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Taxation Readers’ Forum: Trust return

/ 28 September 2021

Terry Jordan

Writing for Taxation magazine’s Readers’ Forum, BKL tax consultant Terry Jordan responds to a reader’s query about whether a deed is required when filing an annual trust return.

‘We have been approached by the trustees of a life interest (immediate post-death interest – IPDI) trust to take over the filing of the annual trust returns. It would appear that the trust was set up in the late father’s will for the benefit of his daughter. The asset is the house she is living in plus some investments for income, and her children are the remaindermen beneficiaries.

The father died 15 years ago, and the trust has been registered with, and filing returns with, HMRC. However, there does not appear to be a trust deed and the land registry has the house in her name only.

I have two questions:

  • Would it be correct for us just to rely on the terms of the will to continue to file trust returns for the income, and possibly the proposed sale of the property, without a trust deed?
  • Can the trustees commission a deed to start from the date of the father’s will and should the land registry details be changed?

Readers’ comments would be appreciated.’ Query 19,816 – Trustworthy.

Terry Jordan’s reply: The terms of the will can be relied on to file trust returns

‘Addressing Trustworthy’s first question: yes, it would be correct to rely on the terms of the will to continue to file trust tax returns. Mention is made of a sale of the property. On the daughter’s death, the property and the other trust assets will be uplifted to market value free of capital gains tax under TCGA 1992, s 73 and, if the property is sold during the daughter’s lifetime, the trustees would need to claim private residence relief under TCGA 1992, s 225.

On the second question, on the face of it a deed commissioned now to start from the date of the father’s will would be nugatory. So far as the Land Registry is concerned, the Trustee Act 1925, s 14 states that two trustees are needed for a valid receipt of purchase monies and there is a strand of legal policy, envisaged in the Trusts of Land and Appointment of Trustees Act 1996 and the Land Registration Act 2002, for the legal estate associated with a trust of land to be held by at least two trustees.

The fact that the records show the daughter alone might infer that she is absolutely entitled, and it would be prudent for Trustworthy to obtain a copy of the will if he has not yet seen it (at a cost of only £1.50). Wills are generally publicly available once the grant of probate has been issued.

On the premise that the trust is as described, the capital value forms part of the daughter’s inheritance tax estate to be aggregated with her free estate and the children’s reversionary interests are currently excluded property and could, if wished, be dealt with by them without the usual seven-year tail on lifetime gifts.’

The article is also available on the Taxation website.

Our private client tax team have expertise in a range of areas including inheritance tax, trusts and the tax implications of non-domicile and non-UK residency status. For more information, please get in touch with your usual BKL contact or use our enquiry form.

Terry Jordan

Senior Adviser, Private Client

T +44 (0)20 8922 9360
E terry.jordan@bkl.co.uk

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