Trust Registration Service Update: Guidance on Trust Register For Partnerships - Land, Cars and Machinery

The Trust Register has caused a great headache for many advisers, especially with trusts of property. 

A major update of the TRS Manual (TRSM), released on 20 July 2022, includes important new guidance that raises major issues for partners and their advisers to consider about how partnership property is owned.

This includes a very “techy” interpretation by HMRC in their latest guidance. It raises questions about what is said in any partnership agreement and how any new assets are bought and added to the partnership. These arrangements now need review, as we explain below.

While there has been some discussion in specialist journals, this will not have crossed the radar of many partners, and many will assume they’ve no obligations here as they are taxed on their partnership income and gains.

However, the TRS is not primarily about taxation; although run by HMRC it is also an anti-money laundering process, concerned with assets that aren’t owned by all the owners, as commonly happens in partnerships. Many vehicles, pieces of land or other assets are bought and held in one name and aren’t put into the names of all the partners.

Changes for partnerships

Partnership property: ordinary trading partnerships may need to register for TRS if not all partners have legal title over the assets.

For example, partner X owns the legal title to partnership land, or other property like a car, farming equipment, or another kind of machinery for the benefit of all the partners. This may create a bare trust that needs to be registered on TRS. TRSM23050, which deals with different forms of property ownership has just been updated, and uses examples of farming and other business equipment - so it’s not just about land.

HMRC are making a technical distinction which means some trusts of property are treated as express trusts and may need to register, whereas others are not express trusts at all, and will not need to register at any time.

The distinction is between:

(a) where property is purchased by a partner using partnership money and is held in the partner's own name. There is a presumption under sections 20-21 of the Partnership Act 1890 that the property belongs to the partnership as a whole, without the creation of an express trust, so no need to worry about TRS at all

(b) however, if partner X owns a property in their own name and declares by a written deed that the property is being held on trust for the partnership, or this is covered by the terms of the partnership agreement, this is an express trust which would be registerable on TRS, provided that no other exclusions from registration apply.

Are there any exclusions?

Two exclusions that may apply to land, one quite common but the second rarer, could stop the need to register:

(i) if four partners hold a property (land) for the rest of the partnership, it’s ok as you can’t have more than four legal owners at the Land Registry (para 1, Sch 3A exclusion, as a “trust imposed or required by an enactment”). However, it must always be four - not lapsing to three if one partner dies or leaves the partnership; a fourth partner would need to be added to the registered title.

(ii) if one of the partners is under the age of 18 – they can’t hold a legal title on the Land Registry because it is restricted by an enactment. In this case it could be held by the others, for example if there are four partners, one of whom is under 18, the other three can hold until they turn 18. Following this the 18 year old must be added on to the title, or a TRS registration is needed within 90 days.

Action for partnerships and their advisers

Following this change, all partnerships should consider the terms of their partnership agreement with their legal and tax advisers, and how they hold their property and other assets, like cars, and whether:

(a) their existing arrangements need to be registered on TRS, and

(b) whether a change of practice might be feasible as a way of reducing the compliance burden. For example, instead of one partner in a partnership of seven holding a property on her own, she could transfer to the names of three others and herself, to rely on the exclusion explained in (i) above.

This doesn’t tend to work with cars, where it’s easier for one partner to be the registered owner, as having more names on the V5 will simply add to the number of “former keepers” when the car is sold. It may be there are other costs with taking the step to add names to a title, so that in practice it is the “lesser of two evils” to register on TRS, but this is a significant (and curious) new factor for clients and advisers to consider.

The need for perspective is illustrated by one driver for land to be put into partnerships, to secure 100% Business Property Relief (BPR) to mitigate Inheritance Tax. Land used by a partnership but held by a partner outside that partnership normally secures only 50% BPR, so putting land into a partnership can double that relief. TRS is just one factor to consider in partnership planning. 

Keeping up to date - further changes due

A further TRSM update is due in August, especially to deal with estates and variations of Wills or where the estate runs for more than two years. We’ll issue further comment when that is available.

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