TRS - closure of trust vs end of trust

This is sort of on the same topic as other recent posts but I thought a fresh heading might be helpful.

I recently had cause to register and then almost immediately close a trust on the TRS. The guidance on the system as to the date when the trust was closed states that it is the date when all the assets of the trust have been distributed, and it then goes on to say that this will be the same date as given on the SA900 for the date when the trust ended. It seems to me that HMRC are as confused as everyone else about the interaction between the TRS and self assessment, but in my view the two should be regarded as entirely separate.

When completing the tax return for a trust, the end date will often be the date when the trust effectively became a bare trust. For example, there may be a deed of appointment terminating the trust on 31 March, and I have always assumed that that is the date when the trust ends for tax purposes, even if the trustees continue to hold assets on bare trusts pending transfer to the beneficiaries. If I didn’t enter 31 March in the tax return as the date when the trust ended, HMRC would continue to issue tax returns for the trust, even though it is now a bare trust, with any income and gains taxable directly on the beneficiaries.

By contrast, as a bare trust is apparently still very much a trust for TRS purposes, I had assumed that the date of closure for TRS purposes might well be different from the end date for tax purposes, as the trust would not be closed until all the assets had actually been distributed, which might be weeks, months or even years after the original trusts had ended.

I am minded to raise this point on the HMRC agent community forum, but wondered whether anyone else has other views, or indeed whether I have been completing my trust tax returns incorrectly all these years?

Or is this the situation referred to in Cindy Chaplin’s recent post, where we should close the original trust and then open a new one? That surely cannot be correct. If the trustees of a discretionary trust execute a deed of appointment in favour of a beneficiary, including a statement that they now hold the trust assets on trust for the beneficiary absolutely, that is not a new trust, it is just that the terms of the original trust have changed.

Diana Smart
Gordons LLP

Some (misguided??) thoughts on Diana’s post.

I think there is little doubt that for income tax purposes once the trustees of a DT become trustees of a bare trust (eg appointment out of trust assets) that any income tax liability arising thereafter is that of the beneficiaries of the bare trust, no longer the trustees. It is the beneficiaries (not the trustees) who, going forward, have to file relevant self assessment returns and discharge any income tax charge. Therefore for self assessment purposes in such a situation the DT “ended” once the nature of the trustees changed from those of a DT to those of a bare trust.

Legal title may be immediately transferred to the beneficiaries or the trustees may continue to hold legal total for sometime thereafter for various reasons.

The TRS is all purportedly about seeking to reduce/prevent so-called money laundering which it seeks to achieve by ensuring regulators have all relevant information relating to most trusts (eg trustees, settlor, etc). Once the discretionary nature of the trust ceases and is effectively replaced by a bare trust the information available to the regulators is no longer accurate. The trustees, for example, are no longer the “decision makers” in relation to the trust assets; a number of the DT beneficiaries may no longer be capable of benefiting under the DT; the persons with the “power” over the assets are the relevant beneficiaries; etc.

Thus, so long as legal title remains with the trustees (ie. is not transferred to the beneficiaries) whilst on the surface nothing seems to have changed clearly the reality is very different. Whilst not being a passionate advocate of the TRS is it not the case that the regulators need to be informed about the change of events and require registration of the bare trust (and ultimate de-registration) and de-registration of the DT?

To avoid unnecessary and pointless “paperwork” could not an exemption from registration (and ultimately de-registration) of the bare trust under Sch 3A MLR 2017 then be granted for a period of say 6/12/18/24 months post the creation of the bare trust so long as legal title is transferred to the relevant beneficiaries within this time frame (in a similar nature to the Sch 3A exemption contained in para 7 re “trusts having effect on death”)?

Malcolm Finney

Thank you, Malcolm, as ever, for your comments. I agree that the TRS must be updated when (in the example used) a discretionary trust ceases to be discretionary and becomes a bare trust. The registration should then be amended to show that the trust is no longer a taxable trust and, if appropriate, the beneficiary details should reflect the fact that the appointees are now the only beneficiaries and that the trustees have no discretion over income. Is it not more correct, however, simply to amend the registered details in these circumstances than to deregister the original trust altogether and then register an apparently brand new trust?

Diana Smart
Gordons LLP

Diana Smart

Gordons LLP

D: 0113 227 0389

M: 07534 225199

I think we must not lose sight of the fundamental principle that only express trusts are registrable for TRS so that a bare trust which arises by operation of law only is surely not registrable

Jack Harper

Diana, I did mull over the issue raised in the last sentence of your second post.

Accepting for the moment a need for possible registration, the “conversion” from DT to bare trust is, I might argue, a significant one and therefore from a MLR perspective warrants a completely new registration not merely administrative amendments to the existing registered particulars of the DT.

At the end of the day either approach is I suspect viable but the “better” approach from a MLR perspective, as viewed by the regulator, is to require new registration despite any added administration and/or inconvenience.

Malcolm Finney

HMRC told me that I would need to deregister the old trust and create a new registration for the bare trust. In effect, this would mean that pretty much every trust would need to register and deregister twice in its lifetime because in practice trust assets never pass to the beneficiaries on the day the trust legally ends. However, one of the exclusions in The Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020 is: “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”. Wouldn’t that cover it?

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Having had a bit of a rethink my slightly revised thoughts are as follows.

As Cindy points out, Sch 3A MLR 2017 para 15 is headed " Registration of assets" and provides for exemption from registration. HMRC state:
“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”.

A typical use of a bare trust would be where X wishes to transfer an asset to Y asap but due to the nature of the asset (usually, land or ordinary shares) an immediate transfer of legal title is not possible. However, utilising a bare trust in such circumstances does permit an immediate transfer of X’s beneficial interest in the asset to Y. Transfer of legal title following on as soon as the relevant formalities (eg registration at LR in the case of land) are completed.

This example would seem to fall fairly and squarely within the letter and intent of para 15. It is, prima facie, subject to registration as an express bare trust [a pre-requisite for registration as Jack quite correctly regularly points out] but is then removed from a requirement to register under para 15.

I’m not sure that Diana’s scenario (ie an absolute appointment out of a DT) is quite the same. On appointment the trustees of the DT hold the asset as bare trustees for the appropriate beneficiary; beneficial ownership passes immediately and legal title may or may not pass simultaneously depending upon the nature of the asset (eg land/shares versus a chattel).

Where legal title does not pass immediately does para 15 exempt the need for registration or not?

I would suggest that para 15 is not in fact needed as the bare trust which arises is not an express bare trust and hence there is no need for registration; certainly there was no intention to create such a trust.

I’m not sure where the many previous discussions on the TDF in relation to when, how and if registration under the TRS is needed and whether my views are in line with or contrary to those views.

Malcolm Finney

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I read this with interest as it is an area I have been mulling over (trust closure and resulting bare trust) and I have recently come to the conclusion that Para 15 exemption applies. The beneficial ownership has changed, but the reality of legal ownership changing takes a bit of time. So while reality (say the land reg) catches up para 15 exempts the bare trust from the TRS.
Although I accept, as Malcolm points out, that the bare trust may not be registerable at all as not an express trust. but if it is an express trust I would rely on Para 15.

In regard to the return, I would do the same as you Diana, show 31 march as date trust ended

However I do have some trusts that when there is a deed ending the trust the deed says that the trustees will hold property on bare trust for beneficiaries. So rather than bare trust just “happening” it is in a deed. I believe the deed is written this way to allow for the delay in legal title changing.
Does this change the TRS situation? or is the view that the bare trust mentioned is still not an express trust?

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For example, Practical Law’s standard precedent “Appointment of whole trust fund absolutely to one beneficiary” says:

"2. Exercise of the Power

2.1 The Current Trustee[s] exercise[s] the Power to appoint the Trust Fund as set out in clause 2.2.
2.2 Beginning on the date of this deed, the Trustees hold the Trust Fund on trust for the Specified Beneficiary absolutely."

Surely this creates an express registrable bare trust. I agree that that para 15 Sch 3 should apply to it.

""2. Exercise of the Power

The Current Trustee[s] hereby exercise[s] the Power to appoint the Trust Fund to the Specified Beneficiary absolutely."

Surely this creates a non-express non-registrable bare trust whereever the nature of the property appointed requires the trustee to perfect the newly-vested equitable interest by a transfer of the legal title (land, shares, debt receivable, intellectual property or whatever). I believe a covenant to do that would not affect the analysis.

I have little doubt that the the author of the precedent did not advert to the TRS and the drafting notes do not refer to it.

I have never yet “closed” a trust. A curse of any online procedure is that initially you cannot see through to its end. When I first registered a trust I first obtained from HMRC (with great difficulty) a paper form SA404,

On an appointment as above a non-taxable trust “closes” and simultaneously requires to be re-registered as a taxable trust unless the trust fund is comprised only of an asset or assets non-chargeable to CGT. This is true even if the sole asset attracts 100% PPR as the trustees must make a claim under s225 (1) proviso. It surely cannot be re-registered before the disposal and once the disposal is made it ceases to exist and a non-existent trust is not registrable, whether taxable or not. It is Equity’s version of the Oozlum Bird which (per Wikipedia) “will take off and fly around in ever-decreasing circles until it manages to fly up its own backside, disappearing completely, which adds to its rarity.” The bird is therefore the “regimental mascot” of HMRC and should really be given its own guidance Manual. Has anyone re-registered as taxable a non-taxable trust which has “closed”?

Jack Harper

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Thank you Jack for your comments.
I will put this to clients where trusts end and the assets are appointed out. It is either exempt under 15 Sch3 or non registerable as not an express trust.
The second part may not be in line with the government’s view, they suggest you have to register the bare trust. But I will let clients know that and if they want to register the bare trust then up to them, they will pay the fee.

I have never re registered a trust that has “closed”.

Thanks Nick. When a non-taxable trust is “closed” by an exhaustive appointment out, chargeable assets will be deemed to be disposed of. (Trust details are kept on the register for the prescribed time period).

It seems the trust must be re-registered as taxable and will need to submit a trust tax return (and a FA 2019 notification for residential property unless 100% PPR is available: para 2.4.4 CG-APP 18) with the UTR provided by HMRC. If the event occurs before January next in the same tax year the taxable trust will apparently have to make an annual declaration.

I would dearly like to avoid having to attempt this onanistic exercise blind online. So my questions are:

1 Does anyone know how I would do this myself as lead trustee?
2 If I involved an agent, would the agent know? (not keen to be a guinea pig)
3 Does any agent understand the garbage instructions in “Manage your trust’s details” about a taxpayer “claiming” a trust (remember Green Shield stamps?) and authorising an agent:
(a) to act (b) what the lead trustee must do to achieve that and (c) afterwards can the trustee still access the register using his own sign-in details?
4 is the authorisation for TRS separate from a general one to act for the trustees? (no TRS box on the 64-8)
5 Is the annual declaration necessary for a “closed” taxable trust with no assets? If so when does that stop, if ever?
6 How long are a taxable trust’s details kept on the register?
7 Does HMRC know what a trust is and how it works? (rhetorical only)

A taxable trust’s details are accessible by third parties subject only to the HMRC duty of taxpayer confidentiality (including DTA exchanges of information), whereas a non-taxable trust’s are accessible to Tom Dick or Harriet subject only to the mental incapacity and legitimate interest/third party request carve-outs. Can anyone explain this second-class higher risk of exposure to a breach of privacy?

Would it not be easier to ban the creation of trusts altogether as blatant vehicles for skulduggery including nasty evasion like intestacy, co-ownership, and the other disgraceful Schedule 3A loopholes and prescribe a SAR for any creation or intent to create one? Or require prior permission from a circumlocutory Trusts Regulation Agency. I concede that it would still be necessary for HMRC/NCA to recognise something as a trust (see Peter Harris passim on usufructs, showing that not even that is a slam dunk). The FCA has demonstrated a woeful lack of understanding about trusts underpinning funeral plans and how the law of contract actually works e.g novation. Or it just may be that they all simply don’t care.

Jack Harper

I might add that I am unable to find in the Regulations the terms “claiming” or “closing” a trust nor even “ending” one. But who actaully reads these things, apparently not HMRC.

Jack Harper

For completeness I thought I should update this forum with the response now given by HMRC on the agent community forum to the question posed.

That response is as follows:

If the terms of a trust change so that different trust terms arise within that trust and with the same trustees (for example a discretionary trust becoming a bare trust on an appointment of assets or a remainder interest coming into possession on the death of a life tenant), the TRS record should be updated to reflect any changes in beneficial ownership but it is not necessary to de-register the trust and re-register a new one. The record can be closed once legal title to the assets has been transferred to the beneficiaries.


I have just resolved a similar situation so am posting here in case the info is of use to others. Case: Non taxable discretionary XM trust registered with TRS, settlor (also a trustee) dies. When the fund (loan plan) was encashed, payment was direct to lead Trustee, who was also the beneficiary. Tax: on encashment a chargeable gain certificate was issued so beneficiary can choose to reclaim income tax paid if relevant, details of growth were included in the tax return for settlor’s final year of life, value of the remaining loan was included in IHT declaration. So far, all as confirmed with accountant. They also told me I would have to complete a trust tax return before closing the entry in TRS, this was incorrect. An HMRC trust dept advisor confirmed that, as it was a discretionary non taxable trust the trust ceased on pay out of the funds (encashment marked it’s official end date); the register does not need to be updated with details of settlor’s death, it does not need to be registered as a taxable/bare trust, no trust tax return is due, and the only requirement is to close the trust registration entry online. He confirmed that as all taxes which were due have been declared and paid to the correct departments and that the Trust dept has ‘no interest’.