Extension To The Requirement To Register A Trust Under The Trust Registration Service

New rules have been introduced to expand the scope of trusts which are required to register under the Trust Registration Service (TRS).

The TRS is a register of the beneficial ownership of trusts and is managed by HMRC. It contains certain information about each trust and the people connected to the trust, including settlors, trustees and beneficiaries.

Previously, trusts were only required to register with the TRS if they had a UK tax liability. This has now been extended to all UK trusts, unless they meet specific exemptions (listed below). All trusts in existence on 4 June 2022 are now required to be registered by 1 September 2022. Any trusts created after this date should be registered under TRS within 90 days of creation.

• All trusts with a UK tax liability, regardless of their residency.
• All UK trusts unless covered by one of the exclusions (listed below).
• Non-UK resident trusts that acquire UK land or property.
• Non-UK resident trusts that enter into a business relationship in the UK and have at least one UK resident trustee.

Certain trusts do not need to register under TRS, unless they are liable to UK tax. These include:

• UK-registered pension trusts.
• Life or retirement policies that pay out on death, terminal or critical illness or permanent disablement.
• Insurance policy benefits received after the death of the person assured where the benefits are paid out within 2 years of the death.
• Charitable trusts
• Will trusts that only hold the estate assets for a maximum of 2 years after the death.
• Trusts set up to hold shares of property as ‘tenants in common’.
• Those set up to hold jointly owned assets as ‘joint tenants’, or a joint bank account.
• Certain bare trusts for minors.
• Declarations of trust where the trustees and beneficiaries are the same people.
• Trusts set up under the intestacy laws where there is no valid will on death, and the assets are held within a trust before being distributed.
• Trusts for bereaved children or adults between the ages of 18-25, set up under the will of a deceased parent.
• Those set up under the Criminal Injuries Compensation Scheme.
• Trusts set up under a Court Order to hold compensation payments.
• Trusts created in the course of professional services for holding client money.
• ‘Pilot’ trusts which hold no more than £100 and were set up before 6 October 2020.

A bare trust is the simplest form of trust and is used to hold an asset for a particular beneficiary. Bare trust beneficiaries are often used where beneficiaries are minors, until they reach an age where they are legally able to take ownership at 18.

It is also common for bare trusts to be used in partnerships, where assets are held by partners in trust for the benefit of the partnership. This is particularly common in farming and agriculture but can affect many other sectors.

All bare trusts should be registered under TRS, unless they meet any of the exemptions listed above.

Farming partnerships need to take action now to review land ownership in light of these changes.

LLPs and companies can own land in their own right but partnerships cannot as they are not legal entities. This means that some or all of the partners often hold land as trustees for the partnership.

The benefits of land being held as a partnership asset can be considerable, as partnership property can benefit from 100% Business Property Relief (BPR), as opposed to only 50% relief if land is owned by a partner who uses it in the business.

BPR is particularly beneficial where the market value of the farmland, or farm buildings, exceeds its agricultural value.

Where land is owned by trustees, the owners on the deeds or at land registry, who are the same people as the beneficiaries, there is no requirement to register on the TRS. However, in partnership situations, often the legal owners are different to the beneficial owners, in which case there is a requirement to register under TRS. For example:

Example 1

John is in partnership with his wife Ann and their son and daughter Ed and Emma. John is the legal registered owner of the farm. They have a partnership agreement confirming John holds the farm on trust for the partnership. As the partnership consists of John, Ann, Ed and Emma the partnership beneficial owner is different to the legal owner so a TRS registration is required.

Example 2

John is in partnership with his wife Ann and their son and daughter Ed and Emma. John is the legal registered owner of the farm. They do not have a partnership agreement or any other express deed confirming beneficial ownership is any different to John’s legal title. Therefore TRS is not required. However, this position may result in John not benefiting from 100% business property relief on his death.

Example 3

John is in partnership with his wife Ann and their son and daughter Ed and Emma. John, Ann, Ed and Emma are the legal registered owners of the farm. They have a partnership agreement confirming they hold the farm on trust for the partnership. As the partnership consists of John, Ann, Ed and Emma the partnership beneficial owner is the same as the legal owner so a TRS registration is not required.

Example 4

John is in partnership with his wife Ann and their son and daughter Ed and Emma, and Emma’s daughter Sarah. John, Ann, Ed and Emma are the legal registered owners of the farm. They have a partnership agreement confirming they hold the farm on trust for the partnership. Whilst the partnership consists of John, Ann, Ed Emma and Sarah, so the partnership beneficial owner is different to the legal owner TRS registration is not required. Where there are more than four partners who own the property, but only four are recorded as legal owners, there is no requirement to file under TRS. This is because legal ownership of land cannot legally be held by more than four people.

It is important farm businesses and landowners consider the ownership of the property alongside their legal paperwork to ensure the ownership position is understood and reflected properly in all documentation, and then whether they need to register under TRS.

This is an opportunity to consider the long term benefits of holding land in the partnership for both succession and tax purposes and ensuring the legal paperwork and partnership agreement, as well as the accounts, are up to date.

This TRS registration process and due diligence may require administrative work and costs in the short term but will provide clarity when considering inheritance tax reliefs and succession plan in the long run.

For more details on how to register a trust under TRS and the information required, please get in touch.