Hi, I apologise if this is a stupid question but I was hoping to seek clarification as to the date on which a discretionary trust commences and the date to insert on the TRS. The deceased died in 2022. His will created a discretionary trust of NRB with residue to surviving spouse. However the asset base was such that all assets fell into the trust at the date of death save for those passing by survivorship. This was not my file from inception. The trust was still in existence in May 2024, i.e. the second anniversary of the deceased’s death and the last of the realisable assets have only just been realised. The trust assets consist of the deceased’s half share of the property and a small amount of cash.
My immediate thought was that as this is a Will Trust, it was created when the deceased died but I think I have read somewhere that this may not be the case and in fact it does not start until the administration of estate is complete. If the latter, should it be registered within 90 days of the last asset being realised or should it have been registered within 90 days of the second annniversary of the date of death
Thank you in advance for any comments/tips received.
On the date of death the Administration Period begins. While it is on foot no trust subsists. It ends when the residue is ascertained. But the AP applies separately to each and every asset in the estate. Executors may determine that a particular asset is no longer required for administration and may then assent it to the beneficiary entitled to it under the Will. Such a “beneficiary” may be a trustee of the asset. So the subsistence of a will trust and the subsistence of the AP are utterly and totally mutually exclusive as regards any given asset. So the correct technical answer is that a will trust commences when the executors no longer require to resort to the trust fund for administration purposes and are obliged to transfer it to the trustees, often themselves in a different capacity. The duration of the AP as regards any given asset of the estate is therefore elastic and fact-dependent.
The snag is that the knuckledraggers who administer the TRS are unable to read this or, it may be, at all. It follows that they are unable to write and this incapacity follows from their inability to think. All this is manifested in TRSM23020 in the section headed "Estates in administration for more than two years"https://www.gov.uk/hmrc-internal-manuals/trust-registration-service-manual/trsm23020
At 1 it says “Whilst there may be overlap between the duties of an executor and a trustee, there is clearly an express trust which covers the administration period and therefore starts from the date of death.So, if the administration of the estate continues after 2 years from date of death it must be registered on TRS as a will trust rather than as an estate.” This is plainly wrong. The express trust does not start from the date of death. If the AP is still operative after 2 years no trust exists at that anniversary.
This canard is repeated at 2. “This trust is also treated as coming into effect on death…” Oh no it isn’t! The trust comes into effect when the AP ends as to the trust property.
At 3 they set out the correct answer which contradicts what is said at 1 and 2. "Here, the trust technically comes into existence when the administration period has ended and Sophie switches role from executor to trustee.It may be difficult to ascertain when this occurs. If the assets have not been transferred to Gisele within 2 years of death than [sic!] the trust needs to be registered at that point if the administration period has ended or at the date when the administration period ends if later." My emphasis. This is always the correct answer and the correct question is always: has the AP in this estate ended as regards the assets destined for the will trust?
So if the AP has ended before the 2 years are up it needs to be registered as a non-taxable express trust within 90 days after the end of the 2 years. If the AP has not ended after 2 years it needs to be registered within 90 days of the date the AP ends.
This is the law but HMRC at the TRS don’t care about the law. Most practitioners do not want to get into fruitless conversations with such very confused or stupid people at their poor clients’ expense. So they register just before the 2 year period ends as this is easy for everyone to remember, even HMRC. Such a trust is most unlikely to be a taxable trust before the AP ends, for the same legal reasons, and the time for registration is 90 days of the trustees becoming liable to pay “UK taxes”, as defined. The 2 year period is irrelevant to a taxable trust. A non-taxable trust may become taxable and have to re-register but in practical terms that will not be until the AP ends as until then the trustees should not become liable to pay taxes in their capacity as trustees.
Thank you Jack, this is super helpful. As the two year anniversary of the deceased’s death has passed, do you know how rigorous the TRS are in imposing penalties and the extent of those. Based on TSEM6045, , the trust has only just come into effect as the administration period has only just finished but according to TRSM23020, it should have been registered last May. THank you
The only guidance we have is at TRSM80020. It seems clear enough to found a legitimate expectation for JR purposes so one hopes HMRC would follow it without expecting action to be taken for that cause. 80010 says “Trustees will be able to appeal any penalties charged. Details of the appeal process will be set out in any penalty notices issued”. In fact the Regs set this out. An appeal against penalty is allowed by Reg 99(1)(e) to the First Tier Tax Tribunal, defined in Reg 99(5) by reference to s82 of VATA 1994! Procedure is in Reg 100 and depends on whether a review has been requested.
A standing issue is that the First Tier Tribunal has no general judicial review jurisdiction, although there may be a limited jurisdiction for arguing public law points, that the penalty is unfair, per the Court of Appeal in Beadle v HMRC [2020] EWCA Civ 562; a case on an accelerated payment notice penalty, although in the case itself the decision was that the taxpayer could not do so as regards the statutory structure of that type of penalty. The Upper Tribunal has JR jurisdiction and where an appeal lies to it public law points should not be arguable below as a matter of general principle.