Companies as trustees

Can anyone guide me on what the pitfalls are of private companies (not trust corporations) being appointed as trustees of real or personal property, please?

Guy Birwistle
Fishers
Ashby de la Zouch

For all intents and purposes, a company which is not a trust corporation is in the same position as an individual when acting as trustee. Accordingly, in many trusts a company may not act as sole trustee.

The company will need to register with HMRC and may need to provide evidence (to HMRC’s satisfaction) that it is a suitable entity to act as trustee

Additionally, unless it is acting at all times through its directors, and even then board minutes may need to be available to support any actions, board resolutions will be required to give authority for individuals to sign document on behalf of the company. I understand that this later point may be easily overlooked.

I am sure there are more points that other contributors will identify.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

Many thanks, Paul. My trusts have 2 companies appointed. When you refer to the requirement to register, is that the Trust Register? The majiority of my trusts derive no income as the asset is the home of the life tenant, and until HMRC requires all trusts to register, rather than those which incur a tax consequence, I do not believe registration is required.

Regards

Guy Birtwistle
Director & Solicitor

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My reference to registration is not that of the trust for TRS, but registration of the corporate trustee. I recall the requirement to register with HMRC arose some 10 or 15 years ago in respect of corporate trustees not subject to oversight by a regulatory body (such as the SRA or FCA). It may be this does not apply to the companies you use if they are within the solicitor’s practice.

The internet seems devoid of reference – TRS being the sole topic that came up in my searches. I became aware of the issue through my then involvement with TACT - The Association of Corporate Trustees and it may be that organisation can provide more “meat on the bones”, if appropriate. Contact info should be available via its website: Home | TACT - The Association of Corporate Trustees (tactweb.org)

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

All express trusts must be registered unless they come within one of the exemptions covered in TRSM23000. At first glance a trust holding a house is not within any of the exemptions. The fact that the trust fund does not generate tax income or gains is irrelevant in determining the requirement to register.

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This may help.

The Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020 (SI 2020/991) amended The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692) by providing for an extension for all UK express trusts to be registered whether or not the trust has incurred a UK tax liability.

A new Schedule 3A (set out in SI 2020/991), however, provides for an exclusion from registration for certain UK non-taxable trusts (so-called “excluded trusts).

Malcolm Finney

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The curious thing about this is that the collective EU action against trusts from which this developed was about tax avoidance through trusts holding movables, with the odd exception of the French attempts to treat such items as trusts indirectly holding French land a form of quasi-corporate structure for various taxes such as the ISF etc.

The reason that it is curious is that English law has always treated a trust of land and resulting proceeds of sale of land as land despite the 1925 legislation attempting to make it more liquid and marketable through the trust for sale mechanism.

re Berchtold simply iterated a fundamental principle of English land law that a trust of land is land, not personalty.

However, HMRC simply did not stand their ground on this matter and have sold the whole mechanism out without making the matter clear politically economically or legally. I make no apologies. Their negotiators at the EU and OECD level should perhaps not take themselves for lawyers having a quasi-constitutional “right” to steer the law of property onto the reefs by international tax agreements without fully informing Parliament and the professions, which they chose not to do. They may have been unaware of the consequences of what they were doing, but that is no excuse for not communicating properly.

There has never been any real reason for trusts of land to be subjected to the American disclosure mechanism designed for bank accounts- the US have FIRPTA which is was always expressed to include land and immovables.

The result was that French tax advisers have been on a steep learning kerb working out ha a trust of land is a property law phenomenon, and not some some half-baked Swiss bank account.

The result of this has been that the French are quite happily using their indigenous usufructuary dismemberments and SCIs without the same degree of disclosure and adverse reaction that the OECD have managed to force upon the English trust of land.

HMRC’s half-hearted attempt to limit the damage that they had created by only requiring trusts with UK tax liabilities to register simply distracts from the fact that they had no intention of supporting and explaining the English law of property and were quite content to appease the remainder of the planet by succumbing to OECD and EU pressure.

Now the Brexit has taken place, and we have apparently regained a degree of sovereignty - which we had never lost - can HMRC now be compelled to stand our ground and retrieve a more balanced and less expensive course through beneficial ownership? To quote Kipling’s saxon “That ain’t justice”.

Three persons are generally needed for a trust of land, generally including a solicitor and the effective beneficiaries with the family’s solicitor providing the administrative aspects. It is unlikely that the non-professional trustees of an ordinary trust of land are caught by the definition. All this will do is prompt people to act without a professional trustee to handle the administration. This will lead to fiscal disorder, not to order.

Trusts of land, as land, should be excluded from CRS and the EU legislation. They are not per se avoidance or evasion vehicles.

Peter Harris

www.overseaschambers.com

“and may need to provide evidence (to HMRC’s satisfaction) that it is a suitable entity to act as trustee”

What is the authority and vires for HMRC to regulate who and who may not act as trustee of a private law trust under English Law?

Jack Harper

For all intents and purposes, a company which is not a trust corporation is in the same position as an individual when acting as trustee. Accordingly, in many trusts a company may not act as sole trustee.
The company will need to register with HMRC and may need to provide evidence (to HMRC’s satisfaction) that it is a suitable entity to act as trustee
Additionally, unless it is acting at all times through its directors, and even then board minutes may need to be available to support any actions, board resolutions will be required to give authority for individuals to sign document on behalf of the company. I understand that this later point may be easily overlooked.
I am sure there are more points that other contributors will identify.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals

Previous Replies
Can anyone guide me on what the pitfalls are of private companies (not trust corporations) being appointed as trustees of real or personal property, please?
Guy Birwistle
Fishers
Ashby de la Zouch

Today I learned that most professional trustees, who aren’t otherwise regulated, have to register with HMRC for AML purposes:

Money laundering supervision for trust or company service providers - GOV.UK (www.gov.uk)

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Andrew, many thanks for locating this - thereby answering Jack’s concern as to how HMRC became seized of the role.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

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We are, once again, given guidelines, but is it the law, or is it just a pious hope?

Julian Cohen

Simons Rodkin

Andrew, many thanks for locating this - thereby answering Jack’s concern as to how HMRC became seized of the role.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals


Previous Replies
Today I learned that most professional trustees, who aren’t otherwise regulated, have to register with HMRC for AML purposes:

Money laundering supervision for trust or company service providers - GOV.UK (www.gov.uk)

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A “trust [or company] service provider” is defined in the 2017 Regulations as " a firm who by way of business provides" specified services including acting as a trustee of an express trust; reg 12(2)(d)(i). Such a person is required to register:reg 56(1)(c).
The regulations are based on the Directive and on its definition in Article 3 exactly as quoted above. Article 2 also refers to an obliged entity “exercising its professional activities”. “Business” and “professional activities” are not defined in the Directive so not surprisingly nor in the regulations. The same goes for “business relationship” save that an “element of duration” is added.

It may be that the creators of the Directive considered the meaning to be obvious. As an ordinary English word in an undefined context it may appear obvious even to a judge. In fact in other contexts it has not proved to be beyond controversy e.g. whether a company is carrying on an investment business for corporation tax or a holding company a business for VAT.

So what do our friendly sympathetic experts at HMRC say? https://www.gov.uk/guidance/money-laundering-regulations-trust-or-company-service-provider-registration:

“Carrying out an activity ‘by way of business’”

In most cases you’ll know whether you’re carrying out an activity by way of business, but sometimes it may be difficult to know for sure. You can contact HMRC for further advice if you’re still unsure after you have read the guidance."
If you click on the link you will not find an invitation, in fact it assumes you are registrable.
My opinion then is first that, as a conspiracy theorist, the term has been left deliberately undefined to afford the authorities the maximum flexibility on a case by case basis. At best it is because they are too lazy or intellectually impoverished to devise a definition (an approach appropriated slavishly from civil law jurisprudence under the tyranny of the Superstate). The UK is entirely capable of this approach under its sole aegis e.g. the failure to define the term “dwelling” in SDLT law with predictable results.
My second opinion is that a company appointed as a trustee which does nothing else and does not charge a fee is not operating “by way of business” or “exercising its professional activities”. But I accept that one can no longer rely on the law being the law and that one might feel the need, in order to “know for sure”, to humbly ask HMRC as the lofty arbiters of Ipse Dixit.

Jack Harper

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Many (most?) pension trusts now use trustee companies as the sole trustee. Mainly to shelter the individuals from automatic personal liability under contracts. There is a chapter on trustee companies in my book “The Law of Pension Trusts”.

The absence of a direct potential liability of directors of a trustee company to beneficiaries of the trust (absent knowing assistance in a dishonest breach of trust) was pretty clear (HR v JAPT and Gregson v HAE) but may now be a bit more doubtful following the decision of the SC in Lehtimaki.

David Pollard