TRSM23170 - Types of trust that need to be registered: contents: excluded express trusts: contents: general exclusion (the de minimis)
A UK express trust which meets the ‘general exclusion’ condition does not need to be registered on the TRS. The ‘general exclusion’ condition is set out in Schedule 3A paragraph 23A to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
The general exclusion / de minimis
The general exclusion can apply where a trust is not liable for a relevant UK tax (see TRSM25030), and all of the following conditions are met:
The trust
- does not hold any interest in land in the United Kingdom;
- does not hold assets of appreciable worth with a value exceeding £2,000 in total;
- has not held property with a cumulative total value exceeding £10,000 since the date on which it was created;
- does not have an income exceeding £5,000 per annum, and
- In addition, there are certain limits on when the general exclusion can be used.
Limits to the general (de minimis) exclusion:
The de minimis only applies to:
- a trust that is registrable but not already excluded under another provision in schedule 3A
- the first trust created by the settlor on which they are claiming a general (de minimis) exemption. *
This means that a settlor is only permitted to have one trust excluded under the general (de minimis) exclusion. They can have multiple trusts excluded under other provisions.
*Note:
There may occasions where a settlor “creates” multiple trusts (that meet the general exclusion, within a brief period (on the same day or the trusts are created by a will).
In these circumstances it may be academic as to which trust is created first, therefore in these circumstances the trustees may decide which trust may rely on the general exclusion.
For enforcement purposes, where multiple registrable trusts belonging to the same settlor, are discovered to be unregistered, the first trust into which assets are settled will be the trust that is excluded under this regulation.
Example
Mei has two trusts for which she is a settlor. The first is a property co-ownership trust with her partner for the house they live in and the second is a life insurance policy written into trust for her daughters. Mei now wishes to create a trust for each of her grandchildren, each of which will meet the de minimis conditions. The co-ownership trust and insurance policy written into trust are excluded from registration and can therefore be discounted from Mei’s de-minimis trust limit. Mei now has two options:
1. She can create two trusts, but the earlier (first) trust is the only trust for which she can claim the de minimis with the second trust needing to be registered or
2. Mei can create one trust for all her grandchildren. If this meets the other de minimis criteria then this trust need not be registered.
A trust that does not hold any interest in land in the United Kingdom
The relevant trust must not have an interest in any UK land.
An interest in UK land means:
When trustees acquire an interest in land in the United Kingdom where at least one of the trustees becomes registered:
- in the register of title kept under
the Land Registration Act 2002 (the land registry) as the proprietor of—
- a freehold estate in land; or
- a leasehold estate in land granted for a term of more than 7 years from the date of the grant; or
- in the Land Register of Scotland as the proprietor or as the tenant under a lease (“lease” and “proprietor” having the meanings given by section 113(1) of the Land Registration etc. (Scotland) Act 2012); or
- in the register kept under the Land
Registration Act (Northern Ireland) 1970 as the owner of—
- a freehold estate in land; or
- a leasehold estate in land granted for a term of more than 21 years from the date of the grant.
A trust that has not held property with a cumulative total value exceeding £10,000 since the date on which it was created
The cumulative total value represents the total sum of assets settled into a trust plus any income which is capitalised.
- appreciable assets and shares and securities need only be valued at the point:
- they are settled into the trust, and
- when they are disposed of, or distributed or
- when it is reasonable to assume that the value of the assets has exceeded the threshold(s).
Example
Angelica is the trustee of a trust for her nephew for his university studies, He may access funds for reasonable college expenses. Initially, £9900 worth of assets are settled into the trust. The trust receives £400 of income in year one, which is capitalised and £2,000 is distributed to her nephew. Although £2000 has been distributed from the trust and the trust assets now amount to £8,400, the accrued assets of the trust over its lifetime are £9,900 + £400 = £10,300 which is over the £10,000 limit. The trust is now registrable.
A trust that does not hold assets of appreciable worth with a value exceeding £2,000 in total
“Assets of appreciable worth” are non-financial assets that it is reasonable to assume are capable of increasing in value over time and includes assets such as works of art, antiques, collectibles and jewellery
Depreciating assets are assets that it is reasonable to assume will decrease in value over time and includes items that may be used in the running of clubs such as sports equipment, office equipment and uniforms.
De minimis trusts have a £2,000 “allowance” to allow settlors to pass on personal property to their beneficiaries. Trustees are only expected to make a reasonable estimate of the assets’ value – they are not required to use professional valuation services. For instance, trustees may rely on an online site selling comparable items, a recent purchase price or any valuation used for insurance purposes
The £2000 allowance is not in addition to the £10,000 overall allowance but is counted towards the total asset value: any unused allowance may be taken up by financial assets.
There is no need for appreciable assets to be “re-valued” on a frequent periodic basis whilst they are held in trust: however, trustees should revalue their assets when:
- such assets are disposed of by the trust or prior to distribution to the beneficiary, then trustees should record the sale or estimated value.
- it is reasonable to expect the value of the assets to have increased beyond the threshold, for instance trusts that are expected to exist beyond a few years, for these trusts it may be prudent to revalue every 10 years or where the trustee comes into information that an asset has been significantly undervalued.
If the value of the assets now causes the cumulative asset value to exceed £10,000, the trust must now register on TRS, even if distribution of the assets would bring the trust to a close.
Examples
Jane has a trust with appreciable assets of £800 value. The trust may accumulate another £9200 of assets and remain within the de minimis exclusion, but only £1200 of that amount may be appreciable assets.
Arthur is the trustee of a de minimis trust, the assets comprise £4000 of shares and £1500 of appreciable assets of vintage watches. Arthur learns that one of the watches is worth considerably more than when he first valued it and he believes the value may take him over the threshold. He should revalue those assets and register the trust if the trust assets now exceed £10,000 and / or the appreciable assets exceed £2,000.
A trust that does not have an income exceeding £5,000 per annum
Trust income is income generated by the trust either by
- investment of the trust assets
- fund raising activities of the trustees and/or the members/beneficiaries on behalf of the trust.
Income means gross income without deduction of costs, charges, or payments out to beneficiaries.
Example
Priya is the trustee of a small sports club, that holds £8,000 worth of assets on behalf of the members and manages the club’s finances. The trust has income generated by collection of subscriptions from the players and donations / sponsorship. The gross income is £4,000 before running costs of £3,800, at the end of each financial year surplus income is capitalised. The club’s assets are made up of financial reserves of £5,000 cash and £3,000 of depreciating assets such as equipment, flags, and club uniforms. There are no appreciable assets. The club has less than £10,000 in accrued assets and an income of less than £5,000 per annum, therefore this club would not need to be registered.
If the income in Priya’s sports club had exceeded £5,000 per annum, then the club would be registrable.