All trusts are now required to register under the trust registration service (TRS) unless they fall within a specific exemption. The exclusions are relatively limited, so most UK trusts and some non-UK trusts will now need to be registered with HMRC by 1 September 2022.
One area where people could be caught out is in relation to property as in many cases it may be overlooked that there is a trust in existence. Property owned jointly by two or more people is generally regarded as a trust and needs to be registered unless it falls within an exemption.
One of the exclusions to register is for co-ownership of land and property trusts, but this exemption only applies where the trustees, the legal owners, and beneficiaries of the property are the same people. The legal owner(s) will typically be the name(s) on the title deeds at the land registry, whereas the beneficial owner is the person entitled to any income or proceeds of sale.
For example, a rental property is legally owned by just one spouse and a declaration of trust is in place to transfer some or all of the beneficial interest to the other spouse (such that the income is taxed on the spouse with the lower income). The legal and beneficial owners would not be the same and the trust would need to be registered.
A similar position may arise for partnerships, with the land legally held by one partner for the benefit of some or all the other partners.
A further complication comes with trusts created on death. If a property was held as tenants in common or solely by the deceased spouse, with the will stating that the surviving spouse has a life interest in the property but after his or her death it will pass to their child, the trustees and beneficiaries may not be the same people.
In such cases the property trust would need to be registered by the later of 1 September 2022 or 90 days from the date of death, assuming that it hadn’t previously been required to register. If the only asset of the estate was the property, this could effectively result in the registration of two trusts (the will trust and the property trust) for the same asset! A separate exemption does apply, however, in respect of will trusts such that they do not need to be registered unless still in existence two years from the date of death.
Other instances where an exemption from registration of property trusts may apply include:
- Property held on behalf of minor children – by law under 18s cannot hold legal title to land. This exemption only applies where the property is owned by two or more persons, at least one of which must be over the age of 18 for the benefit of themselves and one or more persons under 18.
- Property owned by more than four people – this is the maximum number of people that can be listed on the Land Registry. In cases where there are more beneficial owners an exemption would apply, provided four legal owners are registered at the Land Registry.
The rules are complex and the guidance is constantly being updated, so please do get in touch if you are unsure or have a trust that you think may need to register.
For further background on the TRS and its application to other trusts, please see our previous article here.