In October 2020, HMRC introduced the new rules regarding registering trusts. Whilst previously only taxable trusts were required to be registered, the new legislation requires that the starting point is a trust is to be registered, unless it is exempt. This potentially also includes partnership trusts.
The legislation implemented a registration date of 1 September 2022 for existing trusts that are required to be registered. HMRC have so far, and continue to, issue guidance as to which trusts are to be registered and which trusts are exempt. Fortunately, whilst professionals and individuals alike adjust to the developing guidance, HMRC has stated that it will not be penalising those who fail to register for the first time, unless the failure to register was due to the trustees deliberately avoiding doing so.
Trustees are responsible for registering their trust
Nonetheless, trustees need to understand whether or not they need to register the trust. As a minimum, the starting point is to check whether or not the trust exists – and for most farming families it may well do.
As a farming partnership is not a legal entity it cannot hold property, so land and other assets are usually held in trust for the partners who are more often than not the beneficial owners. Typically, there may also be other beneficial owners of a trust who are not partners but still stand to inherit (such as a child who works on the farm but is not a partner and / or non-farming children). In this situation, where the legal and beneficial owners are not the same, the trust may need to be registered.
This can cause complications as registration may depend on whether the partners are relying on legislation from 1890, or have an express agreement in place! To complicate matters further, different parcels of land owned by different beneficiaries will give rise to multiple trusts, all of which may need to be registered individually.
There are some exemptions
As indicated above, where a written partnership agreement contains a declaration of trust, the trust over that land may also need to be registered. Although this requirement – and associated costs of registration - may lead some to question the merit of a written partnership agreement, we would always recommend a written partnership agreement to ensure the partners know their position.
Trusts that do not need to be registered include those where:
- The trustees and the beneficiaries are one and the same and there are no other complications.
- The trust is created by a Court Order.
- Legal title to the land is owned by five people or more and four of the owners are named on the Land Registry entries (the Land Registry will only allow a maximum of four people to appear on the register).
HMRC continue to update their guidance, most recently on 4th April. We strongly advise asking for professional help to ascertain if you need to register a trust – and as soon as possible to avoid incurring potential penalties.