Trusts of land and CRS

(Peter Harris, Barrister, Overseas Chambers ) #1

Since the final abolition of the doctrine of conversion over settled land, it is clear that trusts of land should not be treated as financial entities and therefore should not be subject to reporting as either active or passive Financial entities under CRS, as neither land nor the income arising from it is now considered investment income. The OECD has in fact paralleled the US Fatca Firpta dividing line.

Has anyone had any difficulty with a tax administration on the application of that concept? I am assuming that we are all standing with our feet in the anglo-saxon furrow and growling at the neo-normans in Paris that the contrary would not be justice.

As the proceeds of sale of land held in trust are considered to remain land for the matter of both the Hague Convention and to a limited extent subject to Court adjudication as such under s14. ToLATA, should the trustees of an English trust of land when the land is sold consider themselves under a liability to report themselves as Financial Entity merely through investing the proceeds of sale?

Under English law could the proceeds of sale remain land indefinitely, not from year to year under CRS?

I stress here that ToLATA introduces a separate concept of a Trust of proceeds of land at s.17 which could weigh against that pious hope:

(3)In this section “trust of proceeds of sale of land” means (subject to subsection (5)) any trust of property (other than a trust of land) which consists of or includes—

(a)any proceeds of a disposition of land held in trust (including settled land), or

(b)any property representing any such proceeds.

[my emphasis]

Settled Land Act trusts, to the extent that these survive, and SLA heirlooms are excluded from this definition, and the section implements the conversion of realty into personalty only on the sale of the property, subject to certain restrictions.

However, whilst the immediate reaction to the following question will be doubtless a resounding “no”, on further reflection, could an offshore for example,Jersey trustees owning English land qualify as a trust of land under ToLATA, or be assimilated to one for these purposes and, if so, do the trustees then benefit from any continuing right to treat any proceeds of sale as continuing as “land”?

Any comments or chancery insights on that possible dichotomy?

I am not aware of any express jurisdictional negative in the Act, other than the underlying assumption that the trustees need to be subject to the jurisdiction of the English court so as to have the ToLATA apply.

Whether that jurisdiction is based on the situation of the land, or to their place of residence, and then to the law of the trust, beyond being mere landowners may remain an open question.

There was an avalanche of English law trusts being exported to Jersey and elsewhere in the last millennium, and there may be sufficient practice to enable an English trust of land to remove itself abroad - even after a sale - remaining subject to English law, and therefore the proceeds of sale qualification as “land” in ToLATA.

However, whether the trustees themselves are subject to orders under s.17, or whether the fact that the English land, or its proceeds of sale is the jurisdictional fulcrum and remain under the jurisdiction of the English Court might be the question which tips the balance.

I ask this as the transformation of a French usufruit into a quasi-usufruit, on sale means that the nus-propriétaires can escape CRS declaration on their proprietary interest in the proceeds of sale of land, and I believe it to be completely unjust that the English trust of land should not be given a similar amount of leeway from the Parisian OECD’s paranoid obsession.

Any thoughts?

Peter Harris