what does this mean for litigation in 2024?
pursue claims against landlords and developers. Notably, the extension of the limitation period for claims under the Defective Premises Act 1972 has amplified the potential for pursuing previously time- barred claims, contributing to the growing complexity of this area. Ongoing government consultations imply further changes should be anticipated.
Rising Fraud-Related Litigation
Economic pressures often give rise to greater instances of fraud, leading to more litigation associated with misappropriated funds. Tools for fraud-related litigation and cross-border disclosure have been enhanced with the publication of a recent government report with the aim of stopping scammers and an expanded duty of care applying to the way that banks handle payment instructions. However, enforcement remains challenging, especially in cases originating from the EU. The sheer volume of data generated, conflicts with data protection laws and jurisdictional differences regarding document disclosure make civil fraud litigation a complex and expensive process.
Continuation of Insolvency-Related Claims
The surge in corporate insolvencies is anticipated to persist, propelled by the withdrawal of Covid protections, surging energy costs, and inflationary pressures. This trajectory is likely to spur a parallel rise in insolvency-related litigation, ranging from challenges to CVAs and pre-pack administrations to disputes stemming from corporate mismanagement. Notably, this type of litigation often involves contested proceedings with conflicting creditor claims, exemplifying the complex and contentious nature of this area. You can listen to a podcast on the topic of re-structuring and investments with our head of insolvency here > Property Litigation in a Recessionary Environment: Rent Disputes and Safety Concerns In an economic downturn, we anticipate more litigation arising from non-payment of rent, service charges, disputes over break clauses, and dilapidations. Furthermore, the spotlight on fire safety defects in residential buildings has intensified in recent years, catalysed by the Building Safety Act 2022. The Act's provisions have empowered leaseholders to
The Surge in Crypto Asset Claims
Crypto asset claims continue to rise, with English courts demonstrating adaptability in this emerging field. As crypto assets become subject to a broader regulatory framework, an expansion of case law in this area is anticipated. Notably, tortious remedies have been applied to bitcoin developers, marking an interesting development, and it is thought that such claims could be expanded to encompass professional advisors.
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Corporate Accountability Amid Environmental Concerns
With growing concerns about environmental sustainability, many companies are under scrutiny for their actions. This includes not only fossil fuel and carbon-related companies but also financial institutions. Legal proceedings have been initiated against UK-based companies for the actions of their overseas subsidiaries and against company directors. Notable cases, such as ClientEarth v. Shell, exemplify this growing trend. Conclusion In conclusion, the legal landscape in 2024 is expected to be influenced by economic challenges, environmental concerns, and the evolution of regulations in emerging areas such as crypto assets. These factors will continue to shape the world of litigation, ensuring that legal professionals remain vigilant and adaptable in their approach. Regardless, it seems clear that the UK retains its position as an international hub for litigation with its legal system adapting to technological challenges and societal shifts.
"Crypto asset claims continue to rise, with English courts demonstrating adaptability in this emerging field."
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THE FOUR CORNERS LEGAL PODCAST
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The paradigm shift from the simplistic view of hedging products prevalent in the early to mid-2000s to a contemporary, nuanced understanding is also covered, emphasising the need for borrowers to reassess strategies, focusing on debt serviceability, and adopting a more informed approach to the utilization of these intricate financial products. Beyond the intricacies of hedging, the podcast explores the diverse landscape of interest rate benchmarks such as LIBOR, SONIA (LIBOR is an interest rate benchmark based on interbank lending rates, while SONIA is a benchmark based on actual overnight transactions in the sterling money market) and the Bank of England base rates. The necessity for seeking expert advice, steering away from conventional buy-to-let portfolios towards active asset management and specialized strategies, becomes a focal point of the discussion. A significant aspect underscored in the dialogue is the enduring appeal of the UK as a destination for inward investment, attributed to its robust and reliable legal sector. Finally, listen to the end for interest rate predictions in 2024.
Podcast: Navigating Economic Headwinds in 2024
As the financial world anticipates the challenges and opportunities of the
approaching year, our debut podcast of 2024 offers an insightful roundtable featuring John O'Donovan, Head of Banking and Finance, Abhishek Sachdev, Managing Director of Vedanta Hedging Limited, an independent firm of corporate treasury consultants, and Nimesh Sanghrajka, Managing Director of Mantra Group, debt and insurance specialists. Delving into economic forecasts and their implications for the property market, this engaging conversation provides crucial insights for anyone engaged in the commercial property market. The reasons behind the historical peaks in interest rates, the repercussions of inflation, and the transformative impact on businesses accustomed to an era of remarkably low rates are discussed. Additionally, the conversation
demystifies the concept of hedging, advocating for better education and
understanding for asset owners to leverage these financial tools effectively to better manage costs in an ever-evolving economic environment.
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WHY DATA MATTERS MORE IN 2024
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GUEST ARTICLE BY:
What’s the Strategic Approach?
RAFAEL BLOOM Founder/Director, Salvatore Ltd
Of course IT matters – but today ‘Operational Technology’ is the paradigm that really matters. Building a strategic function for tech and data is different from having a Head of IT, who is typically there to make sure things work in the short term rather than to tell you what to do for the long term. IT is a technology function and is not designed to understand your organisation or serve its strategic requirements. However, not every organisation has the resources for a full-time Chief Technology Officer (CTO) either, leaving a gap that is often ignored in the hope it might go away. So, what are the practical steps you could be taking in the approach to the new year? Firstly, acknowledge that tech and data carry high stakes – the success or failure of a start-up, a new app, a marketing campaign, a product launch, a company merger or acquisition – so it is highly advisable to start creating a strategy today, if you don’t have one. And the single most important element that ties everything together is very simple: Trust. If your organisation is to be trustworthy then you should be able to trust your employees to use tech properly and ethically. For example, have you spoken to them about the impact of Generative AI like ChatGPT, Midjourney and other AI-powered tools? As these tools come into mainstream use, they come with risks attached. If we don’t engage with our teams about how to use AI responsibly and knowledgably then we introduce unknown risks into our organisation instead of empowering workers to embrace AI’s potential.
It’s sometimes easy to forget how data shapes our world, ironically because of how well-integrated technology has become into everything we do. Whether we are at work or at play, we have come to expect our many platforms and devices - and the services they bring us - to function effectively and in a way whereas many of the underlying technical layers are hidden from us. What can this tell us about the opportunities, risks, and implications for the legal landscape where data and tech are concerned? For example, when we open the YouTube App on the phone to authenticate something that is going on elsewhere, we click to confirm and magically the two apps talk to each other, and we continue on. What is going on underneath this near-instant ‘easy’ process is a wild landscape of different devices, Cloud infrastructure, databases, User Profiles, IDs, security credentials, legal agreements, permissions and licenses - but it happens so quickly that we barely think about it. If we want our organisations to exploit their full potential, dealing with this complicated intersection of technical infrastructure, data resources, people and processes is something that requires more than an ad-hoc approach. If we are building a strategy for 2024 and beyond, what are the key elements?
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Despite these, the gradual evolution of technology promises more integrated and seamless experiences in the future. Legal professionals find themselves at the intersection of technological innovation and organizational dynamics, grappling with the legal implications of data governance and collaboration protocols in this hybrid work landscape. "The rapid adoption of technology during the COVID-19 pandemic has underscored the need for heightened focus on governance in the IT sector."
Secondly you have to build trust between your organisation and those that you deal with as counterparties, especially those relationships that lead to revenue generation. If your Partners or Customers feel they don’t trust your organisation to deal with their data properly and securely they will be susceptible to your rivals. But most of all, I find organisations sometimes have to play a rapid and stressful game of ‘catch-up’ when they are asked by another organisation to prove they have governance over their data. Being ready to onboard means being able to demonstrate you are trustworthy – and this shortens time to revenue, surely a good thing. Proper client ‘on-boarding’ is also now a way to show new clients that you know what you are doing where tech and data risks are concerned. This is when it comes back to people again – in your organisation, departmental heads are also now ‘Data Process Owners’ who should understand exactly what is going on with the data lifecycles they are responsible for. Departmental heads should also operate from a common ground where the legal landscape for tech and data are concerned. The legal landscape is being shaped by innovations, from the intricacies associated with hybrid
The Legal Horizon
A watershed moment unfolded in 2023 with the appearance of AI in the mainstream. ChatGPT's capabilities showcased AI's relatable communication abilities, enabling human-like interaction and simple text prompts rather than programming. Legal professionals are keenly observing AI's impact on various sectors, emphasizing the need for legal frameworks to address emerging challenges, including ethical considerations, liability issues, and the potential impact on employment. The EU will be the first major legal jurisdiction to launch an AI Act with more sure to follow their lead. As with the GDPR, the EU’s focus is on preserving individual rights and freedoms and minimising unwanted systemic, financial, legal or other discriminatory or unfair impacts.
work environments, the mainstream adoption of artificial intelligence (AI), cybersecurity threat awareness and mitigation, and the imperative role of governance in the IT space.
Hybrid Work Challenges and Tech Solutions
The advent of hybrid work environments has become a defining feature of modern organizational structures. However, the seamless integration of technology remains a challenge for many organizations. Collaboration hurdles, licensing complexities, permissioning intricacies, and organizational data management pose ongoing challenges.
Does Brexit Matter?
In the UK there was no meaningful divergence from the EU’s GDPR until now, but we are starting to see different approaches emerge. The UK’s Online Safety Act was recently passed
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and is different in scope and approach to the EU’s forthcoming Digital Services Act. Although the Online Safety Act is of course a massive and wide-ranging piece of legislation, there is a clear area of focus: Online harms to children, especially where the role of social media and messaging platforms is concerned. There are also movements in the area of Inter- national Data Transfers, where after some years of ambiguity and no doubt a lot of unintention- al non-compliance, the EU and the USA finally have an agreement that allows EU Citizens’ data to be processed in the USA. The UK has a separate data sharing agreement with the US – meaning that some possibility exists of variance in approach, and complications where a UK organisation handles the data of EU citizens and passes them to the USA for processing. This is worth examining especially where sensitive personal data is concerned, and bearing in mind that sensitive personal data can be introduced into the landscape quite innocently; an example would be using a US-based Human Resources platform in the Cloud that may contain details of health conditions or other sensitive employee data. This would need to be reflected very clearly in terms of employment, a proper legal basis assigned both for the sensitive and normal personal data, purpose of processing, retention periods, etc.
ensuring that organizations remain compliant and secure in an era of heightened technological integration.
Trust Matters
As we reflect on the technological landscape of 2023 and anticipate the developments of 2024, it is evident that the legal and organisational implications of these advancements are multifaceted and complex. But one thing is clear: Trust is the most important commodity and brand value going forward, and that trustworthiness is something that needs to be demonstrable. From the intricacies of hybrid work environments to the mainstream adoption of AI and the ever-growing importance of cybersecurity, legal tech professionals find themselves at the forefront of shaping policies that safeguard the interests of i/ ndividuals, organizations, and society at large. By understanding and addressing the legal nuances associated with technological innovations, a strategy for tech, data and governance can add significant practical, strategic value to any enterprise.
Governance in the Tech and Data Space
The rapid adoption of technology during the COVID-19 pandemic has underscored the need for heightened focus on governance in the IT space. Organizations must now grapple with vendor due diligence, conduct meticulous risk and impact assessments, especially in the context of AI integration, and fortify risk management protocols. The expeditious response to the pandemic sometimes led to actions taken without a full understanding of associated risks, introducing unknown varia- bles into the equation. Legal frameworks must evolve to accommodate these changes,
rafi@salvatore-consult.me
Connect with Rafael
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WHAT TO EXPECT IN 2024
The resurgence of Nil Rate Band Discretionary Trusts.
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BY DAVINA PURAN Solicitor, Wills Probate and Estate Planning
At the tail end of 2022, all UK trusts (with a few exceptions like charitable trusts and pension schemes) had to register using HMRC’s Trust Registration Service (‘TRS’). The TRS is a register confirming the beneficial ownership of trusts that was introduced as part of the UKs implementation of the Fourth Anti Money Laundering Directive. Initially, registration was limited to taxable trusts but the change to including non- taxable trusts saw many clients, financial institutions and practitioners alike trying to answer that all important question – is this trust registrable and if so, how do I register it? In 2023, the private client team saw a multitude of enquiries asking this very question. The one reoccurring trust that came up time and time again was the almost forgotten about nil rate band discretionary trust.
Why would you create a Nil Rate Band Discretionary Trust?
Prior to 2007, there was no transferable nil rate band between spouses. This meant if the predeceasing spouse simply left their entire estate to the surviving spouse at the time of their death, their nil rate band
would have been lost, as transfers between spouses are tax exempt.
A way to rescue that nil rate band from being lost, whilst still enabling the surviving spouse to benefit from the predeceasing spouse’s assets, was to create a trust and give a sum equivalent to the nil rate band to the trust. That way the predeceasing spouse’s nil rate band was used but the spouse, as one of the potential beneficiaries of the trust could still benefit. With inheritance tax currently at 40%, this arrangement could potentially have saved inheritance tax up to £130,000. That is why the nil rate band discretionary trust was no doubt ‘trending’ prior to 2007. The law changed in 2007 so that if someone did not use their nil rate band allowance, for example if they left their entire estate to a tax exempt beneficiary like the spouse or a charity, it could be claimed by the surviving spouse’s estate on their death.
What is the Nil Rate Band Discretionary Trust?
The nil rate band discretionary trust, often found in older wills, is where an amount equivalent to the nil rate band at the time the deceased passed away is left in trust. The nil rate band is a sum of money that a person can leave without inheritance tax becoming due and currently stands at £325,000. The trust is expressed for the benefit of a wide class of beneficiaries giving the trustees discretion as to who to benefit. Usually, the pool of beneficiaries are family members of the deceased e.g. spouse, children and grandchildren.
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What is the problem in 2024?
2. My mum’s will created a nil rate band discretionary trust that was set up on her death several years ago. No actual money went into the trust and the family home was transferred to my dad. There is a document stating the trustees have an ‘equitable charge’ over my mother’s half share in the family home. The beneficiaries are me, my dad and siblings. My siblings and I are financially secure however my dad is shortly moving into a care home and will need money to pay care home fees. Can the trust be brought to an end and the money given to dad? Whilst no money was physically put into the trust, it seems the trustees accepted an IOU from dad to repay the money later. By way of security for that debt, the trustees took an equitable charge over what was mum’s half share in the property. Now that one of the beneficiaries are in need of the cash (i.e. dad needs the money for care home fees), the property could be sold allowing the trustees to call in that debt and money be brought into the trust. The trustees can exercise their discretion to pay all (or some) of the money to dad. If all assets are paid to dad, the trust comes to an end. If the distribution to dad had taken place within two years of mum’s death, it would have been treated as if it was made under mum had made a gift to dad and there would be no inheritance tax to pay.
Unfortunately, not everyone rushed out to change their wills made prior to 2007. Now that nearly all trusts must be registered with the TRS, we find a lot of these nil rate band discretionary trusts are coming out the woodwork, with clients scratching their heads as to what to do with them.
Some common enquiries we have encountered over the last year include:-
1. My husband passed away several years ago. His will left his estate to a nil rate band discretionary trust. The trust was ignored on my husband’s death. Everything was paid to me. I’ve now received a letter from the will writer who drafted our wills that both wills created a nil rate band discretionary trust and this may need to be registered. Does my husband’s trust still exist and need to be registered with TRS? Simply ignoring a trust does not mean it does not exist. Whilst the terms of the will should be read carefully, generally these types of trusts came into existence on the death of the person who made the will. The trustees of the trust remain entitled to the nil rate band sum owed to the trust and can bring a claim against the executors of the deceased’s estate to transfer this sum to them. Equally the beneficiaries of the trust could bring a claim against the trustees, for incorrectly handling the trust.
A trust in this scenario will almost certainly need to be registered with the TRS.
"The main drawback with this trust regime is they can be particulalry complex to administer for the lay trustee, who may require the services of professionals like solicitors or accountants to assist."
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Does the Nil Rate Band Discretionary Trust have a place in 2024?
3. Asset Protection
The capital or income in the trust cannot be considered by the local authority when assessing care home fees or entitlement to means tested benefits.
Most people no longer need a nil rate band dis- cretionary trust in their wills. The trust may still be useful in the following circumstances: -
1. Reducing value of surviving spouse’s estate subject to inheritance tax
What is a nil rate band discretionary trust likely to cost ?
Assets left to the nil rate band discretionary trust do not form part of the surviving spouse’s estate. If the surviving spouse already has a particularly large estate, this is helpful in keeping the value of their estate down. Keeping the assets in the trust and away from the surviving spouse’s estate may also ensure their estate qualifies for certain IHT allowances on their death. For example, the residence nil rate band, an additional IHT allowance where an estate is left to a lineal descendent is reduced by £1 for every £2 the estate is over two million pounds. Assets placed in the trust that are significantly likely to increase in value can grow within the trust. If the assets were transferred to the spouse, those assets would form part of the spouse’s estate giving them an increasingly larger estate and exposure to inheritance tax.
The main drawback with this trust regime is they can be particularly complex to administer for the lay trustee who may require the services of professionals like solicitors or accountants to assist. The trust still maintains its own inheritance tax liability that arises (i) ten years from commencement of the trust and every ten years thereafter (the ‘ten yearly charge’ (ii) where assets are distributed from the trust (exit charges). Certain assets distributed from the trust may incur a CGT liability although it may be possible to postpone the CGT by rolling the gain out to a beneficiary. Income tax may also be payable if any of the assets in the trust produce an income e.g. rent from a property, dividends from shares or interest from a bank account. The trust has a higher rate of income tax than most individuals.
2. Flexibility and adapting to changing circumstances.
Conclusion
The trustees have the flexibility to review the family situation after death to decide which beneficiary(ies) to benefit from the trust. This can be useful where you have young or vulnerable beneficiaries or those that are unable to manage money wisely. The nil rate band discretionary trust affords greater protection to children from an earlier marriage. The risk of leaving everything to the surviving spouse is that the money becomes subject to their circumstances. The spouse may later remarry and have children of their own and use the money inherited from the predeceasing spouse to benefit their children or new partner only.
The decision whether to keep or even create a nil rate band discretionary trust will inevitably be subject to each individual’s circumstances. We take our time understanding our client’s estates and their personal circumstances to advise whether the trust is appropriate. We anticipate we will still see many nil rate band discretionary trusts resurface in 2024.
davina.puran@haroldbenjamin.com
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