Year: 2020
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Year: 2020

UK Divorce laws overhaul will ‘end blame game’ for couples

Existing UK divorce laws mean spouses have to provide evidence for a divorce if one partner does not agree to it.

For the first time in 50 years, UK divorce laws are being overhauled in an attempt to end the “blame game” for couples trying to end their marriage.

Current laws in England and Wales dictate that unless someone can prove there was adultery, unreasonable behaviour or desertion, the only way to get divorced without a spouse’s agreement is to live apart (be separated) for five years.

The new laws state that one side will now only have to submit a “statement of irretrievable breakdown” to say the marriage has broken down; instead of having to provide evidence about length of separation or their spouse’s behaviour. In addition to this,the ability of one partner to contest a divorce will also be scrapped.

The existing two-stage process of a decree nisi, a document which says the court cannot see any reason why you cannot divorce, followed by a decree absolute, the legal document which ends a marriage, will remain the same; however, a six month minimum period will be introduced between the lodging of a petition to the divorce being made absolute.

Couples will also be able to make joint divorce applications, alongside the current option for one partner to start the process.

Similar changes will also be made to the law governing the dissolution of civil partnerships.

The overhaul follows a government consultation last year, when details of the proposals were first unveiled.

The Ministry of Justice said the new legislation is expected to be introduced as soon as parliamentary time allows.

The cost of divorce

The cost of divorce in the UK has soared by 17 per cent in the past three years, with divorcing and separating couples now typically spending £14,561 on legal and lifestyle costs, a new report by Aviva reveals.

On top of this, couples who move house as a result of the separation spend tens of thousands of pounds on moving house. Those who rent – which applies to more than half of divorcees – spend around £35,000, while those who go onto buy a new property (16%) spend £144,600 on average.

The report reveals soaring legal fees and the cost of redecorating homes, as well as moving house, are central to this rise.

Legal fees have more than doubled since 2014, up by 109% from £1,280 to £2,679, with any additional costs in child custody battles having also increased by 62%, from £3,500 to £5,671.

The cost of redecorating a previously shared home has also risen by around 73%.

Concern about the cost of divorce

Due to these soaring costs, for a significant proportion of separated couples – 16% – affordability remains such a concern that they remain living together in the same house because they can’t afford to move.

Aviva’s findings indicate the majority (68 per cent) of couples who divorce or separate have financial issues to resolve, with the process taking on average 14 and a half months – three months longer than in 2014.

The report comes as new data revealed the number of divorces in England and Wales increased by 6% between 2015 and 2016 to 106,959 – in what marked the first rise since 2009.

In light of the findings, Paul Brencher, Aviva’s health and protection director, said: “The breakdown of a marriage or long-term relationship is likely to be one of the most emotionally demanding life events for people who experience it. While it may seem completely unnecessary to plan for such an unfortunate life event, it is important that both partners in a relationship take an active interest in their financial affairs, even if one tends to take the lead.”

Help

If you need expert advice on any aspect of family law, Kancelaria Prawna Bernard Łukomski is the place to turn to. Our lawyers are highly trained, experienced and knowledgeable in everything from marriage and divorce to issues involving children. If you are going through a difficult time and need expert advice you can trust, we can help.

VAT Taxation on rental of residential property. Warsaw, April 16, 2020

Rental of residential properties may be subject to three different VAT taxation regimes:

(a) exemption;
(b) the 23% VAT rate and
(c) the 8% VAT rate (so-called accommodation related services).

I. General comments

The purpose of the services provided is decisive for determining the applicable VAT rate.

The tenant’s actual use of the property should also be consistent with the intended purpose of the services.

For example, a short stay of a tourist or a businessman should be treated as non-residential stay.

Non-residential stay is typically offered by hotels, guesthouses, rooms offered for short-term rent.

The residential purpose excludes temporary stay and vice versa.

The residential purpose is related to satisfying the tenant’s vital needs.

In other words, the rental services can be exempted from VAT (e.g. renting an apartment) depending on whether the rented property satisfies the vital needs, regardless of the duration of the rental period.

II. Rental services exempted from VAT

Only a rental of real property for residential purposes is VAT-exempt.

In addition, rental services must be provided by the landlord acting on his own account.

The possibility of taking advantage of the VAT-exemption is therefore conditional upon the fulfilment of both objective and subjective criteria.

The property must be of a residential character (objective criterion) and the purpose of the rental agreement must be to satisfy the customer’s residential needs (subjective criterion).

The possibility of benefiting from a VAT exemption is therefore conditional and depends on meeting the specific requirements:

– the residential nature of the rented property and

– the purpose for which the property is used must also be residential.

As a consequence, the VAT-exemption does not apply to a rental of residential property for non-residential purposes.

The availability of the VAT exemption does not depend on the type and/or legal form of the service provider or the entity purchasing such services.

If the tenant is not a tourist, spa visitor, business traveler etc., but his/her intention is to permanently reside in a given place, then the provider of the rental services will qualify for the VAT-exemption.

Real property rental services are VAT-exempted provided that all the conditions regarding (a) the parties, (b) the object and (c) the purpose of the specific contract, are met.

Therefore, the VAT taxpayer will be able to take advantage of the VAT exemption if the lease agreement contains, inter alia, provisions clearly stipulating that it concerns residential premises and the premises may be used by the tenant only for his personal residential purposes.

III. Rental services taxed at the 23% VAT rate

A rental of residential premises by a person who does not personally provide accommodation services but provides such services, for example, to a company conducting business activities involving the provision of short-term accommodation services, is taxed at the rate of 23%.

In addition, any rental of residential property for business purposes is taxed at the rate of 23% VAT (e.g. office, company headquarters).

IV. Services taxed at the 8% VAT rate

In accordance with art. 41 section 2 of the VAT Act, the so-called accommodation-related services are subject to the 8% VAT rate.

The accommodation-related services include, among other things:

(a) accommodation and associated services provided by hotels, motels, boarding houses, wellness centers and other hotel facilities

and

(b) temporary or long-term accommodation in student hostels, boarding schools and dormitories, workers hotels, apartment houses.

The differences between a typical rental and the accommodation-related services include:

(1) the availability of auxiliary services (laundry and basic equipment for the rented premises are usually provided in addition to the accommodation services);

(2) the period of stay in the premises (usually shorter for accommodation-related services).

Where the taxpayer:

– runs a business of short-term rental of apartments for tourists and people traveling for business purposes,

– the apartments are not his /her property, but he/she manages them on the basis of separate contracts concluded with their owners,

– prepares offers and accepts reservations via online booking portals,

– responds to customers’ inquiries,

– makes sure the apartments are available to guests on time,

– provides fresh towels, linen and refreshments,

– is responsible for keeping apartments clean,

– is responsible for minor repairs, etc.

thus enabling the visitors to conveniently use the premises, then the VAT exemption will not apply.

However, such services as described above are subject to the 8% VAT rate.

V. Summary

The taxation regime for rental of real property depends on the objective purpose and manner of using the property by the tenant, as well as the subjective intentions of the parties to the lease agreement.

Bernard Łukomski
Legal counsel
Warsaw, April 16, 2020

A prerequisite for adjudicating divorce. Warsaw, May 19, 2020

A prerequisite for adjudicating divorce (a so-called positive premise) is the “irretrievable and complete breakdown of marital life”. It is a mandatory condition.

A “breakdown of the marriage” means a cessation of common marital life in its emotional, physical and economic aspect (Polish “wspólne pożycie”) that the spouses are obliged to conduct. Hence, there is a strict conceptual and substantive connection between the obligation of the spouses concerning the “common marital life” and the prerequisite for divorce formulated as “irretrievable and complete breakdown of marital life”.

According to the Supreme Court “Marital life is characterized by a unique kind of spiritual, physical and economic bond”.

According to the Supreme Court for a marital breakdown to be declared irretrievable it is not necessary to establish that it is absolutely impossible for the spouses to restore their marital life. It is sufficient to conclude, based on practical life experience, that in the circumstances of the case the spouses will not restore their marital life.

Hence, a marital breakdown manifests itself in the cessation of a marital emotional, physical and economic bond.

In the light of decisions of the Supreme Court, the fundamental bond of marital life is the spiritual bond. The absence of the spiritual bond is always a manifestation of a marital breakdown.

For the purposes of adjudicating divorce, unlike in the case of a separation, the marital breakdown must be not only complete but also irretrievable. The breakdown may be declared irretrievable only if it is already complete. The marital breakdown is irretrievable if there are no prospects (anticipation) for restoring marital life by the spouses.

According to the Supreme Court the spiritual (emotional, physical bond) “community consists in mutual positive emotional attitudes of the spouses, respect, confidence, sincerity, loyalty, understanding, acceptance of personal qualities of the spouses, taking into account their personal needs and readiness to make concessions”.

The Supreme Court also explains that “in order to assert the absence of spiritual community between the spouses it is not necessary to conclude that they have hostile or at least reluctant attitudes to each other. Maintaining civil relations, contacts in the interest of their children, etc. does not necessarily mean that a spiritual bond between the spouses exists and therefore no marital breakdown occurred. The spiritual bond being sought here is not that between any two humans, but that characteristic of a spiritual marital community”. The Supreme Court points out that such “spiritual community” can be manifested even in correspondence alone”.

In the light of Supreme Court’s judicial practice, “common marital life” generally includes sexual intercourse between the spouses referred to as the “physical” (intimate, sexual or bodily) bond. A disappearance of this bond may be a manifestation of complete breakdown of the marital life.

In judicial practice, the economic bond is considered tantamount to running a common household. The legal commentaries take this view further and indicate that the economic life is usually manifested by living together, having common property, running one household, preparing and having meals together.

A complete and irretrievable breakdown of the marital life is also attested to by the spouses’ mutual consent to divorce. The spouses’ consent in this respect does not release the court from the obligation to examine all material circumstances of the case. If one of the parties consents to divorce, the court should examine if she/he is not being pressed by the other spouse to agree to the divorce, and whether such consent is indeed a result of her/his reflection upon the future of the communion, rather than an effect of some other circumstances” (sentence of the Appellate Court in Rzeszów).

For further information about adjudicating divorce, please contact us.

Bernard Łukomski
Legal counsel
Warsaw, May 19, 2020

Colloquial expressions (blank invoices, unreal transactions, artificial transaction chain) and the tax law. Warsaw, 17.01.2020.

Tax law imposes an obligation on tax authorities and administrative courts to express their opinions accurately and clearly.

Negative consequences for taxpayers cannot be drawn without precisely defining (in a legal sense) their actions and behaviour.

Naming the same events with different legal terms (e.g. transaction that did not take place at all, fraud, abuse) and terms typical for colloquial speech (e.g. blank invoices, unreal transactions, artificial chain of transactions), but devoid of legal significance seriously hinders taxpayers’ effective defence. This practice of tax authorities is also contrary to the recommendations formulated in the jurisprudence of the Supreme Administrative Court.

Such practice has been questioned by the Supreme Administrative Court in a judgment of October 2019.

In its judgment, the Supreme Administrative Court also questioned the improper practice of tax authorities by “taking shortcuts” instead of gathering reliable and impartial evidence.

The Supreme Administrative Court also confirmed that it is inappropriate to question the taxpayer’s good faith solely by claiming that if it is proved that the transaction between the entities indicated on the invoice did not actually take place, it is obvious that the taxpayer was not acting in good faith and was aware of the violation rules for deducting input tax.

The above means that the use of only such arguments by courts and authorities is insufficient and defective.

Unfortunately, a fairly common practice of tax authorities is a very cursory examination of taxpayers’ good faith, without going much into the details of their activities.

Thanks to the NSA judgment of October 2019, taxpayers will be able to defend themselves against such actions more effectively.

Consequently, the taxpayer’s good faith cannot be examined (in principle) without hearing the parties to the transaction and (possibly) other persons involved in it. Good faith, understood as a “state of consciousness,” cannot be determined effectively without examining that consciousness by questioning the person.

It happens that the tax authorities only vaguely state that taxpayers should exercise due diligence, not only in terms of documenting expenses, but also in the collection of all documents illustrating business operations. Such opinions should be considered cursory and not sufficient.

This approach is not enough to properly assess taxpayers’ good faith.

Tax authorities should clearly indicate (in their decisions) what objective actions taxpayers should have taken to be considered reliable taxpayers.

Authorities should provide such objective circumstances for individual taxpayer transactions, taking into account his/her state of consciousness at the time of the transaction.

Tax authorities and courts cannot assess the taxpayer’s behaviour and conduct on the basis of circumstances established or disclosed later (e.g. at the stage of tax proceedings).

Bernard Łukomski
Legal Counsel
Warsaw, 17.01.2020