Weekly Tax Update - Monday 11 November 2013
1 GENERAL NEWS
1.1 Legal professional privilege
The First-tier Tribunal has considered the case of Edward Behague and whether legal professional privilege extended to various documents, including a letter of engagement.
The Tribunal decided that parts of the engagement letter were privileged as follows:
"22. HMRC submit that engagement letters between a solicitor and his client are not privileged at least if they merely set out the terms on which the solicitor will act. This is consistent with authority. Rimer J in Dickenson (t/a Dickinson Equipment Finance) v Rushmer (t/a F J Associates) [2002] 1 Costs LR 128 said:
"not all such documents [ie client engagement letters] will necessarily and automatically be privileged. It is possible that, in any particular case, the client care letter will reflect or contain advice or other material which would serve to clothe it with privilege. It is not, however, suggested that the letter produced to the judge was privileged on that basis. In principle, I cannot see why a letter merely setting out the terms of which the solicitor is to act for the client should be privileged."
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It is also consistent with logic. A client engagement letter normally sets out the terms on which a solicitor will act. It is a contract between the client and solicitor. The solicitor cannot (and does not) give legal advice about the contract between himself and his client. In so far as the client engagement letter, therefore, sets out the terms of the contract, it cannot attract LPP as the lawyer is not giving advice qua lawyer. He is not giving legal advice at all.
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I therefore reject the appellant's submission that engagement letters are by their nature subject to LPP.
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However, all this depends on what the actual engagement letter says. If it goes beyond setting out the terms on which the solicitor will act it may attract LPP at least in part.
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In particular, it is likely that an engagement letter will specify the particular matter or matters on which the solicitor is contracted to provide legal advice. Does this make the whole or part of the letter subject to LPP? It seems to me that it must. The justification for LPP is that:
"a client should be able to obtain legal advice in confidence...otherwise he might hold back half the truth. The client must be sure that what he tells his lawyer in confidence will never be revealed without his consent...once any exception to the general rule is allowed, the client's confidence is necessarily lost." R v Derby Magistrates Court Ex p B [1996] AC 487 per Lord Taylor.
LPP must extend not only to the content of the legal advice but the fact that a person sought legal advice on any particular matter. Therefore, to the extent that an engagement letter sets out what the advice will cover it must be subject to LPP."
www.bailii.org/uk/cases/UKFTT/TC/2013/TC02983.html
1.2 UK/Cayman Agreement to improve international tax compliance
On 5 November 2013 the UK and the Cayman Islands signed the first intergovernmental agreement (IGA) between the UK and an Overseas Territory, the 'UK-Cayman Agreement to Improve International Tax Compliance'.
This agreement is non-reciprocal, so UK financial institutions will not have further reporting obligations under the terms of this agreement
www.hmrc.gov.uk/fatca/cayman.pdf
1.3 Devolution of taxes to Wales
The Government has confirmed that it will:
give the Welsh Ministers borrowing powers, so that they can borrow money to invest in Wales; devolve certain taxes, as the Silk Commission recommended, to ensure the Welsh Government has an independent funding stream to pay back the money it borrows; devolve Landfill Tax and Stamp Duty Land Tax in Wales; provide for a referendum to take place so that people in Wales can decide whether some of their income tax should be devolved, in the same way as it is in Scotland. It has also confirmed it will legislate to implement these changes as soon as parliamentary time allows. As a first step, it will publish a draft Wales Bill in the next few months to allow Parliament to scrutinise the legislation in draft.
www.parliament.uk/documents/commons-vote-office/1-November-2013/4.Wales-Infrastructure-finance.pdf
1.4 Property taxation
The Policy Exchange has issued a report on barriers to home ownership, including the pros and cons of introducing new land and property taxes. It says that now is not the right time to overhaul the system, arguing that the British pay the highest levels of property taxes in the whole of the developed world. Council tax bills, stamp duty, inheritance tax and capital gains tax have contributed to a situation where UK property taxation raises more than twice the average level in the OECD. However there is little discussion in the report of the incidence of certain indirect taxes on construction and development such as for example VAT.
The report does conclude the current UK system of land and property taxation could be improved. However, it finds some of the claims that are made for property and land taxation are unsupported by the evidence. The abolition of Mortgage Interest Relief (MIRAS), together with evidence from overseas, indicated that housing supply was the most crucial requirement for housing affordability, and the reduction of volatility, not taxation or subsidy.
Instead of altering taxation levels, the report says that changes to the planning system are the best way of bringing down the cost of rents and home ownership, and dealing with issues such as house price volatility and the wider instability this creates. It calls on all policymakers to commit themselves to building 300,000 new homes every year from 2015 to 2020 by the means set out below.
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