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HMRC's Trust Registration Service: Co-Ownership and Residuary Estate Trusts

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HMRC introduced their Trust Registration Service (TRS) in 2017. It originally applied to certain taxable trusts and required trustees to register details of these. However, the TRS has since been expanded to cover most trusts, whether or not the trustees need to pay tax. There are two types of trust that require registration which can be easily overlooked:

Co-ownership trusts of property

Where the individuals named on the title deeds to a property are different to the people or entities entitled to the equity in the property, this creates a trust which requires registration

There are two common ways in which joint owners can own property:

  1. When a property is owned as 'joint tenants', none of the owners have an individual share in the property. Instead, each of them owns the whole property. When one of them dies, their interest automatically passes to the other owner(s).
  2. When a property is owned as 'tenants in common', each owner has a defined share in the property. Their shares can be equal or unequal.

Where the legal and beneficial owners of a property are the same people, i.e. where they are both named on the title deeds and are jointly entitled to all of the equity in the property, their co-ownership trust is excluded from registration on the TRS.

However, if the beneficial owners ever change, the co-ownership trust may need registering on the TRS. This could happen if:

  1. Mrs Smith owns a property in her sole name but decides to put in place a Declaration of Trust to declare herself and Mr Smith as the beneficial owners who are jointly entitled to the equity, to recognise his financial contribution to the property.
  2. Mr and Mrs Jones own a property in their joint names, but Mrs Jones' parents make a loan to them of £50,000. They put in place a Declaration of Trust to confirm that, when the property is sold, the first £50,000 will be repaid to Mrs Jones' parents.
  3. Mr and Mrs Wilson owned a property in their joint names as 'tenants in common', before Mr Wilson died in 2024. In his Will, he appointed two friends as his executors and trustees and gave his wife a right to reside in the property for the rest of her life. The Will states that, on Mrs Wilson's death, Mr Wilson's share of the property will pass to their two children. Whilst she is alive, the title deeds will need to be transferred into the joint names of Mrs Wilson and the trustees of Mr Wilson's Will as the legal owners, but the beneficial owners of the property will be different, i.e.  Mrs Wilson and her two children.

Residuary estate trusts in Wills

HMRC have recently widened the scope of the TRS to include a requirement to register "residuary estate trusts", which apply to a person's estate after they have died. The residuary estate is registrable if:

  1. The Will states it is held in, on or upon "trust"; and
  2. All of the deceased's assets, after payment of any liabilities, tax and any specific gifts, have not been transferred to their beneficiaries within two years of death.

For example, if Mr Potter died on 5 December 2021 and left his residuary estate, "on trust" for his two children absolutely and all of the assets in his residuary estate were distributed to his two children on 1 September 2023, the trust created in his Will is excluded from registration on the TRS.

However, if the final distribution of Mr Potter's residuary estate was completed on 6 January 2024, then the trust would need to be registered on the TRS.

Penalties for failure to register

HMRC are currently taking a light touch approach to registration so, for the time being, trustees will not be penalised for an initial failure to register if they did not do so in good faith, e.g. if they were not aware of the requirement to register.

However, this light touch approach will not last forever, so all trustees should consider now if their trust requires registration. HMRC have said that a penalty of up to £5,000 could be imposed on trustees who deliberately fail to register a trust which requires registration.

Contact us

HMRC regularly update their guidance and it is important that trustees understand if their trust requires registration. If you are a trustee of a trust that you think may need registering on the TRS and would like to discuss your responsibilities, please call Joe Pegler on 01780 750673, or Charlotte Corbyn on 01780 750776, for more information.

This blog was co-written by Joe Pegler and Charlotte Corbyn.