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HMRC internal manual

Capital Gains Manual

Basic terms of trust law as applied to CGT: Trustees

General

Appointment of trustees

Retirement or removal of trustees

Appointment of trustees: Scotland

Retirement or removal of trustees: Scotland

 

General

TCGA92/S69 (1)

A trustee is a person (aged 18 or over in England and Wales) who has an obligation to deal with property in a particular way under the terms of a trust for the benefit of particular persons, of whom he or she may be one.

The trustees of a settlement are treated as a single and continuing body of persons, although there may be changes in the persons acting as trustees.  The wording of section 69(1) was slightly changed with effect from 6 April 2006.  The trustees are now “treated as if they were a single person”.

TCGA92/S69 (3)

Where part of the property comprised in a settlement is vested in one set of trustees and part in another (in particular, where settled land within the meaning of the Settled Land Act 1925 is vested in the tenant for life and investments representing capital are vested in trustees of the settlement), they are to be treated as a single body of trustees, even if they act separately. On the other hand, if there are two separate settlements, the trustees of each are treated as separate bodies.  FA 2006 introduced the concept of a sub-fund settlement, where there has been an election that a discrete sub-fund should be treated for most purposes of CGT and Income Tax as a separate settlement, see CG33330.

 

Appointment of trustees

In the case of an express trust the main ways of appointing trustees in England and Wales are as follows.

  • Under an express power in the deed. Often this power is kept by the settlor during his lifetime. (The possession of this power does not make someone a trustee)
  • Under Section 36(1) Trustee Act 1925. This provides for the appointment of replacement trustees if one wishes to retire or one of the conditions for removal is present, see CG33340.
  • Under Section 36(6) Trustee Act where trustees who are individuals wish to increase their number to not more than four.
  • Under Section 19 Trusts of Land and Appointment of Trustees Act 1996, where there is no person nominated to appoint new trustees, and the beneficiaries of the settlement “are of full age and capacity and are (taken together) absolutely entitled to the property subject to the trust” and give notice to the existing trustees to appoint a trustee.
  • By order of the High Court.

For the second and third bullet points, if there is no one nominated in the deed to appoint trustees, the continuing trustees have the power of appointing new ones.

 

Retirement or removal of trustees

In England and Wales trustees generally retire or are removed from office in the following circumstances.

  1. Under an express power in the deed.
  2. Under Section 36(1) Trustee Act, where one wishes to be discharged and a new one is appointed.
  3. Under Section 36(1) Trustee Act, where one refuses to act, or is unfit or incapable of acting, or is outside the UK for 12 months. It is however quite common, particularly in cases where it is intended, in order to avoid tax, to move the trust abroad, for a specific clause of the trust deed to override this provision.
  4. Under Section 19 Trusts of Land and Appointment of Trustees Act 1996, where the beneficiaries of the settlement “are of full age and capacity and are (taken together) absolutely entitled to the property subject to the trust” and give notice to an existing trustee to retire.
  5. Under Section 39 Trustee Act, where one wishes to be discharged, and after the discharge there will be at least two individual trustees or a trust corporation remaining, and they consent to the discharge.

As a general rule a trustee cannot be discharged unless as a result there would be at least two individuals or a trust corporation in office. A foreign company cannot be a trust corporation.

 

Appointment of trustees: Scotland

The rules for Scotland are different from those for England and Wales. The main ways in which trustees are appointed are these:

  1. under an express power in the deed,
  2. the truster (settlor) of a private trust has an implied power during his lifetime to appoint replacement trustees for original ones who have died,
  3. unless the contrary is expressed, there is an implied power for the trustees (or a quorum) to assume (appoint) new trustees. (Section 3 Trusts (Scotland) Act 1921),
  4. by order of the Court, see  below.

 

Retirement or removal of trustees: Scotland

In Scotland trustees may retire or be replaced in the following ways:

  1. in accordance with an express power in the deed,
  2. under Section 3(a) Trusts (Scotland) Act 1921 a trustee has an implied power to resign unless the contrary is expressed or the trustee took office in return for payment. But a sole trustee may not resign unless new trustees have been appointed,
  3. in certain circumstances the Court may remove a trustee who is unfit or incapable of acting or outside the UK for six months. (Section 23 Trusts (Scotland) Act 1921) If the removed trustee is a sole trustee a new one must be appointed.