What happens to trusts already registered on an “erroneous basis” before this kind of announcement? HMRC claim authority to “close” a trust, presumably they mean its registration, yet the law seems to require details to remain on the register for 5-10 years. I can’t find in the Regs a deregistration power of any description. I believe it is another one they wish they had and so will work on the assumption that they do. “I regulate therefore I am”: HMRC Chairman Sir René Descartes KCMG
Just wondering what members are doing on the example below:
We also often have the position where a trust will cease but minimal funds will be retained to cover final fees, etc. These are usually minimal amounts and held as nominee for the beneficiaries.
Are the views on this that they will also require registering as arguably a bare trust? So the position would be advise HMRC the trust ended on the TRS, set up a new TRS for the nominee account (and have to go through the whole claiming trust aspects again), 6 months later have to go on TRS and close this new trust down.
In a similar situation we have a lot of trusts closed where the deed closing the trust results in a bare trust for a short time.
Our firm has taken the view it is the same trust (arguably) just changed to a bare trust.
I asked HMRC on their forum this:
We are seeing a very common area with trusts that have come to an end, whereby the deed ending the trust results in the trustees continuing to hold the assets for the beneficiaries absolutely. This creates a bare trust situation. Often, after a short time, this bare trust arrangement ends.
For the purposes of the TRS our view would be that the original trust has not ended, just its nature has changed. Therefore the current trust registration can continue (with changes to any trustees etc reported).
However from a tax point of view the beneficiaries will report any income/gains direct as it is now a bare trust. So on the tax return it seems right to show the trust has ended. This will also avoid future tax returns from being issued.
Please could we have some clarification over this matter.
HMRC Answer. In direct response to the first paragraphs in the post are yes and the trusts need to be registered.
The Third point, a Bare Trust should be treated for TRS purposes as a Non-Taxpaying trust as there is no liability to tax. Therefore no requirement to annual maintain the trust in the service in the way a Tax Paying trust would.
The answer there of “yes” suggests that it is essentially the same trust, but then HMRC state it would need to be registered. I am reading that as it is the same trust and that needs registering (which in 9/10 cases it will already be registered). Not that the bare trust needs registering.
The Regulations (SI 2017/692) in Part 5 deal with beneficial ownership issues and in particular establish a register for both “relevant taxable trusts” in Reg 42 and other trusts of 3 types A-C in Reg 45ZA. In each and every case the trust in question must be an EXPRESS trust. This is not a defined term but the English law of trusts has adequate case law on what is and what is not express (though the latter may be called a variety of names such as implied, imputed, constructive).
It is usually clear whether a trust, given it exists at all, is express or not. There may be a doubt where, for example, a document specifically declares a trust in a situation where one (usually bare) would operate even in the absence of such a declaration.
“…we have a lot of trusts closed where the deed closing the trust results in a bare trust for a short time”. There is no legal concept of closing a trust; though I do not cavil about nomenclature a legal analysis is required of what this betokens. It may well be that the circumstances follow from an exhaustive and final appointment of all the extant trust property. Such an appointment would pass the equitable title and the legal title would remain with the trustees subject to a right in the appointee to call for it. That right may reasonably be described as a bare trust. In my view it is not express. If the appointment specifically declares that the trustees hold the legal title on trust in my view this does not create an express trust; it clarifies the operation of law outcome.
In my view subject to the actual facts and documentation the bare trust is not an express trust and does not require to be registered either as a new express non-taxable trust or as a new relevant taxable trust.
We lawyers used to have the courage of our convictions in advising our clients about the law. I accept that nowadays in arriving at that point we must have regard to the likely view of HMRC in appropriate circumstances. But to swallow whole what they say does a disservice to our clients and if slavish or supine could even be actionable by them. If we disagree with HMRC that is another uncertainty which it is for the client to know about and decide on.
HMRC operates with blinkered selfishness in these matters and many others. Given all the uncertainties of interpretation which have arisen, and could have been easily predicted with prior consultation or even just internal brainstorming, the ensuing irresponsible consequences have produced consternation among trustees and advisers. This creates costs (and anxieties) which HMRC does not bear. These outcomes are of no concern to HMRC or their Masters being water off a duck’s back. Having resigned from my 3 professional bodies I am not sure whether they have overcome their ingrained craven pusillanimity to complain but I detect no public outrage.
“I asked HMRC on their forum”. What, pray, is this Forum? Can anyone belong to it? This legislation is not the exclusive prerogative of professional trustees and HMRC should not be confiding their opinions only to any cosy coterie of those whom they unilaterally acknowledge to be worthy thereof. I am particularly incensed by HMRC’s de facto refusal to communicate electronically with the nasty unwashed taxpayer like myself despite their (often pathetic) attempts to universally Make Tax Digital. Some of us resent having to instruct Party Members in order to process our own tax affairs.
Per HMRC, TRSM 21030 provides:
" An express trust is a trust created deliberately by a settlor, [my emphasis] usually in the form of a document such as a written deed or declaration of trust. Express trusts can be created:
to take effect during the settlor’s lifetime, or
by will, to take effect on death.
Express trusts can be contrasted with trusts that come into being through the operation of the law and that do not result from the clear intent or decision of a settlor to create a trust or similar legal arrangement (for example, implied or constructive trusts)".
Given this statement, I don’t understand how in the above circumstances (ie “We also often have the position where a trust will cease but minimal funds will be retained to cover final fees, etc. These are usually minimal amounts and held as nominee for the beneficiaries.
Are the views on this that they will also require registering as arguably a bare trust?”) HMRC can argue the bare trust which arises is an express trust and requires registration?
Thanks for your comments Jack and Malcolm.
The issue of do we have an express trust is me ‘not seeing the wood for the trees’ and it is a very valid point.
I am not saying HMRC are correct but I have sought HMRCs views so that the client is aware not registering is potentially against HMRC views.
Jack - as to the HMRC forum, I use the agent forum (being a tax advisor for a firm of chartered accountants) but there is a ‘customer’ forum too. https://community.hmrc.gov.uk/
Again thank you for your comments and the solution to this issue. I felt like I was often going around in circles. And whether correct or not HMRC guidance is very inadequate.
They can argue what they like. The primary question is: do they? What they argue, if ascertainable, is a key aspect of the adviser’s knowledge base as part of the foundations for advice to the client. The adviser is not compelled to agree with the argument. Invertebrate acceptance of it may be at least embarrassing if it turns out to be adjudicated as wrong by the appeal process.
HMRC have a formidable arsenal for imposing their arguments. In the background lurks the appeal process which is expensive, uncertain, stressful and very public. And the enforcement apparatus. Using the threat of all that inequality of arms to impose one of its arguments which it genuinely believes in may be invidious. Using it where the argument was never believed in or is later manufactured for convenience or to save face (the legislation turns out to have a tenable interpretation not to HMRC’s taste) is amoral and intellectually dishonest but absolutely archetypical of the beast.
A client expects advice from a professional adviser not mere parroting of the official view. This involves impartial weighing of its legal strength and exploration of the downside of disagreeing with it and acting accordingly; and then assisting the client to evaluate that in the context of their uniquely personal appetite for meeting any later HMRC challenge and possibly having to concede defeat.
Registering or not registering something that may or may not be an express trust may well be a choice that most clients will be about as interested in as their choice of takeaway pizza but they are entitled to have the menu in advance and such assistance with their decision as both they need and the adviser has a professional duty to provide. That latter obligation also involves the adviser considering what arguments HMRC may come up with which are not even currently ascertainable because they are either not presently in the public domain (including deliberately so on HMRC’s part or because only confided clandestinely to the Great and the Good) or HMRC has not yet thought of them.
Having transmogrified from adviser to client I naively feel in a position to comment on what my expectations are of any professional who is offering to do the job I did for 50 years and also to suggest that such expectations might be not unreasonable on the part of any lay client. I have nothing against parrots but they should stick to the role for which evolution designed them. I fear their significant ingression into tax advice has been readily apparent to HMRC and gratefully exploited by them in the way the tax system is designed and administered by Ipse Dixit.
Thank you Nick for that link. I do regularly use the traditional Steam Packet to engage in desultory exchanges with HMRC in a largely vain attempt to encourage them into repentance.
My recent ornithological comments were made before reading your post but in any event were not directed at any person in particular. What you say you have done about HMRC’s views is exactly what I would hope for from an adviser. When I was in practice I constantly encountered advisers whose a priori assumption was that if HMRC said something it must be right. My robust challenge of that often caused consternation but needing to be liked has never been an affliction of mine!
An interest in possession trust created by will is excluded from registration for a period of two years from the date of death, or unless it has a UK tax liability.
For example, if a client wishes to gift £5,000 to each grandchild within their Will, can this exclusion be used upon death provided such gift is paid into a child bank account as outlined within the TRSM23160, or does this exclusion only apply during lifetime?
Any guidance, further sources or thoughts most welcome!
I have read this thread with great interest. I have one question, I am acting for the executors whose father left his daughter a life interest in his half share of his home. The daughter already owned the other half and resided there. Last October which was within two years of the death the daughter executed a deed of variation whereby she gave up her life interest with the result that the half share of the property passed to the remainder beneficiaries absolutely. The property has since been sold and the proceeds are being distributed.
Am I correct in thinking that there is no need for this Trust to be registered even though it is now over two years since the date of death?
I would suggest Sch 3A para 7 MLR 2017 provides for an exemption from registration.
The trust was created by will and is exempt from registration for a two year period; the trust ceased within this two year period on the surrendering of the life interest and the remainder beneficiaries acquired absolute title.
This has given me food for thought on another scenario, and I would be interested for you take on this:
My client Mr W, bought 50% of his parent’s house in 2013. He took on a mortgage in his sole name and the title was updated accordingly in his sole name.
A DOT was entered between Mr W and both his parents on terms (amongst others) that the beneficial interest was 50% Mr W and 50% between his parents.
Dad died in 2019. No action was taken, but all parties agree DOT therefore 50% Mr W and 50% Mum.
Mum died Jan 2022. No GOP is required because she only held a small bank account & beneficial interest.
Because the Trust existed as at 6 October 2020, my view is that it would be registrable (Sch 3A para 9 not being applicable), and that the Sch 3A para 7 does not apply either. My understanding is that this is still the case because the DOT is not a Trust having effect on death, albeit it is intended to be wound up within 2 years of death.
Just when I thought that I had got my head around when and when it was not necessary to register an estate which was in administration for more than two years since the date of death, I had the misfortune or should I say I was fortunate to speak with a solicitor with another firm who took the opposite view to my interpretation. I was under the impression that even though the administration of the estate may have exceeded two years since the date of death, unless the Will included an actual trust such as a life interest or similar, rather than just giving the estate to the trustees upon trust for beneficiaries who were absolutely entitled, there was no need to register. However the solicitor I spoke with said that he understood from courses he had attended that all Estates which have been in administration for more than two years had to be registered since the executors/trustees were holding the estate assets in trust for beneficiaries notwithstanding that the beneficiaries were absolutely entitled. If he is correct, then it just does not make sense as there are numerous reasons why an estate cannot be finally wound up and there must be many thousands like that. Will someone put me out of my misery!
John dies in England on 1 June 2022. He leaves his estate to his executors and trustees to hold on trust to pay his debts and funeral expenses and to divide the remainder between his wife and brother in equal shares absolutely. Under English law this creates a trust. As a trust created by will, the trustees are not required to register the trust immediately on John’s death.
The estate is fully administered and all property in the residuary estate is distributed to his wife and brother by December 2023. As this is within two years of John’s death, there is no need for the trust to be registered on the Trust Registration Service (TRS)".
Malcolm thank you for your quick response. However using the HMRC example, do I take it that if the estate had not been wound up and distributed until August 2024 which would be over two years since the date of death, the executors would need to register it? If so how does that fit in with your response to my earlier posting Nine days ago when you Referred me to Sch. 3A para 7MLR 2017 and you considered that as there was no longer a trust involved, registration was not necessary. The administration of that case is currently winding up and it is now over two years since the date of death. If registration is required in all circumstances where estate is given to executors/trustees to hold upon trust for beneficiaries who are absolutely entitled, then perhaps Wills which give estate in that way should no longer include a provision that the estate is given to the trustees to hold upon trust for such beneficiaries!
This is not intended to be any form of response to the questions asked, so apologies.
There is a question of underlying principle here; does a technical trust of land which is irrefutably an immovable under fundamental principles of English land law need to be registered at all if the sole purpose of the registration requirement is to comply with international reporting requirements aimed at other issues?
It is simply invasive and not proportionate.
There is a point where Henry VIII and HMRC have to part company, unless HMRC and HMG choose to remain the EEC’s, the Hague Convention’s and the OECD’s eighth old man called 'Enery.
Sorry for the alkaline humour, but FATCA and its ilke were only intended to apply to movables and enough is by now quite enough.