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Abtin Yeganeh comments on the Renters’ Rights Bill capping up-front payments for renters

Posted on: January 13th, 2025 by Natasha Cox

Director and Head of Property Litigation Abtin Yeganeh comments on a new provision of the Renters’ Rights Bill making it illegal to ask tenants to pay more than one month’s rent plus a six-week deposit up front.

Abtin’s comments were published in Metro, 10 January 2025, and can be found here.

Will the new legislation work?

So, why have landlords been allowed to ask for such vast amounts upfront until now?

As Abtin Yeganeh, Director and Head of Real Estate Disputes at Lawrence Stephens tells Metro, landlords often use these hefty deposits for peace of mind when, for example, tenants might not have a UK-based guarantor.

‘In order to tackle issues of bad credit and/or renting to overseas individuals, landlords often seek rent in advance as additional financial security. This can amount to six months’ rent in advance,’ Abtin details.

But as he believes, we’ll have to wait and see how it pans out – and whether landlords listen to the details of enforcement.

‘The outcome of these reforms is that tenants should, in theory, have more options when it comes to securing rental properties as they will not have to compete with prospective tenants who can pay a lump sum in advance. 

‘However, given that landlords have a choice as to who they want to take on as a tenant, it remains to be seen whether the proposed changes have the desired effect.’

For more information on our Real Estate Disputes services, please click here

Emma Cocker comments on managing discrimination and harassment in the workplace

Posted on: January 9th, 2025 by Natasha Cox

Senior Associate Emma Cocker comments on the legal action facing McDonald’s over allegations of widespread harassment and discrimination, and discusses employers’ obligations to protect their staff and workplace.

Emma’s comments were published in Business Matters Magazine, 7 January 2025, and can be found here.

“All employers have duties to protect their staff against discrimination and harassment in the workplace – obligations which apply regardless of whether people are engaged on a full-time, part-time or zero hours basis.

“However, with most McDonald’s workers being engaged on a zero hours basis, individuals will be acutely aware of their employment insecurity. They are also likely fearful of being subjected to detrimental treatment for raising complaints. The abuse which arises from the imbalance of power inherent in these types of workplace relationships can lead to significant liability for businesses, of which employers must be conscious.

“It would appear that McDonald’s still has a long way to go in providing a safe working environment free from discrimination and harassment. How they handle these claims will likely be carefully scrutinised. The longer businesses allow this kind of behaviour to persist, the longer the list of grievances and legal claims they will face.”

For more information on our Employment services, click here

Matt Green comments on the rise of Big Tech lawsuits in CDR Magazine

Posted on: January 7th, 2025 by Natasha Cox

Head of Blockchain and Digital Assets and Technology Disputes Matt Green comments on the rise in litigation against Big Tech companies, and explores how regulation must adapt to provide better protection and recourse for consumers.

Matt’s comments were published in CDR Magazine, 6 January 2025.

“There have been very few useful regulatory protections for consumers, although attempts have been made under financial promotions regimes.

“There is a severe lack of protections for consumers broadly when dealing with crypto assets, particularly at retail exchanges. Under recent case law, the trend is to treat crypto exchanges like banks, which themselves are governed following hundreds of years of banking law with consumer protection in place. 

“However, these laws cannot be applied to crypto exchanges given technical and operational differences. On that basis, crypto exchanges are given wide protections for how they custody and pool assets (tilting in favour of their own interests), but consumers are left without recourse where those exchanges are unwilling to help.”

For more inforamtion on our regulatory services and crypto practice, please click here

William Bowyer comments on the significance of McLaren Racing’s $30m claim against Alex Palou 

Posted on: January 2nd, 2025 by Hugh Dineen-Lees

Associate and sports law specialist William Bowyer comments on how McLaren’s claim against Palou will likely set a precedent for similar F1 contract disputes going forward – it will either enable racing drivers to have greater choice with respect to moving teams, or discourage them from moving whilst still under contract.

William’s comments were published in City AM, 24 December 2024, and can be found here. 

“Given the value of the claim, the current profile of F1, the nature of a driver’s role within a race team and McLaren’s position in the sport, this is a hugely important sports law case and will likely set a precedent for similar F1 contract disputes going forward.

“Given the nature of this case, it will be interesting to see what the court considers – or does not consider – to be caused by Palou’s breach of contract and/or what is reasonably foreseeable regarding the losses claimed by McLaren. McLaren will be pushing for a wide range of losses to be considered from livery changes, new marketing spend, unforeseen spend on new drivers and loss of sponsorships.

“When a party breaches a contract, the “innocent” party (in this case McLaren) often has a right to an award of damages if they have come into loss as result of the breach. It is important to remember that the purpose of damages (from an English Law perspective) is to put the innocent party in the same position as if the contract had not been breached. Therefore, McLaren can only be awarded as much as the court considers necessary to reach that position. We often see scenarios where parties attempt to recover beyond what is necessary to place them back in that position.

 “Should the court side with McLaren, drivers would be discouraged from moving teams whilst still under contract based on their perceived chances of success, and help ensure that race teams hold the power.

“However, should the court consider the damages to be far lower than McLaren claims, racing drivers will likely breathe a sigh of relief. Whilst they would still have to pay damages for breaching a driving contract, it may enable them to have greater choice to choose teams based on the opportunities presented to them – if they consider the pros of switching teams whilst still under contract to be greater than the costs they may incur.

 “Importantly, McLaren’s dispute with Palou highlights the importance of drivers seeking tailored and sports-specific legal advice before signing any ‘seat deal’ – especially before a decision as big as changing teams.”

Joanne Leach, Emma Cocker and Becci Collins examine the government’s crackdown on foreign labour exploitation, in People Management

Posted on: December 19th, 2024 by Natasha Cox

Senior Associates Joanne Leach and Emma Cocker and Solicitor Becci Collins explore the government’s recently announced plans to tighten immigration systems, and discuss how this will impact employers and employees, in People Management.

Joanne, Emma and Becci’s article was published in People Management, 17 December 2024, and can be found here.

Government cracks down on foreign labour exploitation: what employers need to know

Emma Cocker, Joanne Leach and Becci Collins explain recently announced plans to tighten immigration systems, and how they will affect business that hire overseas talent.

On 28 November 2024, the government announced that it intends to tighten immigration worker systems by extending categories of breaches, as well as strengthening sanctions. In its pre-election manifesto, the government stated that it intended “to reduce net migration through proper control and management of the visa framework”. The proposed new rules are evident of the government’s intent to “crackdown on visa abuse and prevent exploitation”.

The government proposes extending the circumstances in which sanctions can be issued to companies that sponsor overseas workers, to include those who commit serious employment breaches. It is expected that this will include the reforms proposed in the Employment Rights Bill published in October, as well as existing rights, such as the entitlement to national minimum wage. However it is unclear how a company will be judged to be in breach of employment laws. Such a finding could potentially derive from a successful employment tribunal claim, or a new regulatory body may be tasked with assessing failure to comply with minimum standards.

The current sanctions available to enforcement officers in relation to companies held in breach of immigration laws can only be issued for a period of 12 months. For those who commit repeat offences, this period will be doubled to “at least” two years, suggesting there is a possibility of longer sanction periods.

There will also to be a new initiative to take pre-emptive action against those who are suspected of committing serious breaches.  Where there are already signs of rule breaking, the government intends to use action plans to bind businesses to take specified steps to improve and correct issues. Currently, action plans can be implemented for a period of three months. However, this is to be extended to 12 months. If the required improvements are not made, the sponsor’s licence will be revoked.

Tougher rules to prevent companies exploiting cheap foreign labour should be welcomed. Workforces are strengthened by the diversity brought to organisations by migrant workers and those individuals deserve not to be exploited. This issue is also addressed by proposals that intend to prohibit exploitation by passing on the costs of recruiting overseas workers to the individual, sometimes at a premium or excessive rate. These costs can result in individuals being left with unfair and unmanageable debts to their employers. The proposal to ban these practices will help to ensure that only businesses who genuinely require overseas workers – and can afford to recruit them in a fair and respectful way – benefit from the immigration system.

Prudent employers will take the recently published statistics as a warning, indicating how seriously the government takes the issues of tackling abuse and failing to adhere to the immigration system rules. For example:

  • In October 2024, there were 856 visits conducted to businesses suspected of employing illegal workers, a 55% increase on visits carried out in October 2023.
  • Between January and October 2024, more than 6,600 visits were made, a 22% increase on the same period in 2023.
  • Between January and October 2024, over 4,600 arrests were made, a 21% increase on the same period in 2023.

The government’s intention to expand the circumstances in which sanctions can be issued to include employment law breaches, and to extend the penalty from being banned from hiring overseas workers from one year to two, will shift the compliance landscape considerably. Further extending the power of Home Office officials to permanently withdraw a company’s sponsorship licence if they breach employment laws could have catastrophic consequences for businesses relying on an overseas workforce. However, it seems that the proposed expansion only applies to companies. It may be more effective to increase the sanctions on individuals who facilitate these breaches – perhaps further changes are to come before the draft legislation reaches parliament.

It is uncertain when we can expect this law to come into effect, but we shouldn’t expect this to be the final crackdown by the government. We may also see the reintroduction of the resident labour market test, or salary thresholds and visa fees being increased. Hopefully, the government will consult early as to how these changes may be implemented but, in the meantime, companies effectively have a grace period to get their house in order.

Companies should take an active approach to ensure compliance in all areas of employment and immigration law and they should do more than take a simple ‘tick box’ approach. Employers should review their policies and procedures to ensure they are up to date and meet minimum standards to avoid the above-mentioned sanctions, as well as the reputational damage and disruption to the running of a business held to be in breach of immigration and/or employment laws.

This announcement should serve as a wake-up call to all employers that they must comply with employment laws as well as immigration rules, otherwise they will face increasingly severe consequences of enforcement.

If you have any questions about the government’s plans and how you can ensure your business is complying with employment and immigration laws, please contact a member of the Employment team.

Matt Green co-authors chapter of The Founders’ Guide to UK Crypto Law

Posted on: December 16th, 2024 by Natasha Cox

Matt Green, Director and Head of Blockchain and Digital Assets at Lawrence Stephens has contributed to the launch of a new guide, The Founders’ Guide to UK Crypto Law by Lisa McClory, Digital Technologies Lead at D2 Legal Technology, an award-winning legal data consulting firm.

Matt’s co-author is Marcin Zarakowski, CEO of Token Recovery. In their chapter on ‘Tracing, Freezing and Recovery – when crypto assets are stolen‘, they explain the risks, and the legal procedures available to those affected.

The publication came about through the recognition of the urgent need for some solid and practical guidance for projects looking to start out in the Web3 space (the concept emphasising personal data ownership and the use of blockchain technology and cryptocurrencies).

The guide brings together many of the top experts in the area to deliver on this objective. It is intended as a starting point for Web3 builders and entrepreneurs in the UK. The guide acknowledges the important role that law and regulation play and seeks to assist projects in overcoming uncertainty, avoid pitfalls and generally equip the reader with the essential knowledge to empower and catalyse their ideas.

To read the guide please follow the link: The Founder’s Guide to UK.pdf – Google Drive

Seasonal parties and employer liability for acts of misconduct by employees

Posted on: December 6th, 2024 by Natasha Cox

‘What happens on a staff night out, stays on a staff night out’

The holiday season is well underway with Christmas parties planned and booked. However, with seasonal joy and merriment comes a warning: inappropriate acts carried out by staff at company events can lead to liability on the part of employers.  

While it is well known and accepted that employers may be liable for inappropriate conduct by staff members in ‘the workplace’ and during office hours, employers are often less well versed in how to deal with inappropriate conduct at work-related events. So where is the line between work and non-work-related events, and how can employers best protect themselves?

Events outside the workplace and outside of working time

The law states that employers are liable for acts of harassment and sexual harassment carried out by their employees ‘in the course of employment’.

Despite this, there is a common and somewhat dangerous misconception that “what happens on a staff night out, stays on a staff night out.” This was the exact sentiment declared by a manager to Ms Pealing, a junior employee, before he attempted to place a banknote in her cleavage[1]. The respondents’ representative submitted that the manager’s conduct “wasn’t in works time, nor was it on works premises; it happened outside of work,” suggesting the employer would not be liable for the manager’s sexual harassment.

In Chief Constable of Lincolnshire Police v. Stubbs[2], the Employment Appeal Tribunal acknowledged that the dividing line between employment and off-duty conduct can become especially blurred where social events involving colleagues are concerned. Further, in Lister & Ors v. Hesley Hall Ltd[3], the House of Lords held that the question to be asked is whether the employee’s wrongful acts were “so closely connected with his or her employment that it would be fair and just to hold the employer vicariously liable”.

In the present case, the night out was attended almost exclusively by the first respondent’s employees. The premises at which the event took place was closed for the evening, and the two directors of the respondent company made a financial contribution to the night out. For these reasons, the Tribunal arrived at the unanimous view that there was a sufficiently ‘close connection’ between the employer and the incident to render it just that the employer should be vicariously liable for the manager’s sexual harassment.

The claimant in this case said she was left feeling “objectified” and “humiliated” and was awarded more than £5,000 in compensation.


Christmas parties in the employment tribunal

Each year the employment tribunal publishes a report on cases heard. This year to date, ten employment tribunal claims have cited Christmas parties and one third of the reported cases related to sexual harassment and/or discrimination related to sex.  

Employers must be aware that work-related events carry risk, in particular, where alcohol is involved. Sexual or sex-based harassment and discrimination is the largest area of risk, with the heady combination of alcohol and seasonal jollity sometimes becoming a toxic combination clouding employees’ judgement.

In addition to Ms Pealing’s case described above, there are a number of other cases which highlight the risks arising from such events, including:

  • In P v Chrest Nicholson Operations Limited[4], P’s complaints of harassment were upheld and her employer was liable, following a colleague of P attempting to kiss them whilst travelling in a taxi to a hotel following the company Christmas party, and P subsequently being raped by her colleague.
  • In Phillips v Pontcanne Pub Company Limited[5], Ms Phillips brought a successful constructive dismissal claim after she was put in a ‘playful’ headlock by a colleague during the company Christmas party which left her unconscious.


What steps can employers take to mitigate risk arising from workplace events?

While it is unlikely that employers will be able to eliminate all risks arising from workplace events, there are steps that can and should be taken both preventatively and following any complaint, to avoid escalation to an employment tribunal claim.

Preventative steps are even more important since the introduction in October of the new requirement for employers to take a positive action to prevent sexual harassment. Under the Worker Protection Act 2023 employers must take ‘reasonable steps’ to actively prevent the sexual harassment of their employees. If they don’t and the worst happens, they may be liable for compensation plus an additional uplift of 25% on the total compensation in relation to such failures. Examples of preventative steps include:

  • Carrying out risk assessments of the workplace and any particular events;
  • Implementing (or updating) policies relating to discrimination, harassment and disciplinary and grievance procedures; and
  • Training the workforce on what constitutes discrimination and harassment, the employer’s behavioural expectations and what to do if they are a victim.

As well as the positive duty to prevent sexual harassment, the law on harassment may afford an employer a defence to a claim of vicarious liability by showing that they took ‘all reasonable steps’ to avoid harassment (which is a higher bar than the ‘reasonable steps’ required under the preventative duty). An example of such a defence succeeding (albeit in the context of a personal injury claim) can be seen in the case of Shelbourne v Cancer Research UK[6] where the employer had risk assessed the event and sought to minimise any risks identified by hiring additional security guards and so they were not liable for the injuries suffered by one employee who was assaulted by another employee.

Employers should also be aware of the culture they are creating. The effect on the victim of any harassment is viewed subjectively, meaning that the effect is viewed through the eyes of the victim. As such, any claims that the behaviours were ‘banter’ or ‘a compliment’ are not an adequate defence. Employers should aim to cultivate a culture of respect and inclusivity and make it clear that discrimination and harassment will not be tolerated and will lead to disciplinary action.

If complaints of discrimination or harassment are made, these should be properly investigated, and disciplinary action meted out where necessary. In addition, complainants should never be treated less favourably for raising issues of discrimination and harassment.

How we can help

If you have any questions about employers’ duties to prevent discrimination and harassment or if you need assistance regarding employee complaints, please contact a member of our Employment team.

 

Sources:

[1] 8000363.2024_-_Miss_Freya_Pealing_v_1__The_Croft_Aberdeen_Ltd_2__Andrew_Robert_Eagar_-_Judgment.pdf (publishing.service.gov.uk)

[2] [1999] ICR 547

[3] [2001] ICR 665

[4] P v Crest Nicholson plc and Crest Nicholson Operations Limited: 3311744/2020 and 3313454/2020

[5] Phillips v Pontcanne Pub Company Ltd: 1600719/2018

[6] [2019] EWHC 842 (QB)

Matt Green comments on the Digital Assets Bill in eprivateclient

Posted on: November 18th, 2024 by Hugh Dineen-Lees

Director and Head of Blockchain and Digital Assets Matt Green comments on the introduction of the Property (Digital Assets etc) Bill, and argues that this legislation will provide greater clarity to the treatment of cryptocurrencies and digital assets under UK law.

Matt’s comments were published in eprivateclient, 15 November 2024, and can be found here.

“Property rights allow individuals to identify and demarcate ownership. In turn, being deprived of property creates a right in either damages or for that exact property to be owed. This ensures there’s greater market confidence when dealing with property, as there are clearer legal rights to ownership, control and general treatment of that property.”

“Historically property fell into two main categories – things that are tangible and exist physically or a contractual right enforced by a legal system (such as a debt claim or contractual right to goods). Digital assets (including cryptocurrencies, digital files and records, email accounts and certain in-game digital assets, domain names, even verified carbon credits) do not fall neatly into either category.”

“Use of a negative definition as proposed in the Digital Assets Bill, future proofs how property is treated, preventing the need to return to the issue for decades to come. To give an exhaustive list of what property is limits what may or may not exist going forward, so the wording is designed to ensure policymakers and the public at large are given that freedom to treat “things” as property when required, as well as the ability to sensibly divert from the rigid definition of property when required.”

“Although a welcome change for a legal system previously often unequipped to deal with such matters, enabling a “thing” to be property even where it is not tangible or creates a legal right may create inconsistencies at common law given the broad strokes definition. However the benefit of future proofing far outweighs the potential for inconsistencies and the Law Commission included guidelines as to what may constitute property under this Bill to assist decision makers.”

“As more “things” become property at a legal level, we may see the implementation of further laws, or even Judge’s decisions, which sweep up any unanswered issues. Overall, this Bill is a huge win for those dealing in digital assets, providing much needed clarity in an economy already utilising this technology at large.”

Effects of the budget changes on owner managed businesses

Posted on: November 5th, 2024 by Hugh Dineen-Lees

Rachel Reeves finally delivered the first budget of the new Labour Government on 30 October 2024. Following intense speculation beforehand (including our own!), industry commentators in the aftermath of the announcements were suggesting that the budget was not as dramatic as they had expected. Perhaps this was more down to the carefully thought-through campaign leading up to the announcements and an excellent presentation of the changes on the day.

Most commentators have, however, pointed out that these changes will mean that businesses and entrepreneurs will be paying more tax, in some cases as soon as today. Now that the dust has settled and further analysis has taken place, we can take a look at the key changes introduced and their implications for owner-managed businesses.

Capital Gains Tax (CGT)

Business owners considering selling their company will be very interested in any changes to CGT. These were keenly anticipated, and it was confirmed that these and the tax on carried interest will rise from April 2025.

With immediate effect, the rates of CGT increased from the current 10% (for basic rate taxpayers) and 20% (for higher and additional rate taxpayers) to 18% and 24% respectively. There are special provisions for contracts entered into before 30 October 2024 but completed after that date. Anti-forestalling rules were also introduced with immediate effect which can, in certain circumstances, apply to unconditional contracts entered into before 30 October 2024 which were not completed by then. The rates for selling second properties remain at 18% and 24% respectively.

The CGT rate for Business Asset Disposal Relief (BADR), which can apply to lifetime gains of £1m on certain disposals by employees and directors in their unlisted businesses, will continue. However, the tax rate will increase from the current 10% to 14% for disposals made on or after 6 April 2025, and from 14% to 18% for disposals made on or after 6 April 2026. It has been calculated that this will mean an increased bill of up to £80,000 for those planning to sell their businesses after April 2026.

Investors’ Relief (IR) provides for a lower rate of CGT to be paid on the disposal of ordinary shares in an unlisted trading company where certain criteria are met, previously subject to a lifetime limit of £10m of qualifying gains for an individual.

It is aimed at encouraging entrepreneurial investors to inject new capital investment into unquoted trading companies.

The CGT rate for IR, which applies in similar circumstances to BADR but where the investor is unconnected with the business, will increase in parallel with the BADR rates. Furthermore, the lifetime limit for this relief will also reduce from £10m to £1m for disposals made on or after 30 October 2024, significantly limiting its financial benefit going forward.

Carried interest changes

Carried interest refers to the performance-related rewards received by fund managers, primarily in the private equity industry. Previously, carried interest was taxed at lower capital gains tax rates, compared with income tax rates. The Budget changes included an increase in the CGT rate for all carried interest gains to a new flat rate of 32%, applying to carried interest arising on or after 6 April 2025. This is a temporary measure ahead of wider reforms that will apply from the following tax year. From 6 April 2026 a specific tax regime for carried interest will be introduced, moving it from the CGT framework to income tax. All carried interest will then be treated as trading profits and subject to Income Tax and National Insurance Contributions (NICs). However, the amount of ‘qualifying’ carried interest subject to tax will be adjusted by applying a multiplier resulting in an effective tax rate at 34.1% including NICs. Some might see this change as somewhat cosmetic, but it seeks to deal with some of the negative perceptions about carried interest representing remuneration rather than true capital gains.

These are all significant changes but, according to an analysis by Grant Thornton, this “still presents an attractive environment for management incentives and investors and is unlikely to discourage ongoing deal activity”. They “therefore expect the impact on M&A to be less severe than anticipated with the announcements ensuring the UK remains an attractive and internationally competitive environment for investors”.

Changes to Inheritance Tax (IHT)

While the CGT announcements were not as drastic as some had been speculating, the IHT reforms present a substantial shift in the tax landscape, especially for entrepreneurs and business owners. The changes introduced in the budget have particularly alarmed farmers and small business owners as from 6 April 2026, a 20% tax rate – half the headline inheritance tax rate of 40% – will be applied to the value of farms and businesses worth more than £1m when they are passed on.

The existing 100% business property relief and agricultural property relief will continue only for the first £1m of combined agricultural and business property after 6 April 2026. The rate of relief will be 50% thereafter, effectively making this a 20% IHT charge.

This presents a risk for family business owners as well as their companies, which will no doubt have to play a major part in funding any IHT that is due.

Changes to National Insurance contributions

From April 2025, employers’ NICs will increase from 13.8% to 15%. The threshold at which employer NICs become payable will fall from £9,100 to £5,000. To help mitigate these additional NICs costs for smaller employers, the employment allowance (which allows businesses whose annual NICs bill is less than £100,000 to reduce their NICs costs) will increase from £5,000 to £10,500 per year, and will apply to all businesses as the £100,000 threshold will be removed.

These changes present a challenging scene for our retailer and hospitality clients. The changes in NICs will be accompanied by increases to the National Minimum Wage and National Living Wage rates. This rising cost base will be particularly felt by people heavy businesses, perhaps making life on the high street even harder.

Autumn Budget: Potential changes of concern to owner managed businesses.

Posted on: October 24th, 2024 by Hugh Dineen-Lees

As the Autumn Budget approaches on 30 October 2024, speculation is rife about potential changes. Labour has pledged to make the tax system fairer, delivering economic stability with tougher spending rules, and growing the UK economy at the same time.

There has been much commentary regarding how to address the ‘£22bn black hole’ in the government’s finances identified by the incoming government. But having ruled out changes to the rates of the UK’s major taxes, the government has been left with fewer options to raise revenue. The implications of these for owner managed businesses could be significant, particularly changes to Capital Gains Tax (“CGT”), Business Asset Disposal Relief (“BADR”), increases to National Insurance Contributions (“NIC”) from Employers, and changes to Inheritance Tax (“IHT”) Business Relief (“BR”).

Here’s a look at what might be on the horizon:

Increase in CGT rates

Presently, the CGT rate for basic rate taxpayers is charged at 18% on disposal of residential property and 10% for all other assets. The CGT rate rises to 24% on residential property and 20% on other assets for higher or additional rate taxpayers.

In addition, if you qualify for BADR, CGT is charged at a reduced rate of 10% for the disposal of qualifying business assets.

Compared to income tax, where higher and additional rate taxpayers are charged 40% and 45% respectively, CGT is significantly lower.

As such, it is widely speculated that the Government may increase the rates of CGT. There are two potential methods being considered. The first approach involves aligning the lower CGT rate on all other assets with the higher rate applied to residential property, thereby creating a uniform CGT rate for all asset disposals. Alternatively, the Government might adopt a more aggressive strategy by aligning CGT rates with income tax rates.

Reducing or removing the CGT annual exemption

Individuals currently benefit from an annual exemption of £3,000 for CGT. In recent years, the annual exemption has gradually decreased, with the latest reduction to the CGT annual exempt amount taking effect in April 2024, lowering it from £6,000 to £3,000.

In line with recent trends, where the annual exemption has gradually diminished, it would not be surprising to see the annual exemption being reduced further or even being removed altogether.

Reduction or removal of the lifetime limit for BADR

As set out above, BADR entitles certain individuals (if they qualify) to benefit from a reduced rate of CGT. Currently, there is a lifetime limit of £1 million, thereby allowing entrepreneurs to benefit from a lower rate of CGT on the first £1 million of lifetime chargeable gains.

It is speculated that the Government may either lower the £1 million lifetime limit, reducing the tax savings available for investors or entrepreneurs.

Alternatively, the Government may opt to abolish BADR entirely. Business owners would have to pay the standard 20% (if not more if the government decide to increase the CGT rate) on all gains.

Increases to National Insurance Contributions from Employers

The Labour party committed in its manifesto not to increase national insurance contributions for working people. However, it did not rule out increasing the contribution from Employers which has led to speculation from informed commentators that they may increase this by 1%, making the new rate 14.8%.

While on the face of it, the predicted increase affects only employers, however there are concerns that raising employer NICs in an already stretched economy would negatively affect growth, ultimately leading to businesses having less money to invest in their staff, so that the burden would nevertheless ultimately fall largely on working people.

The Office for Budget Responsibility has commented that any rise in employer NICs would be passed onto workers and ultimately to consumers. Businesses may respond to the rise by limiting pay rises, reducing staff numbers, freezing recruitment and scaling down employee benefits. There are also arguments that the increase may complicate and distort the tax system and the jobs market, stymying the economy.

Changes to Inheritance IHT Business Relief

When children are an integral part of the running of a business, many business owners choose to gift or transfer shares in their business to them. Gifts such as this may not only be subject to CGT, but may also be subject to IHT. In these instances, BR may be available to reduce any unexpected IHT arising.

Where available, the relief reduces the taxable value of qualifying assets by either 50% or 100% depending on the circumstances.

Rumours ahead of the upcoming Budget are suggesting that we could see changes to IHT BR. This could now be capped at anywhere between £500,000 and £1m per person, removing the reliefs that currently apply without limit on qualifying assets meeting certain requirements. IHT Business Relief changes could the have a significant impact on business legacy.

When will these likely changes happen?

It is unclear what date that these changes will take effect from. There is potential that these changes may be brought in with immediate effect following the conclusion of the Autumn Budget from 30 October.

Alternatively, the Government could choose for any changes to the CGT rates to take effect upon the commencement of the new tax year – 6 April 2025.

The Government’s final decisions will be revealed on 30 October 2024 and there is considerable uncertainty what the upcoming changes may be. Please do not hesitate to contact us for further details about how the upcoming Autumn Budget may impact you.

Danny Schwarz and Stephen Dodge discuss the redevelopment of Oxford Street in Property Week

Posted on: October 2nd, 2024 by Hugh Dineen-Lees

Head of Commercial Real Estate Danny Schwarz and Trainee Solicitor Stephen Dodge explore the proposed pedestrianisation of Oxford Street, and discuss its potential impact on London’s retail and hospitality sectors, in Property Week.

Danny and Stephen’s article was published in Property Week, 2 October 2024, and can be found here.

Facelift will revive Oxford Street

Some shops may lose out, but pedestrianisation plan will broaden iconic retail destination’s tenant mix.

Last month, London mayor Sadiq Khan announced radical plans to pedestrianise London’s iconic Oxford Street. This proposal, Khan’s second for the famous high street, appears likely to succeed thanks to a Labour-led Westminster council, and for Oxford Street the timing could not be better; it is ripe for revitalisation.

The pandemic resulted in a slew of notable Oxford Street shop closures. With tourism statistics showing footfall is still yet to fully recover, it is clear that the retail district is struggling. This is hardly surprising; Oxford Street is often not London’s most desirable destination. Its pavements are cramped, the thoroughfare is plagued by antisocial drivers and the shopfronts are infested with much-derided American candy shops.

So, how will pedestrianisation breathe new life into Oxford Street? Case studies on the pedestrianisation of locations such as nearby Carnaby Street or Copenhagen’s Strøget Street are telling. Despite objections from business owners, particularly restaurateurs, these streets were closed to traffic and experienced significant increases in footfall. Local businesses benefited from an increase in customers.

However, there are risks involved in this latest proposal for Oxford Street. Prior to the announcement of plans for pedestrianisation, the post-pandemic rebound was in full swing on the street. Property vacancies are down 40% from 2023, with leasing activity breaking records in that year and remaining high now. With rents rising for commercial tenants on and around Oxford Street, mere speculation on the pedestrianisation proposal is likely to see rents continue to spike. The value of freehold titles could similarly creep upwards.

Tenants subject to upcoming rent review may see rates rise far beyond their short-run means and there is a risk that landlords may see an opportunity to trade up tenants, exercising break clauses to hike rents. Property lawyers will be busy with a flurry of breaks, renewals and disputes.

However, tenants on fixed rents may be buoyed by increased footfall and have a highly profitable few years. Tenants with high-volume businesses also stand to win regardless of their rents, as greater footfall will correlate directly to sales.

Winners and losers
Unfortunately, not everyone will be a winner as a result of Khan’s proposal. Low-volume luxury shops are often more reliant on patronage from customers who arrive by car and may prefer to move elsewhere, as their clients will not wish to brave crowds. At the other end of the spectrum, accessibility will be hampered by pedestrianisation, further inconveniencing those reliant on cabs or buses.

If these long-standing and successful luxury businesses fail, landlords will be seriously affected. Those who relied on the status quo, and did not obtain adequate guarantees or security at their last lease renewal, may also find themselves as low-ranking creditors in protracted insolvencies.

What is clear is that disruption creates opportunity and Oxford Street has already begun to change – no longer are all leases on the high street exclusively for retail use. Parts of John Lewis and similar buildings are being converted to office space, bringing a new type of consumer to the area, while parts of Debenhams are being converted for leisure use, alongside the openings of new entertainment venues. Spaces left behind in the ongoing – and welcome – retreat of American candy shops are similarly ripe for conversion into cafés, which could apply for pavement seating.

A new type of tenant, with a new clientele and different priorities, is coming to Oxford Street. Landlords may find it difficult to adjust to this new normal, but those who can be flexible and see the potential in their new tenants stand to gain from the new face of London’s iconic retail district.

If you would like further information regarding your obligations as tenants/landlords of retail spaces, please contact a member of our Commercial Real Estate team.

Employment law insight: New obligations regarding the fair distribution of tips

Posted on: October 1st, 2024 by Hugh Dineen-Lees

October 2024

The Employment (Allocation of Tips) Act 2023 (“the Act”), supplemented by a statutory code of practice and associated non-statutory guidance, comes into force today, 1 October 2024.

The Act significantly impacts the hospitality industry by introducing new rules governing how employers must deal with tips paid by customers, and it is estimated it will lead to an additional £200m being taken home by millions of workers in the UK.

The new requirements

The new legislation affects all retail and hospitality businesses including restaurants, cafes, hotels, hairdressers and taxi firms.

Businesses must now ‘fairly allocate’ all tips received. In addition, tips must be paid straight to workers and cannot be retained by the employer for any reason, including for business expenses.

“Tips” includes gratuities and service charges. However, it does not include cash tips if those are received by a worker and not declared to the employer. It does not matter if the tip is made by card, cash, or via an app.

In addition, employers must not make any deductions from tips except for tax, and where appropriate, National Insurance.

Tips must be paid to the worker/employee no later than the end of the month following the month in which it was paid by the customer.

What does fairly allocating tips mean?

The statutory code states that allocating and distributing tips fairly does not necessarily require employers to allocate the same proportion of tips to all workers, providing there are legitimate reasons why different workers are allocated different proportions.

The code provides examples of the criteria that employers may consider when allocating tips, such as:

  • the number of hours worked in the period the tips were collected;
  • individual and team performance;
  • level of responsibility and/or seniority;
  • customer intention;
  • length of service;
  • type of role (e.g., front of house or back of house); and
  • rate of basic pay.

The code prevents employers from pooling tips from multiple sites and all individuals who are involved in providing a direct service to customers should be considered as part of the distribution, including agency workers.

What do employers need to do?

Unless employers only receive tips on a very occasional or exceptional basis, they will need a written policy in place relating to the collection and distribution of tips.

They will also need to decide on their chosen method of tip distribution. How employers distribute is up to them, as long as it is fair. Some employers may choose to allow each individual worker to retain 100% of their tips received, whereas some employers may choose to implement a tronc system. However, using a tronc does not absolve employers of their responsibilities, so they will need to be careful to ensure the use of a tronc system is appropriate and that it is properly and fairly implemented. Employers should consider whether it is appropriate to seek the agreement of their staff as to which system of allocation will be used.

Employers must keep records of the qualifying tips received and how these are distributed. These records must be kept for three years from the date the tip was received and staff may request copies.

It is recommended that regular checks are made to ensure tips are being distributed in line with policies. It is also recommended that policies are regularly reviewed in line with business changes, such as restructurings or redundancies.

Connected obligations

Employers should be mindful of their data protection obligations when sharing records of tips. Employers should not provide details of the specific amounts paid to other workers, nor other people’s personal data, such as their bank details. Instead they should provide the total amount of qualifying tips received and the amount paid to the worker making the request.

Tips do not form any part of the National Minimum Wage. Employers must ensure that workers are paid in line with the National Minimum Wage and National Living Wage requirements regardless of any tips the worker may receive. 

How should an employer deal with complaints relating to tips?

The code of practice states that parties should attempt to resolve issues relating to tips between themselves. It is therefore imperative that any complaints are investigated and dealt with properly, either informally (if appropriate) or under a suitable grievance procedure.  

If the matter cannot be resolved internally, a member of staff may make a claim in the employment tribunal and they may be awarded up to £5,000 to compensate them for any financial losses relating to their employer’s failure(s).

If you have any questions on the fair distribution of tips or need assistance regarding your compliance with the new legislation, please contact a member of our Employment team.