TRS Query - Class of PBs

Trusts Discussion
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At risk of asking a question probably asked a million time already here, I’m in the process of using the TRS, do a class of PBs, ie nephews and nieces of the testator, need to be all be individually identified in the registration or can their identification as a class suffice?

The gov website leans me towards saying that you name them as a class, given this description:

‘You can use a ‘class’ of beneficiaries to describe a group of individuals who are not yet known or named individually in the trust deed, for example, future grandchildren. This can also include named potential beneficiaries. When a member of a class of beneficiaries benefits from the trust, and so becomes known, you must give their details. You will be asked to give a description of each class.’

But it would be handy to check with people who have been doing this more than me.

Andrew.

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If any potential beneficiary has been individually named either in the Trust deed or a Letter of Wishes, then they should be added on the TRS.
If only the class of beneficiaries is mentioned, that is all that is required on the TRS, eg “Nephews and nieces”

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I thought there had been a release which advised, if beneficiaries of a class are identifiable they have to be reported individually. I’ll try and dig out the narrative. FOUND IT - From STEP Essex talk given by Professor Lesley King.

In the case of a class of beneficiary, HMRC used to say that a description of the class was sufficient, eg ‘all the children of X’. Individual details were not required unless and until a particular individual received a benefit at which point that person’s details had to be entered.

The Manual now says at TRSM32050:

“Trusts are often set up for the benefit of a class of unnamed beneficiaries. To be a valid trust, this class must be distinguishable. For example, a trust could be set up for the benefit of ‘all descendants of Mr Silva’.

Beneficiaries should only be recorded as part of a class of beneficiaries if they cannot all reasonably be identified individually by the trustees. If all the members of the class can be identified individually by the trustees, they should instead be recorded as individual beneficiaries.

In the example above, if the trust had been settled by Mr Silva some generations ago it may not be reasonable for the trustees to now identify each descendent. The beneficiaries could therefore be recorded as a class of beneficiaries.

However, if the beneficiaries were instead a distinct group such as ‘the grandchildren of Mr Silva’ , it is reasonable to expect the trustees to be aware of the identity of each individual. Therefore they should be recorded as individual beneficiaries rather than as part of a class of beneficiaries.”

Lucy Orrow CTA TEP
Lambert Chapman LLP

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This was a quiet change of position from HMRC, which is inherently self-contradictory and removed the limited common sense from the original guidance. For example, they suggest later on in that same text that “current employees” could be included as a class but do not provide any justification for that. The logic only holds if we suppose that employers do not know who their employees are. The only difference in practice is scale and the variation over time.

(we have also suffered from a trust with 100+ settlors, which is not covered by the online portal or any provisions for classes. HMRC said to send in a paper list but what do they do with that list? What are the chances that it will not just be lost or “filed” in the bin).

/endRant

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The key words in Regs 45(2)(d) and 45ZA(3)(b) are “not all of whom have been determined”. The words are emphatically not: “not all of whom CAN BE determined”. What would a judge decide? I suspect that a judge would not take the narrowest view, namely that beneficiaries have not been determined just because the trustees have not actually conducted a head count but could do so.

Then there is the timing issue, not only as of first registration but whenever a change occurs. As regards employees I consider strictly that all current employees of a company who are eligible beneficiaries at first registration should be named and their requisite information provided and that every change in eligible personnel should be notified with similar data. In short the trustees should communicate the contents of the company’s eligible payroll and then any changes in it within a rolling 30 period from every relevant change.

As regards a class of “my grandchildren” if the class has not closed then strictly none of the grandchildren need to be named until it does. While there are potential unborn beneficiaries they have “not all …been determined” so a description suffices until they are. This would doubtless be lost on Mr Silva and is probably too subtle for the stormtroopers at HMRC for whom TRSM is the law (by proclamation; see Reichstag Fire Decree).

I do not accept that TRSM32050 represents an accurate interpretation of the words in the SI. But if it is treated as if it did then HMRC would have great difficulty penalising a trustee who followed it. Reliance on it should be recorded for posterity. It is a defence to a penalty imposition that the person in question “took all reasonable steps and exercised all due diligence”. This is in Reg 76(4) but you will not find it in TRSM80000, only in 80010 that :“Trustees will be able to appeal any penalties charged. Details of the appeal process will be set out in any penalty notices issued.” I’m sure Mr Silva will be entirely reassured by that.

As was I when I received yesterday a computer-generated Simple Assessment giving me no personal allowance and had to query it (s31(3) and s31AA TMA) and have it corrected during two 35 minute phone calls. It was dated 25 September and so issued before 5 October (s7) or either tax return filing date (s8(1D)). Apparently my file had been wrongly “flagged”. A warning to all. Flagging is operational. Digital by default is Incompetent by Default. I am applying to be the next Tax Assurance Commissioner. Unless Mr Silva does.

Jack Harper

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Thanks, Jack, for your very helpful exposition on the subject of declaration of class beneficiaries.

I can see that if all current employees are included as beneficiaries the continuing change in who they are, would mean a trustee should give the names and their requisite information to cover changes.

Is it your opinion that where there are (say) eight grandchildren whose names and details are listed, every time a new grandchild is born that is a change that should be updated in the TRS?

Julian Cohen

Simons Rodkin

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I believe that might follow logically from what HMRC are saying. And if your intended position is to rely on what HMRC publicly state as their view (if it is unambiguous and often it is not) then you surely can’t cherry pick, or not much. For example, the statement "To be a valid trust, this class must be distinguishable". It is unambiguous but it is total rubbish. What exactly does it mean? So if a class (of beneficiaries presumably) is not distinguishable the trust is invalid. Distinguishable from what and how? They are probably not talking about certainty of objects and how it applies to trusts, powers, mere powers, and “black hole trusts”. I don’t believe anyone could rely on that statement. But perhaps one can still rely on another in the same paragraph of the Manual.

The core of what they say seems to be linked to identification of a beneficiary. " “Beneficiaries should only be recorded as part of a class of beneficiaries if they cannot ALL reasonably be identified individually by the trustees”. They say ALL but do they mean it? If we take it literally the possibility of after-born grandchildren must mean, while it continues, that ALL beneficiaries cannot be identified, reasonably or otherwise. (What justification is there for interpolating “reasonably”?).

It also means that their position on employee-beneficiaries is wrong unless the class is closed to future employees; " If the beneficiaries are specified by name or are otherwise individually identifiable (for example directors), do not include them here. Instead, they should be recorded as individual beneficiaries". Yet where the class is “any employee of X Ltd” (certain because the trustees can tell whether a person is or is not such before benefiting them) the currently identifiable beneficiaries are plainly not ALL the members of the class. (They are only SOME of them).

Surely one must go back to Reg 6 (1) which defines “beneficial owner” in relation to a trust. Under both Regs 45 and 45ZA the register is to contain details of individuals who are “beneficial owners”. The first relevant category in 6(1)(c) is “beneficiaries”. Is a named member of a class one such? Is one also such who by description is identifiable as a current member of a class? Regrettably the word is not defined. “Beneficial owner” is defined and so it is not arguable that a discretionary object with a mere spes, however named or described, cannot be one (however ludicrous the proposition is that they can).

Even if such persons are merely discretionary objects they would be beneficiaries to a person on the Clapham omnibus, surely even to a trust lawyer on it. But 6(1)(d) " where the individuals (or some of the individuals) benefiting from the trust have not been determined, the class of persons in whose main interest the trust is set up, or operates;". You are in (d) even if only SOME individual members have not been determined. Are the two categories discrete and mutually exclusive? If you are a member of such a class, though readily identifiable, are you in (d) but not in (c) or in both? (goodness knows what "main interest means!).

I fear all you can do, if you wish to rely on a published HMRC position, is to follow it literally and exactly. Probably unless it makes no sense at all, but perhaps even then! A genuine difficulty with TRSM32050 under “Class of beneficiaries” is that the statement at bullet 2 seems to conflict with that at bullet 4 where the grandchildren of Mr Silva can’t all be identified e.g… if the class has not closed in a fixed trust. Someone in HMRC does understand the concept (see CGM37700). But I doubt anyone running TRS does, so obtaining clarification will be a thankless task. And technically (perpetuity apart) a given class of discretionary objects need never close e.g. employees of X Ltd or Mr Silva’s descendants (which Mr Kessler prefers to “issue”). HMRC’s position on that seems to be that such persons if reasonably identifiable should be treated as individual beneficial owners, despite having a “mere spes”, rather than as members of a class some of which have not been determined, even if identification of ALL members is not impossible only unreasonably difficult.

Jack Harper