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Yesterday’s Losses, Tomorrow’s Gains

The 2024/25 tax year has just come to a close, which means the window is now open to submit that year’s tax returns.

If you have been investing in cryptoassets, you need to think carefully about whether you have a tax liability, and whether you need to submit a tax return. Now would be a good time to review our previous guidance on cryptoasset taxation.

Hopefully you have some big gains to report. However, sometimes you win, and sometimes you lose. Not every year is necessarily going to be a success: sometimes you may find that your losses in a tax year outweigh your gains.

While no-one enjoys losses, there is one silver lining, as you can carry them forward to future years. This means that when (hopefully) you make gains in the future, you will be able to offset these losses, and so reduce your Capital Gains Tax bill.

However, there is a catch, as you can only make use of losses that you have reported to HMRC within four years of the end of the tax year in which they arose. If you fail to tell HMRC about them within this period, then they are simply wasted.

You can of course report losses within a tax return, but if you are not required to submit a tax return for the relevant tax year, you can still simply write to HMRC to claim the losses. They will then be available to carry forward indefinitely until you have capital gains to offset them against.

For example, after a bad year of cryptoasset investments you might find yourself with net losses of £100,000. Then, in a future year, you might end up with net gains of £200,000. Provided you remembered to claim the losses in time, you can offset the loss, which (at a top Capital Gains Tax rate of 24%) will save you £24,000 in tax.

It’s not just your actual losses that can be claimed. If you have tokens that have become worthless, or if you have lost one of your keys, you may be able to put in a negligible value claim, which generates a loss as though you had sold the token for a nil value.

The cryptoasset experts in the Private Wealth & Tax team at Quastels can help with these issues. They are able to calculate your income and gains (or losses) and can assist in reporting this to HMRC. They can also provide advice on tax and estate planning with cryptoassets, as well as advising on the law regarding digital assets and digital estate planning generally.

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Youth Is No Exception: The Importance Of Wills

The unexpected and tragic passing of Liam Payne in October 2024 has brought to light the critical importance of estate planning and wills. 

The former One Direction star died without leaving a valid will, leaving his £24.3 million estate to be managed under UK intestacy laws. This situation raises the potential complications and unintended consequences that can arise when individuals, regardless of their wealth, status or age, fail to put in place proper arrangements.

The Consequences of Dying Intestate

In the UK, when someone dies without a will, their estate is distributed according to the rules of intestacy. These rules prioritise spouses, civil partners, and direct descendants, but they do not account for cohabiting partners, stepchildren, or close friends. In Payne’s case, his entire estate is set to be inherited by his eight-year-old son, Bear. However, as a minor, Bear cannot manage the estate himself, leading to the appointment of his mother, Cheryl Tweedy, and a music lawyer as administrators to oversee the estate until Bear reaches the age of 18.

This arrangement, while legally sound, may not reflect Payne’s personal wishes. Without a will, there’s no formal record of how he intended his assets to be distributed, potentially leading to family disputes or legal challenges. In addition, the absence of a will means that specific bequests to friends, charities, or other individuals cannot be honoured, regardless of any verbal intentions or informal agreements.

Inheritance Tax Implications

One of the significant drawbacks of dying intestate is the potential for increased Inheritance Tax (IHT) liabilities. In the UK, estates exceeding the nil-rate band of £325,000 are subject to a 40% IHT on the amount above this threshold. While there are allowances, such as the residence nil-rate band, which can increase the threshold to £500,000 when passing the family home to direct descendants, these benefits may not be fully utilised without proper estate planning.

A well-drafted will can incorporate strategies to mitigate IHT.  For instance, leaving at least 10% of the estate to charity can reduce the IHT rate on the remaining estate from 40% to 36%. Without a will, these opportunities for tax efficiency are often missed, potentially reducing the value of the inheritance passed on to beneficiaries.

The Importance of a Will in Succession Planning

Beyond tax considerations, a will is a fundamental tool for succession planning. It allows individuals to:

• Appoint Executors: Designate trusted individuals to manage the estate, ensuring that assets are distributed according to the deceased’s wishes.
• Assign Guardians: Specify who will care for minor children, providing clarity and security for their future. 
• Detail Specific Bequests: Allocate particular assets or sums of money to friends, relatives, or charities, ensuring that personal relationships and philanthropic intentions are honoured.
• Establish Trusts: Create trusts to manage assets for beneficiaries who may not be ready or able to handle large inheritances, such as minors or individuals with disabilities.

In Payne’s situation, the lack of a will means that these critical decisions are left to the courts and administrators, which may not align with his personal preferences.

The Risks of Inheriting Too Young 

Whilst Bear is still a minor, his inheritance will be held on a statutory trust until he turns 18. At that age, Bear would gain full and unrestricted control over the entire estate, regardless of his financial maturity or readiness. This creates a considerable risk that the wealth could be mismanaged, lost, or attract unwanted influence. 

Proper estate planning could have mitigated these risks through the creation of a discretionary trust, allowing appointed trustees to manage and distribute funds according to Bear’s needs and maturity level over time, rather than handing over multi-millions at a legally but not necessarily developmentally appropriate age. This approach not only protects the estate but also supports the long-term well-being of the beneficiary. 

Potential Claims Under the 1975 Act

One further complication in cases of intestacy, especially among the wealthy and high-profile, is the increased likelihood of litigation. Under the Inheritance (Provision for Family and Dependants) Act 1975 (the 1975 Act), certain individuals can bring a claim against the estate if they believe that the distribution under intestacy (or even under a valid Will) does not make “reasonable financial provision” for them.

Eligible claimants include spouses, former spouses who have not remarried, cohabitees who lived with the deceased for at least two years, children, and individuals being maintained, wholly or partly, by the deceased immediately before their death. 

If Payne had individuals financially dependent on him who are not adequately provided for under intestacy, they may have grounds to bring a claim. 

While the 1975 Act can offer a safety net in certain circumstances, litigation is expensive, time-consuming, and emotionally fraught. It also places a public spotlight on the deceased’s personal affairs – something most would wish to avoid. A valid, well-drafted Will is the simplest way to reduce the risk of such disputes and ensure clarity for all involved.

Key Takeaways

Liam Payne’s intestacy serves as a poignant reminder of the importance of proactive estate planning. Regardless of age or wealth, creating a will ensures that your assets are distributed according to your wishes, minimises potential tax liabilities, and provides clarity and security for your loved ones. 

While the topic of wills and estate planning may seem premature, especially for young individuals, taking the time to address these matters is a responsible and caring act that can prevent unnecessary complications and provide peace of mind for both you and your family.

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The UK’s New FIG Regime: A Potential One-Year Tax Holiday in Disguise?

So I’ve been thinking? Might the FIG be the juiciest tax holiday that’s ever been created?

For background, the UK government’s newly introduced Foreign Income and Gains (FIG) regime has been billed as a more equitable and modern approach to taxing international wealth. But looking more closely and viewing it from a more practical set of lenses and you’ll notice a striking outcome: for internationally mobile entrepreneurs, the FIG regime could offer what amounts to a one-year tax holiday to realise significant capital gains – including the sale of a business – before departing the UK again, entirely tax-free.

What’s the FIG all about?

At the heart of the new regime is the offer that individuals arriving in the UK after 6 April 2025 will enjoy a four-year window of tax exemption for foreign income and gains – provided they meet the eligibility criteria. Crucially, unlike the remittance basis (which taxed foreign gains when brought into the UK), the FIG regime simply ignores foreign income and gains in that four-year window – regardless of whether the proceeds are brought to the UK or spent abroad.

What’s the juice then?

This creates an obvious planning opportunity for a certain category of internationally mobile individuals, namely those who are planning to sell a business or realise significant gains in the near term. For them, the UK may become an unexpectedly attractive jurisdiction to relocate to for a short period. To be clear, we are not talking about those looking to settle permanently, but rather short-term stays to shelter a future disposal from tax.

Let’s imagine a scenario: An entrepreneur based overseas identifies a potential exit event for their business within the next year or two. They relocate to the UK in 2025 under the FIG regime, enjoy all the benefits of life in London or elsewhere, sell their business within their four-year window, and then leave the UK shortly thereafter, well in advance of being exposed to UK tax on their worldwide income and gains. We are also assuming, for these purposes, that the tax where the business is based is lower, negligible or non-existent, possibly based on their non-residence in that jurisdiction.

From a policy perspective, this raises a serious and legitimate question: will the FIG regime produce the long-term tax revenues the government hopes for or will it simply encourage short-term ‘tax tourism’ by highly mobile individuals? Ultimately, there is currently no requirement for new arrivals to commit to the UK for any meaningful period beyond the four-year window.

What’s next?

This is not to say that the FIG regime is without its advantages. However, if the government’s objective is to attract genuine long-term residents and tax payers who contribute more into the overall tax take, the regime may need further safeguards. Without them, the risk is that the UK simply becomes a short-term tax shelter for business owners who never intended to make the UK their permanent home. How might this enrage other jurisdictions with whom the UK is intended to cooperate on the global mission for tax fairness.

The challenge for policymakers will be to balance the UK’s competitiveness as a destination for international talent with the integrity of its tax system. As always, clever tax planning tends to find opportunity in new rules, and the FIG regime may prove no exception.

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