The new rules on the Trust Register require UK bare trusts to also register, provided they do not fall under one of the listed exceptions.
I was wondering if this applied to appropriations? Eg if PRs appropriate a property to three charities before selling, do they need to register on the trust register on the basis that they hold the property on bare trust for those charities?
I don’t think any of the current exceptions currently cover that (though am happy to be corrected).
If so, is that three separate trusts that should register?
1 Guidance saysno requirement to register if:
“it is a charitable trust that is registered as a charity in the UK or which are not required to register as a charity”
2 The law says no if it is:
" Charitabletru****sts 5**.** A trust for charitable purposes which—
(a) in Scotland or Northern Ireland, is registered as a charity; or
(b) in England and Wales, is registered as a charity or not required to register by virtue of section 30(2)(a) to (d) of the Charities Act 2011."
In principle a bare trust as described for a charity would seem to fall outside exclusion and so be registrable.
Of course we have no idea yet what the penalties for non-compliance are. These would be visited on the trustees who may be retiring so the formalities might be left to others.
Given the long time ahead within which to register, a sale plus full distribution within that time would “close” the trust (whatever HMRC mean by that) and it would be surprising if they expected a dead trust to apply to register let alone charge a penalty in default. A dead trust that died before 6 October 2020 is not registrable but is, strictly, if it died since.
We are not told what the precise interests of the charities were before the appropriation. If they had a vested beneficial interest in the asset then the bare trust of the legal interest would be within para 15, as similarly where any beneficial owner vested the legal title to their asset in a bare trustee or nominee.
My suspicion (I accept I jumped to a conclusion given the usual, though not unreasonable, parsimony of information) was that the charities might be pecuniary or residuary legatees rather than joint specific legatees with an equitable title of sorts to the asset. If so the appropriation would involve the creation of a bare trust by the PRs’ action. I am not convinced that Parliament (hollow laughter) can be taken as having intended para 15 to apply but it is possible a judge with a modern elastic opinion might hold so. Another view could be that it is not an express trust at all because it arises by operation of law; the PRs having a choice about whether or not to appropriate but not at all over its legal consequences if they do.
For all practical purposes what matters is what HMRC think. They could be asked but my experience is that the perfectly competent people staffing the helpline cannot readily assist with such intricacies due to current lack of proper instructions. This may later be cured because it proceeds from totally inadequate prior analysis of the implications of the law as drafted which one imagines is now being tardily and gradually made. A request in writing seems inevitable under the non-statutory clearance facility and I always find the words “legitimate expectation” oil the wheels.
Or the PRs could just take a view. It is plain as a pikestaff that both the intent and actuality involves no money laundering (not strictly a defence!). The charities never become trustees so their predilection to go to the Supreme Court to ascertain their position at 100% cost to the estate or their own funds is not in point. The only “trustees” are the PRs.
They could:
1 Register now (line of least resistance) or wait for clarification to emerge (September 2022 is far distant yet)
2 Try to get HMRC to opine on whether they are required to register (who is paying for all this?)
3 After checking whether anyone else might realistically challenge them, stop being silly and take a bona fide view that either para 15 applies or it is not an express trust and get on with their other work. If I were a lay PR faced with the dilemma I would go down the pub and toast HMT for their manifest inability to organise the time-honoured event in a brewery
As the prospective penalties have not so far been communicated to HMRC by divine revelation, or at least not divulged yet to their “customers”, 3 is a trifle uncomfortable for professionals but I have (just) enough faith in our legal system to be confident that HMRC will have definitive difficulty enforcing unannounced penalties.
The entirety of the foregoing emphasises what massive overkill AML is at the grass roots level, like something devised by Lavrenty Beria
“This exclusion applies to a trust created on the transfer or disposal of an asset, where the purpose of the trust is to hold the legal title to the asset on trust for the person to whom the transfer or disposal is being made until the time when the procedure required by law to effect the transfer or disposal of legal title is completed”.
If, for example, a charity is entitled to, say, 25% of a residuary estate and the the PRs appropriate, say, ordinary shares to the extent necessary on bare trust for the charity I would suggest based on the above that registration would not be necessary.
It’s clear that the whole trust registration process changes almost on a daily basis; indeed, at one point, HMRC stated that bare trusts (irrespective of their nature) needed registration but later on took a different view for some (not all) bare trusts.
The registration deadline is sometime away and I suspect that many areas lacking in clarity today will become clearer (hopefully!).
As Jack mentions perhaps the simplest approach is to seek HMRC’s guidance (for what that’s worth!).
Malcolm may be right. In practice HMRC’s approach (Protean and Procrustean) is likely to be based as ever on expediency so that they will accept that he is right. I suspect this exclusion is actually targeted at the trust that arises where a contract for the sale of land is signed as a prelude to its later completion by a transfer. I take this view because HMRC, HMT, politicians generally plus The Press understand fully the residential sales market and the political importance of avoiding an extra useless formality for conveyancing; whereas they would not understand the arcane concept of appropriation as a prelude to an assent, nor care about it even if they did, just as they only marginally care about the meltdown of the Probate Service. It’s all about the respective weights of voter impact.
There is indeed a year to go. Practitioners should now bombard HMRC with requests for the clarification which should have preceded the opening of the Register (or rather its extension to non-taxable trusts). It may be unfair to blame HMRC alone but as they observe strict Omerta with the politicians they are the ones in the firing line facing the public. Also they have massive form for disregarding advance warnings about new law and pooh-poohing later reports of the anomalies it has created (“can you provide details of specific cases?” drips with contemptuous disbelief).
I am sympathetic to those operating the helpline so I fear such contacts will have to be by steam packet as Trusts do not provide an email address at Trusts - GOV.UK. Once you have made contact by post you can then use email. This contrasts with their policy described to me as:“HMRC’s strategic approach is Digital By Default, which applies not just to Trust Registration Service, but all HMRC services.” (When they are not postponing it to the Too Hard Tray, like digital ITSA for another year).
I have achieved a small victory on my own account:
“Thank you for contacting the Digital Customer Support Team for assistance.
Could you please provide your postal address? We will send to you a paper form for you to complete your Trust Registration”; and
“Thank you for sending your address. HMRC will send to you a paper form for you to complete your Trust Registration.
For any future updates to your record, please write in or call the helpline.”
Getting them to move is more important to me as a constitutional headbanger than not suffering the minor inconvenience of the Government Gateway plus online fandango. More sensible people may not take the same view.
If enough practitioners write and then mail direct notice will be taken. No good working through professional bodies which are too slow, too obsequious, and too internally politicised about what they put into public submissions.
Sed Quaere. My view is that a proper appropriation of land creates a bare trust by operation of law. As it is not an express trust it is not registrable.
An appropriation to a specific devisee is a misnomer or legal misconception. An assent is the only correct legal methodology. The devisee already has an equitable interest from death under the Will subject to the PRs right to take the asset for administration purposes. It is not held on trust, bare or otherwise, at any stage.
An appropriation is the correct methodology wherever the beneficiary has no equitable interest in the asset in specie e.g a pecuniary or residuary legatee or one entitled under intestacy. It creates a bare trust by operation of law which is extinguished by a subsequent assent. Not registrable as not express. A subsequent assent is desirable to transfer the legal estate but adds nothing to this analysis.
An appropriation of pure personalty (such as “furniture”, sorry Malcolm!) does not even require an assent though one may be made. Trusts here are non-existent, let alone registrable.
What is the effect of an appropriation of land which specifically declares a trust? As one of my legendary teachers once responded to a tough question from the class “Er, I can’t tell you now”.
The situation was in fact entirely hypothetical, thought of in the course of writing an article on the TRS.
I did consider the exemption in para 15 but Jack is correct in that the only reference to it I could find was in reference to waiting for the Land Registry to update title after completion.
I note (and agree with!) the practical considerations you set out.
HMRC have now confirmed on their Agent Forum (https://community.hmrc.gov.uk for those interested), that appropriations do not need to be registered on the Trust Register. They say:
“Where personal representatives appropriate property on bare trust for the benefit of the beneficiaries to facilitate a sale of that property, Sch 3A(14) would exclude such an appropriation from registration.”
Credit goes to Diana Smart who raised the query with HMRC.
As a non tax agent I appear to be banned from accessing the Tax Agent Forum and therefore unable to read Christopher’s reference and Diana’s query raised on the Forum.
Based on the quote provided by Christopher does that mean that where a sale is not intended
Sch 3A(14) is inapplicable as the transaction would not be commercial and thus would not fall within Sch 3A(14)(a) which applies only to “commercial transactions” ?
Also, where PRs appropriate an asset to, say, four beneficiaries prior to sale solely to mitigate CGT (ie four annual exempt amounts), which does not of itself facilitate a sale of the asset, is this within
Sch 3A(14)(a)?
[Sch 3A(14).
A trust created for the purpose of—
(a)enabling or facilitating a transaction effected for genuine commercial reasons; or
(b)protecting or enforcing rights relating to such a transaction,
where the use of the trust is incidental to the principal purpose of the transaction].
All advisers have a legitimate expectation, because their taxpayer clients also do indirectly, that HMRC should not publicise its important interpretations of the law to a selective group. As unrepresented taxpayers are squarely within TRS, they do directly.
As to whether the interpretation here is plausible I refer to Lewis Carroll (adapted):
HMRC Advice
“When I use a word,’ HMRC said in rather a scornful tone, 'it means just what I choose it to mean — neither more nor less. ’ ‘The question is,’ said Agent, 'whether you can make words mean so many different things."
“Agent laughed. ‘There’s no use trying,’ Agent said. ‘One can’t believe impossible things.’ I daresay you haven’t had much practice,’ said HMRC. 'When I was your age, I always did it for half-an-hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.”
(It should not be assumed, by agents or taxpayers, that six is a maximum)