Beware of inadvertently carrying out reserved legal activities

20th February 2018

If you had to write a list of memorable events which happened in 2007, it might look a little bit like the list below (we appreciate that this is over a decade ago and that recalling what one had for lunch can sometimes be a challenge, but bear with us on this):

  1. scientists discover kryptonite is real.
  2. “sub-prime” becomes a buzz word and queues suddenly form outside branches of  Northern Rock.
  3. the Legal Services Act 2007 is passed into law.

Okay, so we all know points I and II are universally known facts, but the last point? Well it may not have registered with you, but take it from us it was a pretty significant event.

Reserved or non-reserved?

The Legal Services Act 2007 governs the provision of legal services in the UK. It was introduced ostensibly to make the UK’s legal market more flexible. Under the Act, legal activities are divided into two types: “non-reserved” and “reserved”. Activities designated as “non-reserved” can be carried out by anyone; whereas “reserved” activities can only be carried out by “authorised persons” or “exempt persons”.

There are only 6 “reserved” activities specified in the Act:

  1. the exercise of a right of audience
  2. the conduct of litigation
  3. reserved instrument activities
  4. probate activities
  5. notarial activities
  6. the administration of oaths

Non-legal professional advisors are unlikely to ever cross swords with the majority of these “reserved activities” as they have traditionally been the preserve of legal practitioners.

However, non-legal professional advisors particularly in the tax sphere may, from time to time, be asked by their clients to carry out work which falls within the definition of “reserved instrument activities” and, as this is a “reserved” activity under the Act, it is important they understand the limits of what they are legally permitted to do (and, what they are legally prohibited from doing).

A “reserved instrument activity” includes any activity which involves preparing an “instrument” relating to “real or personal estate”. An “instrument” for these purposes includes a deed (as well as some specified forms of contract). This includes any deed which is drafted in relation to a person’s property. Most obviously, this would include any trust deed where property is being settled (e.g. discretionary trusts) but it could also capture some less obvious examples such as deeds entered into in relation to a person’s shareholding in a company (e.g. a shareholders agreement) and much more.

It is also relevant to tax advisors/practitioners as, from time to time, HMRC can require an individual to enter into a so-called “contract settlement” in respect of their tax affairs. Rather than use an actual contract, HMRC’s preference is to encapsulate these agreements in a deed. Additionally, some tax advisors/practitioners may be asked by their clients to prepare declarations of trust relating to a client’s personal assets, the terms of which will also be contained in a deed. As explained above, a deed is an “instrument” under the Act, the drafting and preparation of such in relation to an individual’s “real or personal estate” will constitute a “reserved instrument activity” therefore it should only be prepared/drafted by an “authorised person” or an “exempt person”.

A person is an “authorised person” for these purposes if he/she is regulated by an approved regulator (eg solicitors/barristers and some other legal practitioners); “exempt persons” include those who are working in the same firm as an “authorised person” with some additional specific exceptions. Tax practitioners who are members of other organisations, for example CIOT and ATT, are unlikely to be “authorised persons” or “exempt persons” for the purposes of the ACT unless they are also solicitors/barristers or employed by the same.

Accordingly, non-legal tax advisors/practitioners should take care, particularly when dealing with “contract settlements”, that they are not inadvertently undertaking a “reserved” activity. If they do so and are not “authorised” or “exempt”, they risk contravening the Act which carries with it some pretty unpalatable penalties. These include:

a criminal conviction (on summary conviction, imprisonment for a term not exceeding 12 months or, on conviction on indictment, imprisonment for a term not exceeding 2 years) and/or a fine.

Furthermore, the individual’s own regulatory/supervisory body could also take action (including placing restrictions on or limits to their right to practice). Also, those who contravene The Act would be carrying out an illegal activity and consequently could find themselves uninsured (as frequently insurance policies contain exceptions of this kind). We understand both the CIOT and the ATT are aware of this issue and have issued guidance to their members warning them against undertaking “reserved activities”.

Our practising solicitors are “authorised persons” for the purposes of the Act and therefore are able to legally undertake “reserved activities” including the drafting of deeds (and we would be happy to help you with this).

If you wish to discuss any of the content above in more detail, please contact Craig Thomas or Susheel Gupta.

This note is for general guidance purposes only and does not constitute legal or professional advice. Appropriate legal advice should be taken before action is taken.


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