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Round up of 2023 employment law

Posted on: December 18th, 2023 by Natasha Cox

As 2023 draws to an end, the employment team at Lawrence Stephens examines employment law developments of 2023 and what we’re expecting in 2024.

Holiday and holiday pay

Changes have also been made to the Working Time Regulations 1998.

All employees are entitled to 5.6 weeks’ annual leave entitlement per leave year. The 5.6 weeks is split into two ‘pots’: one pot of ordinary leave, which is four weeks, and one pot of 1.6 weeks additional leave.

Ordinary annual leave should be paid at the employee’s ‘normal’ rate of pay. This does not necessarily apply to the additional leave.

The government is amending regulations to set out what elements of pay are to be included as ‘normal’ for the purposes of the first four weeks’ leave entitlement. Unfortunately, the regulations do not list specific payments that should be included, and instead refer to certain categories, including:

  • payments, including commission payments, which are ‘intrinsically linked’ to the performance of tasks that a worker is contractually obliged to carry out;
  • payments for professional or personal status relating to length of service, seniority or professional qualification; and
  • other payments, such as overtime payments, which have been regularly paid to a worker in the 52 weeks preceding the calculation.

As per previous case law, results-based commission, certain overtime payments, allowances, etc., will still be caught, however there is still uncertainty about payments such as annual or semi-annual bonuses, and it remains to be seen whether this amendment changes much.

For irregular hours workers and part-year workers (both now defined in the regulations), the government is also introducing a new method to calculate their holiday entitlement. Essentially, an irregular hour worker or a part-year worker accrues annual leave at the rate of 12.07% of the number of hours worked, subject to a maximum of 28 days per leave year. A worker will be an ‘irregular hours worker’ if the number of paid hours that they work is ‘wholly or mostly variable’. A worker will be a ‘part-year worker’ if they are required to work only part of that year and there are periods of at least a week in which they are not required to work (and for which they are not paid). This change is intended to address the issues caused by the Supreme Court’s decision in Harpur Trust v. Brazel, in which it held that part-year workers were entitled to 5.6 weeks’ leave per year, irrespective of the hours they worked. 

The government is also introducing ‘rolled up holiday pay’ for irregular hours workers and part-year workers. Rolled up holiday pay is a system under which a worker’s holiday pay is included in their basic pay, rather than paying them when their holiday is actually taken. The practice has been unlawful since 2006 but will now be lawful under the updated regulations.

These changes come into force on 1 January 2024 for holiday years commencing on or after 1 April 2024.

TUPE

The government has announced its intention to change the transfer of undertaking consultation obligations so that there can be direct consultation with affected staff for businesses with fewer than 50 employees, or businesses of any size with fewer than 10 transferring employees. This assumes in both cases that no existing employee representatives are already in place. The regulations are expected to come into force on 1 January 2024 and the changes will apply to transfers that take place on or after 1 July 2024.

National Insurance and Minimum Wage

Class 1 employee NICs will be cut from 12% to 10% from 6 January 2024.

The NICs holiday for veterans in their first year of civilian employment will be extended to 5 April 2025.

For the self-employed, Class 2 NICs will be abolished, and the main rate of Class 4 self-employed NICs reduced from 9% to 8%, from 6 April 2024.

New national minimum wage rates to apply from 1 April 2024 have also been announced, along with a change to the threshold for being eligible for the highest rate. Over 21s will now be entitled to £11.44 per hour, with 18- to 20-year-olds being entitled to £8.60 per hour. 16- to 17-year-olds and apprentices will be entitled to £6.40 per hour.

Fire and rehire

The government has issued a draft Code of Practice on dismissal and re-engagement. It is designed to cover situations such those seen recently with P&O, where an employer makes changes to terms and conditions by dismissing employees under their old contracts and offers to re-engage them on new contracts (with less favourable terms and conditions).

The aim of the code is to clarify how employers should behave when seeking to change employees’ terms and conditions of employment. A court or tribunal will be able to take the code into account when considering relevant cases and they will have the power to increase an employee’s compensation by up to 25% if an employer unreasonably fails to comply with the code. They could also decrease any award by up to 25% where an employee has unreasonably failed to comply.

The consultation on the Code closed on 18 April 2023 and it is anticipated that the government’s response will be delivered in Spring 2024. While the code is still in draft form it is not binding, but any proposed fire and rehire processes should be carefully considered in the meantime.

Flexible working

The Flexible Working (Amendment) Regulations 2023 come into force on 6 April 2024. The regulations amend the existing Flexible Working Regulations 2014 so that the right to make a flexible working application becomes a ‘day one right’ on 6 April 2024. Currently employees must have 26 weeks’ continuous service to make a flexible working request under the legislation (however, nothing prevents employers and employees agreeing flexible working arrangements between themselves, whether formally through contractual variations, or informally). 

It is assumed that the other flexible working reforms contained in the Employment Relations (Flexible Working) Act 2023 will also commence on that date, but this has not yet been confirmed. These reforms will:

  • allow employees to make two flexible working applications every 12 months instead of one;
  • remove the requirement for employees to have to explain what effect they think their flexible working request will have on the employer;
  • require employers to consult with the employee before refusing their flexible working application; and
  • require employers to respond to flexible working requests within two months instead of three months.

Carer’s leave

The draft Carers’ Leave Act 2023 (Commencement) Regulations 2023 have been published, bringing the Carers’ Leave Act 2023 into force from 6 April 2024.

The draft regulations set out important detail relating to the Act. They state that the legislation will cover employees in England, Wales and Scotland. To be entitled to the provision, employees need to be providing long term care. Carer’s leave will be able to be taken in half or full days, up to and including taking a block of a whole week of leave at once. In a similar way to other types of leave, the notice an employee needs to give to take the leave is twice the length of time that needs to be taken. Leave requests do not need to be made in writing.

Employees taking carer’s leave will have the same employment protections associated with other forms of family related leave. This includes protection from dismissal or detriment as a result of having taken the leave.

The draft regulations still need to be passed by Parliament and it is also expected that guidance will be made available before 6 April.

Strike action

The Strikes (Minimum Service Levels) Act 2023 was passed in July. The act gives powers to make regulations to set minimum service levels in certain industries during strike action. The government has now made regulations under these powers to set minimum service levels for ambulance, railway and border security staff. Although the regulations are not yet in force, they are expected to be by the end of the year. A draft code of practice has also been laid before Parliament, but no minimum service levels are yet in force.

Lawrence Stephens promotes two to joint Heads of Family

Posted on: November 22nd, 2023 by AlexT

Lawrence Stephens is pleased to announce the appointment of Senior Associates Eleanor Wood and Jim Richards to joint Heads of their Family practice.

With the appointment of Eleanor and Jim to joint Heads of practice, Lawrence Stephens reaffirms its commitment to continuing its high level of integrated legal advice to a diverse range of clients including high-net-worth and high-profile individuals, foreign nationals, non-domiciles, UK nationals living abroad, and multinational families.

Commenting on the new appointments, Steven Bernstein, Managing Director and Co-Founder of Lawrence Stephens, said: “We are delighted to announce Eleanor and Jim’s appointment as Heads of our Family department. This appointment marks our continued dedication to providing the very best service for our clients, and to growing our fantastic team.”

Ranked as a ‘Key Lawyer’ in The Legal 500 and an Associate To Watch’ in Chambers & Partners respectively, Eleanor works closely with clients on complex family issues, with a particular interest in Children Act matters, including cross-border relocation, change of residence applications and internal relocations, as well as divorce and matrimonial finance work, including the division of businesses and high-value properties.

Jim, who has over 15 years of extensive experience, specialises in a range of areas of family litigation involving a number of different assets and jurisdictions, particularly financial settlements and children cases. He was also previously a member of the Law Society Children’s Panel, working on complex cases where the children were parties to the litigation.

Working closely with the firm’s other departments on connecting matters such as sale of property, wills and probate issues, inheritance planning, dispute resolution and business restructuring, the Family practice will continue to offer a coherent and broad level of service to the Firm’s existing clients whilst drawing on the strength in depth of expertise across the team.

Eleanor Wood, Head of Family, commented: “I am thrilled to be heading up Lawrence Stephens’ Family practice. Working closely with the other fantastic departments at the firm, Jim and I look forward to continuing to provide first-class service to our loyal clients.”

Jim Richard, Head of Family, commented: “It is a pleasure to be joining Eleanor as Head of Family at Lawrence Stephens. Servicing the changing needs of our clients across a wide range of service, we pride ourselves on our collaborative approach and expertise.”

Steven Bernstein discusses leadership with FEBE founder John Maffioli

Posted on: November 6th, 2023 by AlexT

 

Speaking with the founder of the FEBE Growth 100, John Maffioli, as part of the Founder Stories series, Managing Director, Steven Bernstein, discusses the importance of creating a strong and collaborative company culture and how prioritising your people is the key to leading a successful business.

Prior to founding Lawrence Stephens, Steven and his co-founders were working at a corporate city firm, a highly competitive environment where employees lacked the confidence to make decisions over their fear of failure. As a direct response to this, they set up Lawrence Stephens with the aim of being a ‘people business’ – where employees are valued and a collaborative spirit is not only encouraged, but actively fostered.

Making the step from being a lawyer to becoming a CEO, Managing Director and ultimately a business leader, Steven also describes the balancing act he faced with doing the job he really understood (in being a lawyer) with doing the job he was still learning (in running a business).

However, by not taking themselves too seriously and fostering a people-focused company culture, Steven and his co-founders successfully grew Lawrence Stephens into the firm it is today – with these values remaining a crucial part of the firm’s identity and success. By allowing his team to learn, develop and thrive in a supportive environment, Steven explains the significance of this: “those are the Partners of the future, the owners of the future…”

The role of leadership also goes beyond fostering a powerful company culture, as Steven explains. Successful founders, entrepreneurs and CEOs must be constantly asking themselves as to whether they are making the right decisions, whether they are doing the right thing for their business. In driving a business forward, Steven explains that founders must show careful consideration to the risks and decision making if they are to succeed.

From the small office where Lawrence Stephens first began to the full-service firm it has now become, with the launch of departments such as its new Sports & Entertainment practice, Steven and his co-founders are looking to build on these successes to continue to grow the firm, strengthen existing areas and look at expanding further by bringing in talented teams of lawyers to cover new areas and provide a truly full-service experience to its clients.

Click here to watch Steven’s story in full. 

Crypto assets for businesses

Posted on: November 1st, 2023 by AlexT

The business landscape is continually evolving, with technology being a major catalyst for fostering progress, increasing capabilities, and maintaining a competitive edge.

Among the recent innovations capturing the interest of businesses is the rise of crypto assets and the blockchain technology that underpins them. Major brands such as Microsoft and Sotheby’s, as well as independent companies from travel agencies to cafés, are increasingly adopting crypto assets and harnessing their potential, seeking to position themselves to benefit immensely from these distinctive digital assets.

What’s in it for businesses?

One of the main appeals of crypto assets is the swift and transparent payment transaction mechanism that they provide. In an age where cash payments are on a significant decline, the ability to facilitate fast, transparent and secure payments is appealing to consumers and businesses alike.

Additionally, transactions with crypto often attract fewer charges compared to traditional payment methods. Crypto assets do not require intermediaries to facilitate transactions and the elimination of these intermediaries like banks and payment gateways in favour of a decentralised verification system (in other words, the blockchain) minimises the costs associated with traditional payment processing. Also, by merit of being exclusively digital, crypto assets negate the need for physical payment infrastructures such as card machines.

An undeniable upside for businesses adopting cryptocurrency payment is virtually zero risk of chargebacks. With every transaction confirmed and immortalised on the blockchain forming a secure, tamper-proof and transparent record, they cannot be reversed. Consequently, businesses no longer need to wrestle with drawn-out, expensive chargeback processes.

Adopting crypto assets also offers a broader customer outreach. By bypassing traditional financial institutions, businesses can access the 1.7 billion unbanked population globally, as well as the 1.2 million unbanked individuals in the UK. Allowing for crypto asset payment also caters to the growing population of crypto asset enthusiasts,  granting a unique selling proposition amidst a competitive market.

Moreover, due to the borderless nature of crypto assets, such transactions do not require conventional currency conversions and can be sent to or from anyone in the world with a smart device and internet connection. This makes crypto assets an ideal form of payment for businesses that wish to expand their operations into new jurisdictions, without the usual friction points involved in optimising cross border payments.

What are the challenges for businesses?

Whilst there are a number of advantages for businesses, integrating crypto assets as a form of payment is not without its risks. One such risk comes from the fact that crypto assets are extremely volatile, and it is not unheard of to have massive fluctuations in a crypto assets value over a relatively small time frame of days and hours. This volatility can present challenges for businesses in being able to predict how much it will generate from crypto asset payments, and it can also expose the business to losses if the value of its crypto assets falls. In the same vein, it can also present opportunities for gains if there is an increase in the price action of a crypto asset.

For example, a retailer may sell an item for 0.035 Bitcoin (BTC), which at the time of writing is around £766. In the days after the sale the value Bitcoin may increase, such that 0.035 BTC is now worth £800. On the flipside, the value of BTC may decrease, such that the 0.035 BTC is now worth £735.

Another challenge is security. Whilst crypto assets are secured utilising complex cryptographic algorithms, they aren’t invincible against cyberattacks, phishing or fraudulent schemes. Thus, businesses using crypto assets need to be proactive in establishing robust cybersecurity defences and countermeasure procedures.

The developing regulatory environment around cryptocurrencies presents another challenge. As the legislative and regulatory landscape is still maturing, businesses adopting crypto assets as a form of payment may need to comply with unforeseen regulatory requirements and make an effort to stay informed of ongoing developments in this area.

However, with diligent planning and careful strategies, these challenges and risks can be substantially offset and mitigated.

What must businesses consider?

For businesses considering crypto asset integration, an effective policy and strategy should take into account the specific nature and operation of the business, its goods/services, geographical scope, and clientele. Particular consideration should be given the following points:

  • Choice of crypto assets: Given the plethora of cryptocurrencies available, it is important to consider which crypto assets in particular should be allowed to facilitate payment for the business. Important points to consider here would be the crypto assets stability, liquidity, popularity, and confirmation times.
  • Payment processing: It may be worth trying an external payment processor who can simplify the process of crypto asset acceptance, albeit at a cost. Alternatively, it is entirely possible to set up your own crypto payment processing system, but will require some technological expertise and knowledge.
  • Formulating guidelines: Businesses adopting crypto assets should have defined guidelines addressing transaction disputes, and refund mechanisms. There should also be procedures in place for handling price volatility, for example, through stablecoins or immediate fiat conversion upon receipt.
  • Continuous transaction oversight: Businesses allowing crypto asset payments will need need to be able to track, record, and report transactions for tax compliance. Crypto assets are taxable, and businesses will need to consider whether they choose to hold crypto assets on their balance sheet as an asset, or if they would rather liquidate the crypto assets to fiat upon receipt or at regular intervals.
  • Selecting an appropriate digital wallet: Considering the scale of operations, anticipated crypto holdings, and security requirements is vital when choosing a digital wallet. There are a variety of different wallets including cold wallets, hot wallets, custodial wallets, non-custodial wallets, multi-sig wallets and many other variations. It is important for businesses to choose a wallet which is compatible with their needs, and which they are confident with and able to keep secure.

How Lawrence Stephens can assist with your crypto challenges

While venturing into the world of crypto assets does bring its set of challenges and intricacies, the potential benefits are substantial. As with any business decision, prudent planning, accompanied by knowledgeable legal consultation, is key to ensure regulatory compliance and adept risk management.

At Lawrence Stephens, our team is adept at assisting diverse businesses in harnessing the potential of crypto assets. With our bespoke legal insights, we ensure your cryptocurrency adoption journey is seamless, safeguarded, and aligned with the developing digital finance sector.

Cryptoassets and taxation

Posted on: October 11th, 2023 by AlexT

For UK traders, investors and businesses dealing with crypto assets, it is important to understand the complex tax implications for this rapidly evolving sector. For many industry participants, the line between fact and fiction regarding the taxation of crypto assets is blurred, often leading to confusion.

Having clarity and understanding on the UK’s approach to the taxation of crypto assets is therefore vital for individuals and businesses to better plan their transactions and strategy, thereby optimising their tax burden.

The tax treatment of Crypto assets in the UK

The UK’s tax authority, HMRC, recognises that there are a number of different types of crypto assets, and have adopted a taxonomy that aligns closely with the FCA’s regulatory position. However, the tax treatment of crypto assets is dependent on the nature and use of the assets in question, as opposed to their classification.

To put to rest a common misconception, HMRC does not consider the buying and selling of crypto assets to be comparable to gambling. Whether a transaction can be properly characterised as gambling will be a question of fact and will instead be considered on a case-by-case basis.

Importantly, HMRC does not consider crypto assets to be currency, and therefore treats them as a traditional asset for tax purposes. Consequentially, profits made from crypto asset activities are taxable.

What taxes are applicable?

For individuals dealing with crypto assets, the two main types of tax applicable would be Capital Gains Tax (CGT) and Income Tax.

Capital Gains Tax

Capital Gains Tax is essentially a tax on the profit made when an asset that has increased in value has been sold or disposed. It is the gain that is made which tax is applied against, rather than the whole amount that it has been sold for. For example, if you bought Bitcoin at £16,000, and later sold for £25,000, the gain on which tax would be applied would be £9,000.

Disposal of crypto assets does not just include selling the crypto asset for fiat, but also trading it for another crypto asset, spending it on goods or services, or gifting it.

There is also an annual tax-free allowance, for such instances. For the 22/23 tax year, this allowance is £12,300, and for 23/24 it is £6,000. This means that gains up to the amount of the annual allowance are not subject to any CGT.

If the profits exceed this amount, then CGT will be payable on the amount above the tax-free allowance, with the rate payable depending on your taxable income.

Income tax

In some instances, crypto assets, and activities relating to them, can be treated as income in nature; for example, payment for services with crypto assets, receiving crypto assets as employee remuneration, or earning crypto assets from mining or staking activities.

In other circumstances, trading crypto assets may also be subject to income tax, especially if the trading activity is particularly frequent and regular. Again, whether an individual’s trading activity would constitute treatment as income for taxation purposes will be highly fact dependent and assessed on a case-by-case basis.

Crypto assets received by an airdrop might also be liable for income tax if the individual has taken an action in exchange for the airdrop, for example promoting or moderating the socials for a particular project.

In relation to mining or staking taxes, if the activity is professional in nature profits may be subject to income tax under trading income rules. If the activity is more casual, it would likely be subject to income tax as miscellaneous income.

If crypto assets are mined, then the amount of tax will be based on the value of the crypto asset at the time it was mined. If the mined crypto asset is later sold and its value has increased, there may also be CGT applicable on the profit made from the increase in value.

The rate of income tax payable would be dependent on the individual’s income for the particular tax year.

It is therefore important to keep detailed records of crypto asset transactions, as it is possible to reduce the gain, and therefore the tax burden, by deducting allowable costs such as transaction fees.

Cryptoasset tax treatment and businesses

For businesses engaged in crypto asset activity, the tax treatment would depend on the nature of activities and transactions. A business involved in crypto asset activity may be liable to pay a number of different taxes such as CGT, Corporation Tax, Income Tax, VAT, and Digital Services Tax. For example, if a business’s primary function is the trading of crypto assets, then profit and losses will be subject to corporation tax at the applicable rate.

The tax treatment of businesses will depend on the particular facts of its activities, and will take into account a range of factors.

Lost crypto assets

If the private key to a crypto asset wallet is lost, HMRC does not view this as a disposal of the asset. Whilst you may have lost access to the crypto assets within the wallet, you still technically own the assets.

However, in situations where there’s no realistic chance of recovering the crypto assets, it may be possible to file a negligible value claim and seek relief for a capital loss.

Gifts

Gifting crypto assets is viewed by HMRC as a disposal, and therefore will attract a tax liability in the form of CGT. In other words, you would be subject to CGT on the difference between what you originally paid for the crypto asset and its market value at the time it was gifted.

However, there are advantageous carve-outs when it comes to gifting crypto assets to your spouse or civil partner, as transfers between spouses/civil partners are not usually subject to CGT at the time of the gift.

Rather, the recipient takes on the original cost basis and will then be liable for any CGT if they later sell or dispose of the crypto assets.

Conclusion

Taxation and crypto assets can be a complex and nuanced area, with many considerations, and failure to report crypto gains or losses could lead to penalties and interest charges on unpaid tax liabilities.

It is therefore important to note that, although the nature of cryptoassets and the decentralised framework in which they operate allows for pseudonymity, HMRC has invested significant time and effort to ensure cryptoasset tax compliance.

HMRC has been known to request customer information from centralised exchanges, and also utilises technology and analytics to analyse data and transactions which can establish connections between cryptoasset wallets and transactions and the individuals behind them. 

With this in mind, it is imperative that individuals engaged in the crypto sector seek professional advice to ensure that tax liability is calculated correctly and is optimised in line with their strategy and objectives.

Mohit Pasricha comments on legal challenges to refereeing decisions in the Evening Standard

Posted on: October 5th, 2023 by AlexT

In light of Liverpool FC looking to challenge a controversial VAR decision, following a game against Tottenham Hotspur, Director and Head of Sports & Entertainment Mohit Pasricha comments on potential legal options for the club.

Mohit’s comments were published in the Evening Standard, 5 October 2023, and can be found here.

“Whilst the PGMOL have admitted a significant error occurred, Liverpool are ultimately facing an uphill battle to succeed in any legal claim.

Any case would need to establish whether human error directly affected the outcome of the game (which is not evident) or potentially Liverpool’s final position at the end of the season (which cannot be determined now).

Allowing a successful claim based on human error could set a dangerous precedent and potentially open the floodgates for other clubs to make similar challenges, making it highly improbable for any such claim to prevail.”

Using crypto assets to purchase property

Posted on: September 27th, 2023 by AlexT

With the increasing adoption of crypto assets, it is inevitable that we will see a rise in interactions between this sector and more traditional asset markets, such as real estate.

An increased awareness of crypto assets, and their growing availability over the past decade have presented both individuals and enterprises with access to a risk-on environment, characterised by high risk and reward profiles. Consequently, numerous investors have experienced significant returns on their initial, sometimes modest, investments. One notable trend we have observed is the convergence of crypto wealth with the traditional real estate market, particularly in the form of crypto gains being utilised towards real estate acquisitions.

There are primarily two methods by which individuals and businesses are using crypto wealth to enter the real estate market.

The first and most common approach involves utilising the fiat proceeds from crypto gains to cover part or the whole cost of a property purchase. This approach aligns closely with established conveyancing practices.

The second approach entails the direct use of the crypto assets themselves to facilitate the property purchase. The property’s purchase price, whilst still being pegged to a fiat value, is not settled in fiat currency but rather in an agreed-upon amount of specified crypto assets.

Both approaches have their own complexities and advantages, including risk tolerance, market conditions and legal considerations.

 

Using fiat proceeds of crypto assets

The approach of using fiat proceed of crypto gains in property purchases is a method which strongly resembles established conveyance process, albeit with some nuances in the process brought on by additional financial planning and legal considerations. This is by far the most common method by which parties are utilising cryptoassets in order to purchase property.

Generally, the process will involve several key considerations.

Conversion to fiat

The first step of this process is to convert crypto assets comprising part or the entirety of a crypto assets portfolio into a fiat currency, as the British Pound Sterling.

This will usually occur through a centralised exchange and, given the volatility of the crypto markets, timing may be an important consideration.

Parties will often aim to convert their crypto assets at a peak value, so as to maximise the return into fiat. If substantial sums are being converted and off-ramped, then it is likely that it will be done in tranches and using multiple centralised exchanges to get the best rates and mitigate slippage.

It is also possible to convert cryptocurrencies into fiat currencies using OTC trades, facilitated by a specialised broker.

Banking considerations

Whilst banks and other financial institutions are undoubtedly more familiar with crypto assets than they were several years ago, it is still important to note that not all financial institutions are crypto friendly.

As such, when off-ramping substantial sums from an exchange to a bank account, it is vital to consider whether the bank in question is willing to accept the funds into the account, and buyers must be prepared for the bank to make enquiries about the source of funds in line with standard anti-money laundering and know-your-customer requirements.

Legal and tax implications

A conversion between crypto assets (e.g. Bitcoin to USDC) or a conversion from crypto assets into fiat is also likely trigger a tax liability, and crypto investors may be subject to capital gains tax or income tax, depending on the nature of the activity.

Solicitors assisting with the purchase of  property in such cases will be aware that they will be taking these fiat funds into their account in furtherance of the purchase. As such, they will have a responsibility to determine that these fiat proceeds of crypto assets activity is genuine and not illicit funds or an attempt to launder money.

In other words, the solicitor must be able to verify the source of funds – a key consideration  due to the sector specific knowledge that this requires. Before instructing solicitors with the conveyance of the intended property, potential buyers should ensure they are comfortable and able to verify source of funds coming by way of  crypto assets.

At Lawrence Stephens, our dedicated crypto asset and blockchain team within the firm works closely with our conveyancing department to be able to review and verify source of funds deriving from crypto assets activity seamlessly.

Application of the funds

Depending on how fiat funds are intended to be applied, if a cash amount is being used to cover the entire cost of the property, then standard conveyancing procedures will apply to the rest of this process.

However, if funds are intended to be used as a partial deposit, with the rest of the purchase price to be financed through a mortgage, lenders will likely require an overview of your finances including crypto assets gains.

Completion

Once the parties arrive at the completion stage, the buyer will transfer the fiat funds to their solicitors, as will the mortgage provider if applicable. The solicitors on either side will then ensure the timely transfer of funds and completion of formalities to record the transaction and change of ownership of the property.

 

Using crypto assets to purchase property

Whilst certainly a less common route to purchase property, it is also possible to utilise crypto assets themselves for a property purchase. Whilst this route to acquire property comes with additional considerations, complexities and advantages, it can often be a desirable option particularly for those with large crypto portfolios.

Agreement with seller

One of the main considerations and challenges with such an approach is finding a seller who not only has a property to sell that fits the requirements of the buyer, but is also willing to accept crypto assets as a form of payment.

Much like any other property purchase, parties will need to arrive at an agreed figure for the purchase price of the property and, even though cryptoassets will be used in the transaction, the purchase price agreed must be agreed in fiat currency. This is not just crucial for contractual clarity between the parties, but it is also important for the calculation of Stamp Duty Land Tax (SDLT) liability, if applicable.

Agreeing the crypto asset

Both parties will also need to agree the crypto assets to be used in the transaction, and this will require due diligence on the assets involved. It may also be necessary to the current regulatory environment to ensure there are no restrictions on using the crypto assets of choice. If a particular crypto assets was regulated, for example, then strictly speaking it would technically not be permitted to deal in the same without regulatory approval.

From the seller’s perspective, they will have undoubtedly have additional considerations for the crypto assets to be used, and may likely only want to deal in a crypto assets that has sufficient liquidity.

For example, assuming the purchase price of the property is agreed in the sum of £800,000, the parties will then need to agree which crypto asset (or assets) are to comprise the purchase price. In this example, we will assume that the parties agree to transact in Bitcoin and, as of September 2023, the value of 1 Bitcoin is approximately £20,000.

Due to the volatility of crypto assets, it is not uncommon for parties to reach their own agreed upon conversion rate for the crypto assets being used. In this example, if we assume that the parties agree that the Bitcoin used for the purchase will be valued at £19,500, the buyer will have to pay the seller 41.02 Bitcoin.

Due to the nature of using crypto assets in such a transaction, separate agreements may be required that addresses the particular characteristics of these assets. For example, given the volatility of crypto assets, both parties assume a market risk until the transaction is completed. To mitigate this, specific clauses can be inserted into agreements to address scenarios where the crypto assets value changes dramatically before completion.

Specialised mechanisms or escrow type services for the actual transfer of the crypto assets would also likely need to be agreed upon and catered for in a specific agreement. In typical transactions, buyers would usually send the purchase monies to their solicitors, who would then forward it over to the seller solicitors. In a crypto transaction, alternative mechanisms would need to be utilised to ensure that the transaction occurs properly, and payment is sent and confirmed to the relevant parties so subsequent steps in the conveyance procedure can take place.

Solicitors with expertise in crypto assets transactions are crucial in such instances, to ensure legal compliance and clarity.

Post-completion formalities

After the transaction is complete, the usual formalities such as land registration will follow, and these may require special annotation to indicate the use of crypto assets in the purchase. The land registry, in the past, has recorded the sale price of property in crypto assets.

SDLT may also be applicable and will usually be calculated in relation to the value of the crypto assets on the day of completion, as evidenced by reputable data sources.

From the seller’s perspective, they will want to ensure that they can continue to securely hold and access the crypto assets or convert them into fiat, depending on their intentions. Oversight in this regard could lead to difficulties in them accessing the proceeds of the sale.

 

Conclusion

The purchase of property using the fiat proceeds of crypto assets, or crypto assets themselves is not only feasible but can also be an attractive option for both buyers and sellers.

Such transactions are accompanied by a unique set of legal considerations that require specialised knowledge and understanding of the crypto assets sector; from due diligence on the crypto assets used and their liquidity, to understanding the additional legal mechanisms required to ensure a compliant and clear transaction, the process necessitates an expert legal perspective.

Our crypto assets team is equipped with specialised knowledge in the crypto asset sector, enabling us to guide clients through each step of this innovative transaction method. If you are contemplating diving into the world of property purchases via crypto assets, we are here to assist and advise.

A brief guide to the different types of cryptoassets

Posted on: September 20th, 2023 by AlexT

It is a common misconception that the existence of crypto assets was ushered in by the arrival of Bitcoin in 2009. In reality, the concept of digital or cryptographic currencies significantly predates Bitcoin, and there were several attempts to create a digital, decentralised form of currency before Bitcoin, for example eCash and HashCash. However, whilst Bitcoin was not the first attempt at a cryptocurrency, it was the one that solved certain key issues, such as double spending and decentralisation, more effectively than its predecessors. In this sense, it was undoubtedly the cryptocurrency that propelled crypto assets into mainstream recognition.

Since the introduction of Bitcoin, the world of crypto assets has grown exponentially, and the market now consists of tens of thousands of different crypto assets, each with their own functionalities, supposed use cases, and legal implications.

Are coins the same as tokens?

From a legal and regulatory perspective, the terms coins and tokens can and are used interchangeably in relation to crypto assets, and both terms essentially have the same meaning when used in this context.

However, in crypto centric terms, Coins and Tokens have very different meanings.

Coins are usually used to refer to those crypto assets which act as native crypto assets to their own blockchain. For example, Bitcoin on the Bitcoin blockchain, or Ether on the Ethereum blockchain. Coins are usually intended to function as a digital store of value or medium of exchange.

Tokens, on the other hand, are crypto assets that operate on an existing blockchain network instead of their own. Whilst tokens can also be used in a similar fashion to coins, they are often created to fulfil different purposes to coins, for example to raise funds or give access to particular services. Some examples of tokens include Shiba Inu, Tether, and Basic Attention Token.

So, whilst most of the regulatory language in the UK refers to “tokens”, it should be remembered that this is not a reference to the crypto specific definition of a token, and is essentially used as a technologically neutral term in a legal and regulatory context.

Altcoins and memecoins

An altcoin is simply a designation given to any crypto assets which is not Bitcoin (and arguably Ether).

Many altcoins are designed to be used for a specific purpose or to address limitations and innovate upon existing blockchains. One of the first altcoins was Litecoin, which was forked (or simply put, an offshoot) from the Bitcoin blockchain, and offers faster transaction times than Bitcoin.

Memecoins are another subset of crypto assets that often originate from an internet meme or joke, yet can attract serious following and price appreciation.

Memecoins often do not aim for any specific functionality or utility, and primarily gather attention through social media, viral marketing and online community engagement. They represent a fascinating microcosm within the crypto assets world and can sometimes evolve into more refined projects with defined aims and utilities.

An example of a memecoin is Dogecoin, which experienced significant growth in a relatively short period of time, reaching a value of $0.68c at its all time high in May 2021, meaning it had a market cap of around $88 billion.

Stablecoins

Despite the name, most stablecoins are usually tokens utilising existing blockchains – another quirk of usual crypto lexicon!

One of the endemic characteristics of crypto assets is that they are extremely volatile, and while this volatility can be beneficial, it is one of the characteristics that makes crypto assets unsuitable as a medium of exchange or store of value. Stablecoins exist to address the problem of volatility by pegging their value to an external reference, for example a commodity such as gold, or a fiat currency such as the US dollar.

Whilst all stablecoins maintain their value by some external reference, there are different types of stablecoins.

Some stablecoins are said to be fiat-collateralised – in other words, they are said to be backed one-to-one by reserves of fiat currency. An example of such a stablecoin would be USDC. For every USDC token in existence, there is an equivalent amount of fiat US dollar held in reserve.

Other stablecoins are crypto-collateralised and so they are backed by a reserve of other crypto assets. They utilise smart contracts that automatically adjust the collateral to maintain a stable value. An example of one such stablecoin is DAI.

Some stablecoins are commodity-collateralised and reference the value of a physical commodity such as gold or silver and aim to maintain a peg to that value. For example, Tether Gold is said to be collateralised to gold.

There also exists stablecoins that are not backed by any collateral at all but aim to use algorithms to control their supply and demand and maintain a stable value. There has been increasing criticism of algorithmic stablecoins, particularly since the collapse of Luna and Terra USD in May 2022.

It is a noteworthy point that many jurisdictions are developing central bank digital currencies (CBDC’s) and some have already been implemented such as the eNaira in Nigeria. They are digital, similar to crypto assets, and their value tends to be fixed to their country’s fiat currency much like a stablecoin. However, CBDC’s should not be confused with crypto assets, particularly as CBDC’s are controlled by a central bank or monetary authority, while crypto assets are typically decentralised.

Governance tokens

Governance Tokens are a type of crypto asset that allows holders to vote on decisions related to a particular platform or protocol. They act as a bridge between platform creators and the community of users and allow for an element of democratisation.

Examples of governance tokens include the maker token (MKR), issued by MakerDAO. One MKR token is equivalent to one vote, and token holders vote on several issues including appointing team members and modifying fees.

Fan tokens

Fan tokens are another form of crypto asset that, in essence, represents membership of a fan club of a particular sports team, artist or celebrity. They often allow their holders to access fan membership perks such as voting on decisions, merchandise designs and rewards. They also often grant holders access to privileges such as exclusive content and ticketing privileges.

Football clubs such as FC Barcelona, Manchester City and PSG each have dedicated fan tokens.

Non-fungible tokens (NFT’s)

Non-fungible tokens (NFTs) are a form of crypto asset that represents ownership or proof of authenticity of a unique item or piece of content. They are best thought of as assets that have been tokenised via a blockchain, and they are inherently unique in themselves, such that they are not interchangeable.

For example, a particular ETH coin is essentially no different to another ETH coin, and so they are interchangeable on a one-to-one basis. However, comparing two NFT’s, even though they may look the same will have independent and unique characteristics.

NFT’s can be used to tokenise a wide variety of assets from art and music, to real estate and event tickets.

Popular examples of NFTs include the Bored Apes Yacht Club collection and Cryptopunks.

The legal definition of crypto assets that has been adopted in the UK includes NFTs, and this allows for them to be interpreted within the same framework as other crypto assets which are deemed to constitute property. From a regulatory perspective, an NFT can be unregulated or regulated depending on the rights and obligations that attach to the NFT.

The High Court in England has already demonstrated its forward-thinking approach by allowing the service of legal documents via NFTs. As well as highlighting the flexibility of NFTs, this also highlights the English judicial system’s openness to integrate emerging technologies into practice.

Tokenised Real-world Assets

Another growing subset of assets within crypto assets are tokenised assets that represent a share in a real-world asset, such as real estate, a luxury watch or handbag, vintage cars, and art. These usually utilise NFTs and allow for expensive assets to be broken down into smaller, easily traded units.

The legal and regulatory treatment for these can be complex and very much depend on the nature of the underlying asset which the token represents.

Conclusion

The landscape of crypto assets is diverse and ever evolving, encompassing a range of asset types, many of which fall into one or more of the above categories.

Understanding and appreciating the legal intricacies of these various assets is imperative for both individual and institutional participants in this rapidly growing sector. As a UK-based law firm with a particular specialism in crypto assets, Lawrence Stephens is uniquely positioned to provide expert guidance and innovative solutions to investors, creators and holders alike.

Please do not hesitate to contact our team who will be happy to discuss and identify your needs.

What are crypto assets and how are they regulated?

Posted on: September 14th, 2023 by AlexT

In the age of the Digital Revolution, terms such as ‘crypto assets’, ‘cryptocurrency’, ‘tokens’, and ‘blockchain’ have become increasingly common in everyday conversations, as well as in financial, technological, and legal discourse. Despite their growing presence, adoption and relevance, misconceptions and ambiguity continue to surround this novel asset class.

Perhaps these misconceptions and ambiguity can be explained by the nuances in the terminology, which often amalgamate traditional financial and technological terms.

The terms ‘crypto assets’, ‘cryptocurrency’, and ‘crypto tokens’ are often used interchangeably, yet each has its own specific implications and considerations.

Whilst ‘cryptocurrency’ is perhaps the most commonly recognised catch-all term for this group of assets, it is somewhat of a misnomer as they do not possess all of the properties of a traditional currency (also called ‘fiat currency).

Fiat currencies are typically used as a medium of exchange for goods and services. They can also be used as a store of value and as a unit of account. They are most often issued by central banks or monetary authorities.

In contrast, cryptocurrencies are not yet widely accepted as a medium of exchange, and their inherent volatility makes them unsuitable as a unit of account. Cryptocurrencies are said to be ‘decentralised’ as they are not issued by or subject to governments, central banks or monetary authorities. However, a point should be made to contrast this with Central Bank Digital Currencies (CBDC’s), which are digital forms of fiat currency issued by central banks, and are often mentioned in the same discourse as cryptocurrencies.

For these reasons, the term ‘crypto assets’ is a more accurate catch-all term that we choose to adopt.

What are Crypto assets?

Essentially, they are digital assets that use cryptography for security, and utilise a form of distributed ledger technology, such as a blockchain, to record and store transactions. The wide definition of ‘crypto asset’ adopted in the UK also encompasses crypto assets such as NFT’s.

Blockchain is the underlying technology that enables the secure and decentralised functioning of crypto assets. A blockchain is a type of digital ledger that is distributed across a network of computers known as nodes, where no one single entity has control of the data.

Each block contains a list of transactions which are cryptographically linked to the previous block, which functions to create a secure and immutable record of transactions.

The decentralisation aspect of crypto assets is one of their most appealing design features. It means that they are not subject to governmental or monetary policy interference, nor are they susceptible to any single point of failure, and it also enables a number of use cases for crypto assets.

Popular and well-known crypto assets include Bitcoin, Litecoin, Ether, and Cardano, although there are now tens of thousands of crypto assets in existence.

Treatment of cryptoassets in the UK

As the adoption of crypto assets continues to grow, they have presented novel and unique challenges to governments, monetary bodies, and international regulators. One of the main challenges in regulating crypto assets is that they are global in nature and exist without borders. As such, different national regulators have taken inconsistent approaches towards their treatment of crypto assets, and it is very much a sector that is in a near-constant state of regulatory and legislative flux.

Crypto assets are not subject to any blanket prohibition or ban in the UK, in contrast to what has been seen in other parts of the world such as China. Rather, the UK government and regulators have openly recognised the substantial benefit and use cases of crypto assets and blockchain technology, which has made the UK a ‘friendly’ jurisdiction for start-ups and established companies alike, looking to develop, create, implement, and explore this space.

Aside from an outright ban on the marketing, distribution or sale of crypto-derivative products to retain consumers, there are no specific prohibitions on the use, purchase or trading of crypto assets in the UK.

The legal status of crypto assets in the UK is that they are treated and viewed as property. While there is continuing academic and legal discussion on this classification, which does not neatly fit with crypto assets, the view that crypto assets constitute property has been accepted several times by the High Court. This has provided much-needed legal clarity as to the status of cryptoassets, and how they are to be treated under existing laws and frameworks. This approach by the High Court has meant that England and Wales have emerged as a favourable forum for resolving crypto assets disputes, as the legal clarity provided allows for the application for well-established laws to this emerging asset class.

Are cryptoassets regulated in the UK?

The UK has positioned itself as a key participant in shaping the regulatory landscape for crypto assets, with bodies such as the Financial Conduct Authority (FCA) taking steps to define and further classify crypto assets.

Broadly speaking, the current FCA regulatory regime refers to crypto assets by way of a token taxonomy, which then dictate whether a cryptoasset is regulated or unregulated.

Security tokens and e-money tokens are regulated by the FCA, whereas exchange tokens and utility tokens are considered unregulated tokens.

  • Security Tokens: These are crypto assets with characteristics causing them to meet the definition of a Specified Investment as set out in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. An example of a security token is a crypto asset that represents shares in a company or functions as a debt instrument.

A security token essentially grants the holder financial rights, akin to a share or a bond, and crypto assets which exhibit characteristics and functions of a security token would be regulated.

  • E-money tokens: These are crypto assets which meet the definition of e-money and are subject to the Electronic Money Regulations 2011, and fall within the scope of regulation.
  • Utility Tokens: These are crypto assets which essentially act as digital coupons for the service, application or ecosystem they are associated with. They do not confer ownership rights (unlike security tokens) and nor do they represent an investment in the issuer. They are often used as a means of exchange for goods or services, or to acquire access to a particular service or application. Utility tokens are unregulated – examples include Basic Attention Token (BAT), Filecoin (FIL), and Axie Infinity (AXS).
  • Exchange Tokens: These include crypto assets that are used in a similar way to traditional fiat currency as a means of exchange, although they do not meet the criteria to be considered a currency. Similar to Utility tokens, they do not grant the holder any ownership rights or rights associated with specified investments. They are often held as speculative investments, as well as a means of exchange. Exchange tokens are unregulated, and examples include Bitcoin (BTC) and Ether (ETH).

The FCA takes a substance over form view in relation to crypto assets. In other words, if a crypto asset has the substance of a traditional financial instrument, regardless of whether it is in digital form, it will fall under the FCA’s regulatory ambit.

Crypto assets lacking the characteristics of a traditional financial instrument, including those like Bitcoin, Ether, and other various utility and exchange tokens, are not currently regulated. It is also prudent to note that even if a crypto asset is unregulated by the FCA, certain activities relating to or involving those crypto assets may trigger other regulatory regimes.

The prevailing sentiment appears to be indicating increasing regulation and oversight into the crypto sector, driven by concerns in relation to consumer protection, stability of the financial markets, and various financial scandals that have happened within the crypto sector in recent years. There is an ongoing consultation which proposes to bring crypto assets within the scope of existing legislation by considering them as a specified investment under the Financial Services and Markets Act (Regulated Activities) Order 2001. The consultation process remains underway, and its outcomes will significantly influence the future regulatory framework for crypto assets.

Conclusion

The landscape of crypto assets and their regulation is complex, rapidly evolving, and varies across jurisdictions. The implications for individual investors and crypto asset enterprises are substantial. The complexities of crypto assets covered in this article only scratch the surface, and it is essential to seek out expert advice in order to ensure that guidance is tailored to one’s situation.

Steven Bernstein discusses private ownership of businesses in Law360

Posted on: January 23rd, 2023 by Maverick Freedlander

Steven Bernstein, Senior Director in the Corporate and Commercial department and co-founder of Lawrence Stephens, argues that some companies fare best when owned privately, in Law360.

Steven’s comments were published in Law360, 20 January 2023.

Discussing Seraphine Group PLC’s £15.3M Takeover by Mayfair Equity Partners LLP, Steven commented: “From my perspective, it’s an interesting example that maybe not every business is well suited to be on the public market…

“And then there are some businesses that are just better owned privately, because there’s just a greater degree of flexibility, and you can make quicker decisions without the scrutiny that comes from being in a public space.”