TRS and partnership assets

We act for a large number of medical practices and are trying to establish whether clients need to register in the following scenarios:

A) a partner holds a share in a company (such as a GP provider federation company) on trust for all the other partners in his/her practice; and

B) a GP practice holds money in a separate practice bank account, on behalf of other practices in their primary care network being a joint venture to deliver GP primary care services

HMRC’s guidance (TRS23050) says that, “that "A partner holding property on behalf of the partnership does not… automatically result in an express trust that may be registerable on TRS. However, in some situations it may be declared (i.e. through a written deed) that property is being held on trust for the partnership. If so, this is an express trust which would be registerable on TRS."

As far as A) is concerned, do members think that “property” includes shares? TRSM2030 appears to relate to property in the form of land and buildings but can we assume that “property” includes shares?

An example given in respect of partnership assets is, *“*Nadia, Rosena and Lyn are partners in a farming partnership. They decide to purchase an item of machinery for the partnership using partnership funds. Nadia purchases the machinery in her name. The partners do not have any formal partnership agreement in place.

Under section 21 of the Partnership Act 1890, in the absence of any evidence to the contrary the machinery is deemed to be partnership property, without any express trust being created. There are therefore no TRS registration consequences.”


“Guy, Yasmin and Esther are partners in a trading partnership. They decide to purchase an item of machinery for the partnership using partnership funds and Guy purchases the machinery in his name.

The partners had previously drawn up partnership agreement to protect their rights should the partnership dissolve at a later date. This agreement states that property purchased by Guy using partnership funds is to be held on trust for the partners in equal shares. As a result, the subsequent purchase of the machinery by Guy does create an express trust which would be registerable on TRS from the date of purchase, provided no other exclusions from registration apply.”

Would that also include shares where no formal deed is in place to deal with such a situation?

In terms of B) is this just a contractual joint venture where money is held by one party subject to the terms of a contract with another as opposed to an “express trust”? So for example the practices in the network are merely creditors of the practice holding their funds.

We are planning to get HMRC to opinion on this, but if any of you have any views, that would be very helpful. I’ll let you know what HMRC say when we get an answer from them.

There is no requirement that an express trust hold property of any particular kind so the trust of the share in A) is registrable. The word “property” in para 9 Sch 3A is not a defined term so has its ordinary meaning unless in context a technical meaning is to be taken as intended, which is not apparent. Even in LPA 1925 s205:" (xx) “Property” includes any thing in action, and any interest in real or personal property". I do not believe that TRSM23050 indicates that HMRC have only land and buildings in mind, though their not saying so is remiss.

The law and HMRC do not address the question whether an express trust must hold ANY property to be registrable. Until it does it is not completely constituted but does that make it non-registrable? The pilot trust exclusion in para 6 Sch 3A is very narrow as, despite the use of a bizarre reference to Reg 42(2)(iii) in 6(b), it must have been created before 6 October 2020 (Reg 1(2) SI 2020/991). A pilot trust created later which awaits complete constitution e.g by an injection of assets from a pension fund or Will is probably not registrable. Athough it is not a complete legal nullity it is meanwhile unenforceable by a volunteer-i.e. by a beneficiary- and the trustee cannot compel the settlor to transfer in any property; surely such an unenforceable trust is not registrable.

(An oral express trust is registrable. Even an oral declaration of trust over land if proved by writing: s 53(1)(b)LPA. What fun we do have!)

As regards (B) the difference between an express trust and an implied trust is crucial. A contract may contain a trust of either kind or none at all. The question for analysis is: do the partners of the GP practice owe obligations to partners of another GP practice which sound in contract alone or create a trust over the monies in the bank account which is express as opposed to resulting or constructive? In commercial situations a party may argue that a trust exists to secure priority over others and a right in rem rather than in personam; e.g consumer prepayments, loans and security, reservation of title and Romalpa clauses over goods, often in the insolvency of the party holding the relevant asset(s).

A Quistclose trust arises when a transferor makes a transfer of assets e.g. a loan of money to a recipient for a specific purpose and for no other purpose. The funds transferred remain the property of the transferor unless the recipient applies them for the specified purpose. If the recipient becomes insolvent before applying the funds for that purpose, those funds cannot be used to satisfy its creditors. This is to be properly analysed as a resulting trust:Twinsectra Ltd v Yardley and others [2002] UKHL 12. So not registrable, even without resorting to para 14 Sch 3A (“Commercial transactions”).

If a trust in the B) contractual arrangements is express it seems very likely to fall within that exclusion.

Jack Harper

Responding to a couple of Jack’s questions.

Until a trust is completely constituted then there is no trust and hence nothing to register. This requires, inter alia, that the trustees take legal title in the trust property.

A pilot trust created on or after 6 October 2020 cannot fall within Sch 3A para 6 and is thus registrable once constituted even if the initial trust property is, for example, a £5 note. Registration is not deferred until significant property is subsequently added.

Malcolm Finney

Whilst I agree with Malcolm that until a trust is completely constituted, there is no trust, I am uncomfortable with the suggestion that the trustees must take the legal title in the trust property. Surely they merely need to have acquired an enforceable right.

Let’s say I own 37 High Street. I create a trust with Malcolm and Jack as trustees and list the trust property in the Schedule as 37 High Street. However, I do not transfer the legal title to the trustees, instead I execute a declaration of trust in their favour as it’s leasehold and the lease otherwise requires I obtain a licence to assign at exorbitant cost from a very unfriendly freeholder. Malcolm and Jack don’t have the legal title, but there is a validly constituted trust (or 2!)

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

I am sure Malcolm nodded like Homer and that his point was directed to the trustees taking any kind of title in any property. I disagree however with his main argument. A trust document which is executed by all parties is not a nullity where the trust property is defined as in James Kessler QC’s precedents as:

“1.6 “The Trust Fund” means:
1.6.1 property transferred to the Trustees to hold on the terms of this Trust; and
1.6.2 all property from time to time representing the above.”

Such a trust is ready to spring into life when property is transferred to the trustees. Until then it is unenforceable so surely not registrable under TRS. Of course such a trust can be a pilot trust and the later transfer can comprise e.g. death benefits transferred in by pension trustees or assets left by Will or from a later inter vivos gift. At that point the trust is completely constituted and becomes registrable. For TRS in my view the date the trust was set up is not the date of (execution) the document bears but the date the trustees first acquire any property within 1.6.1 above. Does Malcolm think the £5 note farce is a legal minimum necessity?

Jack Harper

Mea culpa and, no, “Malcolm does not think the £5 note farce is a legal minimum necessity”.

The bit I’m struggling with is Homer Simpson’s involvement?

Malcolm Finney

Try 12 axe-heads and stringing the bow?

Timeo Danaos et dona ferentes, e.g a £5 note for a neighbourhood pilot trust

Jack Harper

Thanks all. Very helpful.

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So much for Offshore UK.

The “squawk” on partnerships should be watched carefully as that may mean increased “supervision” by European tax authorities unfamiliar with English or Scottish property and partnership laws.

In other words, HMRC have yet again sold a major part of the UK economy out to unnecessary “compliance” supervision doubtless in the specious hope that familiarity will not breed contempt – it will simply encourage it.

LLP’s for all?

Peter Harris

Another example of the crass arrogance of HMRC/HMG in disdaining to pre-consult the professionals to brainstorm the obvious potential bugs and in barging into the china shop regardless of the consequences, not least costs, for lay trustees not to mention confusion of the latter and high prospects of faulty and non-compliance.

Jack Harper

Perhaps I am being unfair to HMRC in this neo-Tudor era of Henry VIII clauses and delegated parliamentary regulation, this may be a warning with a stage door. Perhaps I am not ….

Would anyone wish to craft a partnership or limited partnership deed without setting out the proprietary and liability issues raised at law and in equity expressly?

However, it is now clear that HMRC considers that any new Partnership or Limited Partnership deed will need to be drafted without any mention of an express trust to escape this registration requirement which, in my humble opinion was arguably outside the EU AML scope.

Peter Harris

I see no unfairness in Peter’s criticism.

The HMRC comments on partnership seem to confirm the outcome of a recent thread “Trs after 2 years of death” : that residue which a Will declares, in a time-honoured fashion, to be held on trust will become registrable after 2 years of death even if every gift in the Will as well as of residue is absolute so that no trust was ever necessary. So now we know we need to beware of creating superfluous express trusts in documents where no trust is needed or a perfectly adequate trust will be implied by operation of law.

I look forward to reintroduction of examples of form prevailing over substance like assumpsit, the Bill of Middlesex. and feoffing in fields.

Taxpayers need their own GAAR which they can use against HMRC when the latter fail a double reasonableness test in interpreting the law.

Jack Harper