A will that contains no trusts. A will writer’s delight.
Jack Harper
If a will creates a trust over residue and no action is taken to administer the estate until, say, 23 months after the death, it seems that the estate will still need to be registered on TRS once the 2 year period from death has expired.
What, though, if no action is taken to administer the estate until , say, 5 years after the death (which it seems is not as unusual as one might hope). It appers to me to be the case that not only will it need to be registered, but whoever deals with the administration could be liable for penalties for late registration. If, in this scenario, though, the estate is then administered without a grant, does this negate the requirement to register or will it merely be the case that HMRC will not be able to pin the duty on anyone?
Oh, what joy those three little initials bring!
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
I will echo Paul by observing what gratuitous excitement, and some justified consternation, has been caused by one shortish regulation, 45ZA, and a brief collection of terse paragraphs in one Schedule,3A, of a lengthy statutory instrument. Though not strictly tax legislation it conforms to much of that by not being sufficiently thought out initially and then stress-tested with help from the professions before publication (2020) and implementation. Given that there must also have been much internal preparation time the outcome is not edifying and has clear hallmarks of HMRC reacting to unexpected glitches in the system.
My view on estates and TRS is that an express trust in a will is not registrable unless and until completely constituted. That happens when the administration period ends as regards the destined trust property. HMRC’s own wholly orthodox view is that during the admin period a trust does not subsist. So the estate income code in Chapter 6 of Part 5 ITTOIA assumes that income destined for trusts of residue with limited/discretionary interests is not taxed as trust income as it arises. I quarrel slightly with the definition of admin period in s653 only in so far as it seems to assume that the end of it (the “completion of the administration of the estate”) is a singular event whereas it may terminate piecemeal as regards individual assets. (And resume many years later when an asset is newly discovered!). Compare the different approach of s91 IHTA which fictionalises its completion (and suffers from the same wrong assumption as to how and when that may occur, although the fiction causes that not to matter).
As there is no further definition the law of succession must apply to determine the timing of the end. With pure personalty that is a factual determination as regards any asset once it is no longer required for administration, regardless of whether a formal assent is made. The latter is essential for land (which includes a leasehold) and even if the executors and trustees are the same person so that they must assent to themselves (at least if re King’s Will trust is correctly decided).
So in Paul’s example if the destined trust property is land the estate is not administered as regards that asset without an assent even 5 years after death and the ultimate trust is not registrable until then because it has not come into existence (not been “completely constituted”).
To prove this I contrast a fully executed and dated lifetime pilot trust where the initial trust fund is property to be added later (and not £10 or whatever). This trust is valid but not enforceable by anyone until the property is added and it is not registrable until it is.
I do not believe that administration without a grant changes anything under TRS.
My understanding is that professional bodies are still pursuing HMRC about their still untidy position on the will trusts exclusion.
The two debatable issues are to my mind:
1 Will HMRC understand this legal theology without a long-winded and costly battle? And if the trust will eventually be completely constituted what is the upside in not registering before the 2 years after death expire, whatever the then state of administration.
2 Now we know what the penalty regime is in TRSM 80000, let alone the contractual or reputation damage to an agent who risks a trustee client receiving one, as under any tax regime, “how will they find out?” is a perilous strategy. I have advised countless numbers of taxpayers to make their painful negotiated peace with HMRC, remaining permanently incredulous as to how they found out.
Paul does hint at the real tragedy of TRS. Professionals who do it for a living have long been forced to act as unpaid gatekeepers of AML ultimately with that living in jeopardy for transgressions. Now lay trustees, unadvised or badly advised, (I have no brief for cheapskates though the fees for advice are disproportionate albeit entirely reasonable) are sitting ducks. There can be no differential approach under the rule of law to penalties for them and the well advised. The tax system often imposes legislation that is unclear and ill designed like TRS but it mostly affects victims who are relatively wealthy and have access to advice where the cost is proportionate. There are going to be many occasions where lay trustees do not register trusts in blissful ignorance of the law or by reading a journalist’s non-expert exposition of it. Some of them will then be met by HMRC whose footsoldiers will not be much more illuminated. As my great university law tutor J G Collier would have described it TRS is “a cock-up de luxe!”
Jack Harper
I have read this thread with interest, today I called HMRC, and was told estates not completed within 2 years do not need registering (unless the Will creates on going trusts) and the person I spoke to said he was not sure where practitioners had got the idea from that they did! I tried to explain the points raised in this thread but he was absolutely adamant that it did not require registration. This call was to the Estates registration helpline. My first call was to the TRS helpline, who were also adamant I did not need to register.
If the two caseworkers to whom Belinda spoke are entirely sure that they have explained the law, the solution is simple – let either one of them give us his name, and we’ll quote it by way of reference when dealing with an estate more than two years old. We only need to keep a note of the name amongst the estate papers. Nothing more formal is required.
Julian Cohen
Simons Rodkin
Stupidly I forgot to ask, but I plan to call again tomorrow and see what answer I get!
You could ask them what the “Donald, Harold and Michaela” example in TSRM23020 does mean, if it doesn’t mean what they say it doesn’t mean.
Will do. Watch this space!
Yes, of course. Speak to HMRC. Why didn’t I think of that?
When I was an arrogant Young Turk, rather than an gnarled Old one, my boss, a cynical specialist tax solicitor, would read a note of mine analysing a tax problem and say witheringly:“Jack, do you ever read the legislation?”. I always did and I was both a trained lawyer and ACA to boot. I had always read it but often still got it wrong. HMRC’s footsoldiers, les poilus ou poilues, never read the legislation, which is why they treat their own Manuals as Holy Writ. Very few of them outside The Solicitor’s Office and Legal Services, have any knowledge of the underlying tax and general law; and tax advice is the practice of law. (I was also an accountant and my best colleagues in that profession like J P Hardman knew their law). So as a source of information a bloke or blokess from HMRC (even if “fully trained” !!!) answering a helpline…well you carry on…although getting an answer at all is a kind of triumph in its own right. I used to accuse one of my solicitor partners of getting his precedents from “Dalton’s Weekly”.
So Belinda no estates need registering under TRS because, as it says on the tin, it is trusts that need to be registered. Complex estates are said by HMRC to be registrable even though TRSM27010:“TRS is used to register a complex estate in order to set up the required tax record and generate the required estate Unique Taxpayer Reference (UTR) for self-assessment purposes. Estates are not required to register under the Money Laundering Regulations, instead this is for administrative purposes only and the information collected on registration reflects that. Estates that are not ‘complex estates’ are not required to register on TRS”.So what is their authority for using TRS for estates"? I will publish my reply to my recent letter to them about this. My expectation is they will hide behind their general care and management role; s1 TMA 1970, s9 CRCA 2005. I shall then mention Part 54 CPR and let the fun begin. I should mention that I asked this question on the Customer Forum and the official replies were appallingly obtuse.
The controversy is about when a will trust needs registering more than 2 years after death.
Andrew Jones pithily describes the example in TRSM23020 and in an Old Turk’s opinion the statement “there is clearly an express trust which covers the administration period and therefore starts from the date of death” is, as my Latin teacher would sometimes tell me, not just as he oftentimes did " A Roman would not say this! " but "wrong, wrong, wrong, wrong,wrong…WRONG!. The trust starts when the administration period comes to an end. This would feature in my book “Janet and John go to TRS” if I had not been long ago cancelled as “problematic”.
Jack Harper
This raises the perennial question of when the administration of an estate has come to an end. If we accept the standard definition of “when the residue has been ascertained” but assets remain in the name of the executor under a will stating that they hold “on trust” for an absolute beneficiary then does this mean that the administration has not in fact finished until all assets are out of the executor’s control?
No. The PRs cannot hold those asset, on trust or under any other equitable obligation, for the beneficiary absolutely unless and until they are not required for administration. If they are not so required then the admin period has ended as regards those assets even if the legal title is still vested in the PRS (or their nominee). But as regards land, including leaseholds, not until the PRs have assented.
Jack Harper
We have not had a specific response from HMRC. As noted on the Forum, they updated the TRS Manual on 2 August with further guidance about trusts contained in wills (TRSM23020 and TRSM 23070). This was almost a month after we wrote to them and so I think is the only response we are going to get.
Today I tried to register a trust which is already registered as a compex estate and of course entered the estate’s UTR. I am told by the website that “This trust has already been registered”. One fewer to do though that’s not the point …
@JC55. My immediate thought is that a will trust does not have the same UTR as the estate from which it derived so even under the old pre-TRS rules might have required it’s own 41G. In other words if it’s a taxable trust there isn’t necessarily “one fewer to do” since it might still be on your to-do list to register: just not with the existing UTR. (Sorry, I’m aware this might not apply &/or that I might be teaching granny to suck eggs: I don’t know enough facts of your case to be sure - but nevertheless hoped this comment would be useful to someone.)
Thanks Andrew. This is an estate which does not contain a will trust but is (apparently) registerable on TRS as a trust since thw will contains the words “upon trust” in relation to an absolute gift of residue and the admininstration is still ongoing more than two years afterdeate of death. As such it is the estate which I was registering and as the estate has a UTR I put this in the online form.
Thank you. Yes, I agree that must be right: something that needed registration for another reason - and was - before the new rules came into force surely cannot need registration again just because it also falls into the new criteria!
I think you are confusing why the TRS is used to obtain a UTR for a complex estate. this is not part of the 5MLD regs but rather HMRC’s way of allowing the UTR to be requested online.
If the admin of the estate then runs over 2 years my understanding is that the answer to the UTR question is no because that is the UTR of the estate not the “trust of admin” which is not a taxable entity in its own right.
The words “on trust” are not sufficient in themselves to require registration. They must actually create an express trust. The problem is that they may create a bare trust whereas if they had not been used arguably no trust would have been created. I believe HMRC are being pressed on this point but that at present this is their view.
James Kessler makes an interesting point in a footnote in his book. The formalistic use of these words goes back to an era when it was necessary with real property to state specifically that it was devised “on trust” in order to vest it in will trustees. Although after the Land Transfer Act 1897 this is no longer necessary the old habits of drafters and precedent creators die hard. In the TRS era the question needs to be asked: are these words actually necessary except in relation to a genuine will trust.
Jack Harper
One thought on @jack’s final question is that I doubt “TRS Avoidance” will become a thing. At the moment, anyway, it seems likely to me that solicitors will continue to draft wills with the wording that they did before, and those administering estates will simply diarise to register them after two years, which will just be seen as a minor chore with no significant consequences.
Does anyone see this playing-out differently?