Laws and Legal Concepts Relevant to Financial Advice

Flashcards covering UK legal systems, business types, powers of attorney, contract law, property ownership, insolvency, and trust law as they relate to financial services.

Sole Trader

An individual who solely controls their own business, is self-employed, and remains personally liable for the debts of the business.

Small Profits Threshold

The profit amount ($£6,845$) above which HMRC considers Class $2$ National Insurance contributions (NICs) to have been paid by a sole trader.

Lower Annual Limit (Class 4 NIC)

The profit threshold of $£12,570$; if a sole trader's profits are below this, they are not required to pay Class $4$ NICs.

Traditional Partnership

A business structure where two or more self-employed individuals work together, each having unlimited liability for trade debts but sole liability for their own tax.

Limited Liability Partnerships (LLPs)

Separate legal persons introduced by the Limited Liability Partnerships Act $2000$ that offer limited liability to partners while being treated like traditional partnerships for tax purposes.

Incorporation

The process of changing a partnership or unincorporated business into a limited company.

Public Limited Company (PLC)

A public company floated on the Stock Exchange that must have at least two directors, two shareholders, a nominal share value of at least $£50,000$, and a qualified company secretary.

Ordinary Power of Attorney

A grant of power that allows an individual to act for a donor only while the donor is mentally capable; it is withdrawn upon mental incapacity.

Enduring Power of Attorney (EPA)

A power of attorney established before $1$ October $2007$ that continues to be valid in the event of the donor's mental incapacity, provided it is registered with the Office of the Public Guardian (OPG).

Lasting Power of Attorney (LPA)

Introduced by the Mental Capacity Act $2005$, this agreement allows a donor to give an attorney power over personal health and welfare, or property and financial affairs.

Good Faith

A positive duty in contract law to voluntarily disclose, accurately and fully, all circumstances material to proposed risk, whether requested or not.

Insurable Interest

A requirement for life contracts where the proposer must have a financial interest in the life assured arising through a legal or equitable obligation.

Contracts Binding Unless Repudiated

A category of contracts made by minors (e.g., leases or partnerships) which they can cancel during their minority or within a reasonable time afterward.

Invitation to Treat

An insurer’s prospectus or advertisement that serves as an invitation to receive offers rather than being a legal offer itself.

Law of Agency

A contract where one party (the agent) agrees to do certain acts on behalf of another party (the principal).

Freehold

A type of ownership where both the building and the land it stands on are owned until the owner sells or dies.

Leasehold

A type of ownership where land is leased from a freeholder for a specific term, such as $99$ or $125$ years.

Commonhold

Introduced by the Commonhold and Leasehold Reform Act $2002$, this allows unit-owners to own flats in perpetuity as members of a Commonhold Association.

Joint Tenancy

A form of joint ownership where each individual has an equal share and the survivor inherits the deceased's share automatically without probate.

Tenancy in Common

A form of joint ownership where each owner holds their share separately, disposing of it via their will or the law of intestacy upon death.

Staircasing

A feature of shared ownership schemes where the purchaser can increase their share in the property by buying additional shares up to $100$% ownership.

Individual Voluntary Arrangement (IVA)

An alternative to bankruptcy where a debtor reaches a formal agreement with creditors representing at least $75$% of the debt.

Bankruptcy Petition Threshold

The minimum debt amount ($£5,000$) required for a court to consider a petition for a bankruptcy order.

Trustee in Bankruptcy (TIB)

A person appointed to realize and distribute a bankrupt individual’s estate in accordance with the Insolvency Act $1986$.

Liquidation

The process by which the existence of a company is terminated and its property administered for the benefit of creditors and shareholders.

Laws of Succession

The legal principles governing how and to whom the property of a deceased person is distributed.

Testator

The person who makes a valid will.

Attestation

The process of witnessing the testator’s signature by two or more independent people present at the same time.

Bona vacantia

A term describing the state of dying intestate (without a will).

Statutory Legacy

The fixed sum ($£322,000$) a surviving spouse or civil partner receives from an intestate estate when there is surviving issue.

Grant of Representation

A document issued by the Probate Registry authorizing legal personal representatives to deal with a deceased person’s estate.

Settlor

The original owner of property who creates a trust by giving away assets for the benefit of others.

Trustee

The person who holds legal ownership of trust property and manages it in the interests of the beneficiaries.

The Three Certainties

The requirements for a valid trust: certainty of words, certainty of subject matter, and certainty of objects (beneficiaries).

Express Trust

A trust intentionally and expressly created, usually by a written method such as a deed or a will.

Constructive Trust

A trust imposed by law regardless of the intentions of those involved, often to remedy a breach of trust.

Resulting Trust

A trust that arises when the original purpose of a trust fails, causing ownership of the property to revert to the settlor.

Bare or Absolute Trust

A trust where the trustee’s sole duty is to transfer the property to the specified beneficiary.

Reversionary Interest

The right to trust property after the termination of a life interest; the holder is often called a remainderman.

Contingent Interest

A beneficial interest that is subject to a contingency and may not come into possession.