Co-ownership Of Property And The TRS
With the changes to the Trust Registration Service (TRS) brought about by the fifth anti-money laundering directive (5AMLD) questions are being asked as to just which trusts in relation to property will have to be registered.
The new rules
The 2017 Money Laundering regulations (4AMLD) were updated by the Money Laundering & Terrorist Financing (Amendment) (EU Exit) Regulations 2020 (5AMLD) which came into force on 6 October 2020. These new rules extend the scope of trust registration to all UK trusts and some non-UK trusts, whether or not there is tax to pay. However, there is a long list of trusts which are excluded from registration – set out in Schedule 3A to the 4AMLD regulations, as amended.
Withing the 5AMLD (schedule 3A starts on page 11), paragraph 9 states that the following are excluded from registration:
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“A trust of jointly held property where the trustees and beneficiaries are the same persons.”
What does this mean in practice?
In the obvious case of a married couple purchasing a property in England in joint names as joint tenants it means that there is an express trust of land but the trustees of the legal estate are the same as the beneficiaries of the equitable interests so it does not have to be registered on the TRS – after all it is registered at HM Land Registry.
If we take this one stage further, let’s say that John and Karen Smith have both been married before and in buying their house together they wish to reflect different contributions to the purchase price such that they buy in joint names as tenants in common as to 60% for John and 40% for Karen. Does this make any difference? Does the fact that the equitable interests are not equally owned trigger registration?
The fact of the matter is that as co-owners of the legal estate they are trustees and as co-owners of the equitable interest they are beneficiaries so they are the same people even though the equities are owned in different proportions. Thus, no need to register any declaration of trust.
Would the answer be the same in relation to cohabitants?
Here is the question I put to HMRC via the Agent’s Forum:
“Where cohabitants co-own property under a trust of land but declare trusts (eg setting out 60:40 beneficial split, ringfencing deposits before sale proceeds are split etc by the legal owners of the property between themselves) could these trusts be subject to the new regime and require registration on the Trusts Register as they will be express trusts. This would seem to cover nearly every trust in a purchase transaction other than a 50:50 split or joint tenancy. Or is it likely these will excluded? Or are you only wanting co-owned property trusts to be registered if the beneficiaries are different from the trustees?”
Here is HMRC’s answer:
“Trusts holding property owned by two or more persons, where the trustees and the beneficiaries are those same persons, are not required to register (Sch3A(9)). The questioner below is correct that these trusts only need to register if the trustees/beneficiaries are different persons. See this example from the draft TRSM, which is the exact same situation as outlined in the question below:
Alice and Bob wish to purchase a property together. They elect to hold the property as tenants in common, allowing them to declare that Alice owns 70% of the property and Bob owns 30%. To achieve this, they create a trust for ownership as tenants in common. This is a co-ownership trust as Alice and Bob are both the only trustees and the only beneficiaries of the trust. The trust is therefore not required to register on TRS.”
Trusts of interests in property under a Will
If John and Karen Smith make mirror Wills in which the first to die provides an IPDI trust interest in their property share in favour of the surviving co-owner would that trust have to be registered?
On the death of one co-owner the legal estate passes automatically by survivorship to the surviving co-owner. So if Karen died first, John would remain the sole surviving trustee of the trust of land. Karen’s personal representatives in administering her estate would have to deal with the 40% share in the property. Her Will trustees will be the trustees of the equitable interest and now will differ from the trustees of the trust of land. The beneficiaries of the IPDI trust over the equitable interests will potentially also be different in as much as it is likely to be John and children, maybe from Karen’s first marriage.
The IPDI would on the basis of 5AMLD require registration if it continues beyond two years from Karen’s death. Remember trusts arising under Wills are excluded from registration in the two years following death by paragraph 7 of Schedule 3A.
HMRC have confirmed that Sch3A(7) excludes trusts created by Will from registration for a period of two years following the death of the deceased. During this period, trusts created by the Will are not required to register. If the trust is still in existence at the end of this period, then the trust is then required to register. The exclusion only lasts for two years following the date of death. If the trust does not commence until more than two years after the death, the trust is required to register from the date of commencement i.e. if the PRs are still administering the estate the trust will not need to be registered until the trust assets are vested in the trustees.
The result of paragraph 9 Schedule 3A is that only very simple cases of co-ownership will be excluded from registration on the TRS. Any case where there is a trust of the equitable interests is likely to require registration of that trust.
If you would like to know more about this topic follow me on LinkedIn for further updates as the Guidance in support of the 5AMLD changes develops.
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