TRSM23110 - Types of trust that need to be registered: contents: excluded express trusts: contents: professional services and commercial arrangements

Certain express trusts created in the context of providing certain professional services or carrying out commercial transactions are excluded from registration when they meet the conditions set out below.

Trusts created in the course of professional services

The provision of some professional services involves holding sums, assets (tangible and intangible) or documents on behalf of another person.

Certain express trusts created in the course of those professional services are excluded from registration by Sch3A(11) of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 when they meet the requirements below.

The trust must be created for the purpose of enabling or facilitating the holding of sums, assets or documents (the latter in the case of escrow services only).

The sums, assets or documents must belong to a person other than the trustee.

Additionally, the trust must be in connection with sums, assets or documents where the trustee is carrying out one of the following professional services:

• Custody services - carrying on by way of business the activity specified in article 40 (safeguarding and administering investments) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001
• Trustee of a unit trust scheme - acting by way of business as the trustee of an authorised unit trust scheme (and for this purpose ‘trustee’ and ‘authorised unit trust scheme’ have the meanings given in section 237 of the Financial Services and Markets Act 2000); or
• Escrow agent - acting by way of business as an agent holding sums, assets or documents in escrow until the performance of a contractual condition agreed between two or more other persons, including the person for whom the sums, assets or documents are being held.

Trusts for the purpose of holding client money

Certain firms or businesses handle client monies, securities or assets during the course of their business.

Certain express trusts created for the purpose of holding client monies, securities or other assets are excluded from registration by Sch3A(12) of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 when they meet the requirements below.

The trust must be created by a “relevant supervised person” for the purpose of holding client money, securities or other assets.

The trust must also be incidental to the carrying on of business by the relevant supervised person.

For more information on the definition of a relevant supervised person, see TRSM23100.

Trusts arising from commercial transactions

Trusts can be used to support a range of commercial transactions. Where their use is incidental or ancillary to the principal purpose of the transaction (for example, where their purpose is to provide confidence in the transaction), the trust may be excluded from the requirement to register.

Certain trusts created in the context of commercial transactions are excluded from registration by Sch3A(14) of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 when they meet the requirements below.

The trust must be created for the purpose of:

• Enabling or facilitating a transaction effected for genuine commercial reasons, or
• Protecting or enforcing rights relating to such a transaction.

The trust must also be incidental to the principal purpose of the transaction. This would not include where setting up a trust is one of the purposes of the transaction, nor where one of the purposes is a gift or donation.

Not all trusts created for commercial purposes will qualify for this exclusion: to qualify for this exclusion the trust must enable or facilitate a specific transaction or transactions and must be incidental to the principal purpose of that transaction.

Trusts used for Individual Voluntary Arrangements (IVAs) and Scottish Protected Trust Deeds (PTDs) are excluded from registration under Sch3A(14) as trusts which are incidental to the transactions of paying and transferring assets to creditors.

Example

Tony enters into an Individual Voluntary Arrangement (IVA) with his creditors to pay his debts. The IVA is constituted as a trust. As the trust is incidental to the purpose of enabling or facilitating the transactions to Tony’s creditors, this trust is excluded from registration under Sch3A(14).

Example

Nikita enters into a commercial transaction to sell business assets to Christine. The contract identifies some assets as excluded from the sale and has a ‘wrong pocket’ clause which confirms that, if an excluded asset ends up in the hands of the buyers, it would be held on trust by the buyer for the seller and must be transferred back. Such a trust would be excluded from registration under Sch3A(14).

Example

Rubina and Stefan enter into a commercial transaction in relation to property development, with a conditional funding agreement and provision for Rubina’s funds to be held on trust by an escrow agent whilst certain pre-conditions are satisfied. Once the conditions are satisfied, the escrow agent will release the money to Stefan. If on the other hand the conditions are not satisfied, the money returns to Rubina. This creates a trust arrangement which is excluded from registration under Sch3A(14).

Example

Dara sells Allyson a property in Scotland. As part of the conveyancing process, Allyson’s solicitor retains a cash sum from the purchase price pending resolution of outstanding contractual conditions by the seller. Whilst under Scottish law this does create an express trust, such a trust would be excluded from registration under Sch3A(14).

Trusts for the purposes of the registration of assets

Certain transactions (for example, sale of land or shares) require specific formalities to be carried out in order to transfer legal title. Where beneficial title passes on completion, but legal title does not pass until those formalities are carried out, the legal title may be held on trust for the relevant party to protect their interests pending completion of those formalities.

Trusts created in that context are excluded from registration by Sch3A(15) of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 they meet the requirements below.

This exclusion applies to a trust created on the transfer or disposal of an asset, where the purpose of the trust is to hold the legal title to the asset on trust for the person to whom the transfer or disposal is being made until the time when the procedure required by law to effect the transfer or disposal of legal title is completed.

Trust holding tenants’ contributions

Trusts holding tenants’ contributions are excluded from registration as express trusts when the trust is holding the contributions for the purposes of section 42 of the Landlord and Tenant Act 1987 (Sch3A(19) of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017).

These trusts arise when tenants of dwellings pay a service charge under the terms of their lease for the services, repairs, maintenance, improvements or insurance or the landlord’s costs of management, all or part of which varies or may vary according to the relevant costs.