TRSM23050 - Types of trust that need to be registered: contents: excluded express trusts: contents: property ownership
Trusts holding UK property may be excluded from registration as registrable express trusts under Regulation 42(2)(b)(iii) of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 if they meet certain defined conditions set out in this page.
Co-ownership trusts
A co-ownership trust is a trust of jointly held property where trustees and beneficiaries are the same persons.
Co-ownership trusts often arise in the purchasing of land and property in England and Wales.
They are mostly bare trusts (see TRSM10030) and, if so, are not required to register for taxable purposes, because any UK tax liability is incurred by the beneficiaries rather than the trustees.
Where two or more persons purchase property together, they often hold the property as beneficial joint tenants, meaning the property passes by survivorship on death to the remaining co-owner(s).
However, two or more persons purchasing property together in England or Wales may instead elect to hold the property as beneficial tenants in common, allowing each person to hold a defined (and not necessarily equal) share of the property, which then passes separately with their estate on death. Under English law this is achieved by creating an express trust for ownership as tenants in common.
The proportions that the property is held in as tenants in common are not relevant for the purposes of Registration on the Trust Registration Service (TRS).
Example
Alice and Bob own a property with a declaration of trust confirming they own as tenants in common. This trust is excluded from registration during their lifetime as an exempt co-ownership trust as Alice and Bob are the only trustees and beneficiaries.
Alice dies and by the terms of her will leaves her share of the property on trust to Bob to occupy for the remainder of his life: the trust created by Alice’s will is excluded from the requirement to register for two years following Alice’s death. If the trust is still in existence two years after Alice’s death, the trust is required to register from that point. For how this trust interacts with other trusts see TRSM23020.
Example
Martha and Mary set up a trust in order to buy a property to rent, with family members as the beneficiaries of the income of the trust. One family member manages the day-to-day running of the property and is the trustee of the trust. As the beneficiaries and trustees of the trust are not the same, the exclusion from registration does not apply.
Property held on behalf of minor children
Where property is conveyed to one or more persons under the age of 18 alone, paragraph 1 (1) of Schedule 1 to the Trusts of Land and Appointment of Trustees Act 1996 provides that the land is held in trust for the benefit of those persons. Likewise, where property is conveyed to one or more persons under the age of 18 and other persons over the age of 18, paragraph 1 (2) of Schedule 1 provides that the land is held in trust by the persons over the age of 18 for the benefit of themselves and the person or persons under the age of 18.
Trusts created in this way are excluded from registration as legislative trusts (see TRSM23140). This exclusion only applies for trusts created due to a conveyance or purported conveyance of land under Schedule 1 to the Trusts of Land and Appointment of Trustees Act 1996 and does not extend to other trusts of land held for persons under the age of 18.
Example
Francisco transfers the legal and beneficial interest in a property to his three children Antonia, Sofia, and Dolores to hold equally as joint tenants. Dolores is under the age of 18 and is unable to hold the legal title to the land. Antonia and Sofia therefore are treated by the Trusts of Land and Appointment of Trustees Act 1996 as holding the property on bare trust for the benefit of themselves and Dolores, until such time as Dolores reaches the age of 18. As a trust imposed by legislation, this trust is not required to register on TRS.
Property owned by more than four persons
In England and Wales, it is only possible for a maximum of four persons to be listed as the legal owners of the land with the Land Registry. Where land is held by more than four persons, section 34(2) of the Law of Property Act 1925 provides that the land is to be held in trust for the benefit of all the persons who have a beneficial entitlement to the land.
As the trustees and beneficiaries of this trust are not the same persons, this is not an excluded co-ownership trust. However, trusts created for this purpose are excluded from registration as legislative trusts – see TRSM23140.
Example
Five members of the Smith family purchase a property in England together as joint tenants. Due to restrictions on the number of persons able to hold the legal title to land, only four of the family members are listed as the legal owners on the Land Registry. These four individuals are treated as holding the property on trust for the benefit of all five individuals. As a trust imposed by the Law of Property Act 1925, the trust is not required to register on TRS.
When one of the trustees of the Smith Family trust dies, under paragraph 1A of schedule 3A, the trustees have until 2 years after the death of the relevant trustee before any registrable trust arising from the administration of that trustee’s estate will be registrable: see TRSM23020.
Change in form of joint ownership
Joint tenants may subsequently decide to hold the property as tenants in common in order to specify the share of the property held. This is known as a ‘severance of joint tenancy’: When this happens the exclusion from registration still applies if the trustees and beneficiaries are the same persons.
Similarly, tenants in common may subsequently decide to hold the property as joint tenants. When this happens the exclusion from registration still applies if the trustees and beneficiaries are the same persons.
Example
Amrit and Jenny originally purchased their property in England together as joint tenants. However, they have since separated and Amrit has remained in the property. As they both wish to be able to leave their share of the property to different relatives, they agree to change their ownership from joint tenancy to tenants in common (known as a ‘severance of joint tenancy’). This specifies that Amrit and Jenny each own 50% of the property.
As Amrit and Jenny remain the only trustees and the only beneficiaries of the trust, the trust continues to be excluded from the requirement to register on TRS.
Property held on behalf of a partnership
Partnerships in England and Wales do not have legal personality and therefore cannot hold property in their own right. Instead, partnership property is often held by one or more of the partners for the benefit of the partnership.
Where property is purchased using partnership money but is held in one partner’s name, there is a general presumption under sections 20-21 of the Partnership Act 1890 that the property belongs to the partnership, without the creation of an express trust.
A partner holding property on behalf of the partnership does not therefore automatically result in an express trust that may be registrable on TRS.
However, in some situations it may be declared (i.e. through a written deed) that property is being held on trust for the partnership. If so, this is an express trust which would be registrable on TRS, provided that no other exclusions from registration apply.
Example
Nadia, Rosena, and Lyn are partners in a farming partnership. They decide to purchase an item of machinery for the partnership using partnership funds. Nadia purchases the machinery in her name. The partners do not have any formal partnership agreement in place.
Under section 21 of the Partnership Act 1890, in the absence of any evidence to the contrary the machinery is deemed to be partnership property, without any express trust being created. There are therefore no TRS registration consequences.
Example
Guy, Yasmin, and Esther are partners in a trading partnership. They decide to purchase an item of machinery for the partnership using partnership funds and Guy purchases the machinery in his name.
The partners had previously drawn up partnership agreement to protect their rights should the partnership dissolve at a later date. This agreement states that property purchased by Guy using partnership funds is to be held on trust for the partners in equal shares. As a result, the subsequent purchase of the machinery by Guy does create an express trust which would be registrable on TRS from the date of purchase, provided no other exclusions from registration apply.
Scottish survivorship destination trusts
In Scotland, property owned jointly can include a clause, known as a survivorship destination, that directs that the property is held equally by the owners and the survivor. This clause can be revoked by creation of a trust that sets out the new beneficiary of the property. These trusts are not registrable on TRS.