The full text of the Bill to implement the Government’s plans to reform the law on making lasting powers of attorney (LPAs) in England and Wales has been published and has received its second reading in Parliament.

In previous bulletins we have reported on the modernisation of LPAs, focusing mainly on the idea of creating a digital service to process LPAs. Following the consultation last year, a Private Member’s Bill was introduced by Stephen Metcalfe MP which has been published recently.

The Powers of Attorney Bill will allow the following:

1. Allow regulations to provide for different ways to make an LPA depending on whether this is done digitally or on paper, or a mix of the two.
2. Ensure only the donor can apply to register the LPA.
3. Provide for regulations to set out identity verification requirements that must be met for an application to register an LPA to be accepted.
4. Require the Office of the Public Guardian to notify the parties when an application to register an LPA is complete and the registration process is starting.
5. Enable the Office of the Public Guardian to operate a triage system for certain types of objection.
6. Widen the group of people who can lodge an objection, so that it includes third parties not named in the LPA.
7. Provide for new forms of evidence of the LPA to be created and accepted and for the electronic form of the LPA as registered to be evidence of the LPA.

The Bill will further amend s.3 of the Powers of Attorney Act 1971 to enable chartered legal executives to certify copies of powers of attorney. Currently, certified copies can be signed only by the donor, a solicitor, a notary or a stockbroker.

The Bill will be scrutinised to ensure that the moves to secure the benefits of digitalisation do not inadvertently exclude any of those who might benefit from being able to execute an LPA. 

Comment

Making LPAs easier to create, and modernising the way in which individuals can access the service, may encourage more people to think about creating an LPA. This can only be a good thing for the industry, as these are vital for allowing families to be able to deal with the affairs of people who can no longer do it for themselves. It also allows opportunities to improve safeguards against fraud, abuse and undue pressure on the most vulnerable of individuals.

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There is still a need to register existing and new trusts through the online Trust Registration Service. This article will provide a general overview of the types of trust that require registration.

Since 2017, HMRC have required any tax-paying trusts to be registered with them through the online Trust Registration Service (TRS). The latest UK Money Laundering Regulations extended this requirement to include most non-tax-paying trusts.

All UK express trusts and some non-UK express trusts are required to register on the Trust Registration Service, unless explicitly excluded from registration (‘excluded express trust’).

An express trust is a trust created deliberately by a settlor, usually in the form of a document such as a written deed or declaration of trust. This ‘declaration’ can be written or oral. Express trusts can be created to take effect during the settlor’s lifetime or on death (by will).

UK and non-UK trusts with a liability to UK taxation are required to register, even if not required to register as registrable express trusts.

If a trust falls within one or both of these categories, the trustees must register the trust with the TRS and provide certain information on the trust.

Below is a table of common types of trusts and their likely registration requirements. This is not a comprehensive list of trusts and a general overview only. Please refer to the HMRC Trust Registration Service Manual here for full guidance on specific conditions whereby a trust may be required to register:

*Any trust with a liability to UK taxation is required to register unless stated otherwise.

Type of Trust	Trust Description	Does the trust have to register?
Bare trust	Assets in a bare trust are held in the name of a trustee. However, the beneficiary has the right to all of the capital and income of the trust at any time if they’re 18 or over. This means the assets donated by the settlor will always go directly to the intended beneficiary.	If a bare trust is an express trust it should register on TRS. There are several exclusions that may apply to common bare trust arrangements. *They are not required to register for taxable purposes.
Bereaved minor trust and 18-to-25 trust	Trusts for the benefit of a bereaved child under 18 or, in the case of an 18-to-25 trust, for a bereaved person under 25. These trusts are usually set up under the will of a deceased parent. They are used as a means for a parent to pass assets to a child whilst (for 18-to-25 trusts) being able to specify the age at which the child becomes absolutely entitled to the whole of the assets.	These trusts set up under a will do not have to register on TRS as registrable express trusts. Bereaved minor trusts may also arise in England and Wales through the intestacy of the deceased parent. In those cases, they are not required to register.
Discretionary trust	Where trustees have discretion to make decisions about how to use capital and income of the trust.	In general, discretionary trusts should register on TRS. However, there are several exclusions that could apply, depending on the terms and use of the trust.
Employee Benefit trust (EBT)	A trust (usually a discretionary trust) set up by an employer for the benefit of their employees. An EBT is generally used as a vehicle in a scheme to reward and motivate employees. The benefits may be pensions, sick pay, a share of profits, shares or almost anything the employer chooses.	In general, EBTs should register on TRS, unless the particular circumstances mean that one or more of the exclusions from registration applies.
Express trust	A trust created deliberately by a settlor, usually (but not always) in the form of a document such as a written deed or declaration of trust. Most trusts are express trusts, including most of the other types of trusts included in this table.	The registration consequences will depend on what type of trust it is.
Interest in Possession trust and Lifetime trust	A trust where the trustees must pass on all trust income to the beneficiary as it arises (less any expenses), or where the beneficiary has a right to use the trust property. The beneficiary is referred to as having an ‘interest in possession’ in the income of the trust or in the trust property.	In general interest in possession trusts should register on the TRS. However, there are several exclusions that could apply, depending on the terms and use of the trust.
Non-UK resident trust	Trust where the trustees are not resident in the UK for tax purposes.	In general, non-UK trusts do not have to register on TRS, however they do have to register if they acquire UK land or, in some circumstances, enter into a business relationship with a UK business.
Pilot trust	Trusts that are set up holding a nominal amount. They are typically set up for potential future use, when more substantial amounts will be added, but in practice they remain dormant until that time.	Trusts which hold not more than £100 and were already in existence before 6 October 2020 are not required to register. Conversely, trusts created on or after 6 October 2020, or that have funds added after that time so that the trust now holds more than £100, are required to register.
Protective trust	Trusts set up to hold assets for the benefit of a beneficiary whilst protecting the assets in the event that certain conditions specified in the trust deed are breached.	In general, most protective trusts are required to register. However, there are several exclusions that could apply, depending on the terms and use of the trust.
Statutory trust	A trust set up automatically under the terms of legislation.	Statutory trusts are not express trusts and therefore do not generally have to register on TRS.

Trusts where registration is not required:

• Charitable trust
• Child Trust Funds and Junior ISAs
• Disabled person or persons trust (unless for taxable purposes)
• Unit trusts (authorised and unauthorised)

There is still a need to register any outstanding and newly created trusts. If you require further guidance on this, there are the following resources available:

On Techlink, we have created a series of documents and videos to help you guide your clients through the registration service.

In addition to the online guides, we provide a comprehensive TRS Mezzanine service which can you book here.

This is an opportunity for either you or one of your support team to receive step by step guidance on how to create a Government Gateway Organisation ID and step by step guidance on how to complete HMRC’s Trust Registration Form. Through screen sharing over Zoom one of our consultants will talk you through the completion process.

Additionally, you can choose to have the Mezzanine with one of your lead trustee clients attending.  You should include their name and email address on the booking form. This Mezzanine incurs a fee of £60 (£50 plus VAT).

Book your appointment here 

To request further information or any queries please contact:

ben.ward@technicalconnection.co.uk or web.enquiries@technicalconnection.co.uk

In Hopes v Burton [2022] EWHC 2770 (Ch) the Court agreed to set aside two deeds of appointment thus saving the trustees a potential tax liability of over £400,000.

Court cases involving life policy trusts are not that common, and since the best learning method is to learn from (preferably someone else’s) mistakes, this recent decision is most welcome.

The case concerned two deeds of appointment made in 2013 and in 2014 by the trustees of a trust (“the trust”) made by Hilary Marsden (formerly known as Hilary Burton – “the settlor”) in 1992 in respect of a policy held by her with Skandia Life.

The trust in question was a “typical” trust offered by life offices until 2006: a flexible power of appointment interest in possession trust, with Box A “Possible Beneficiaries” and Box B “Immediate Beneficiaries”. Four Immediate Beneficiaries were named. The settlor appointed her then accountant and solicitor as additional trustees. The settlor died in 2004, but it was only in 2012 that the Skandia policy came to light. The value of the policy was then £2.15 million. The original trustees agreed to step down and new ones were appointed.

In 2013, the new trustees met with a solicitor to discuss the trust and a deed of appointment was drafted in favour of several beneficiaries. The intention was to keep some of the beneficiaries’ interests intact, remove one of the immediate beneficiaries and create a discretionary trust in respect of another part of the trust fund. It was apparently understood that the appointment of one share would create a discretionary trust and would have inheritance tax (IHT) consequences, the tax to be paid from that share. In 2014, another deed of appointment was executed to appoint one part of the trust fund also on discretionary trust.

In 2017, the trustees took advice from specialist tax counsel, Emma Chamberlain. Her advice in summary was that:

(1) the 2013 appointment did not leave the interests of the three existing beneficiaries as they were (as had been intended), but instead revoked the previously qualifying interests in possession for all four funds, and, HMRC were likely to argue, created new non-qualifying interests in possession; and

(2) because both the appointments were revocable, the Immediate Beneficiaries retained the possibility of benefitting from the trust fund in the future, and the appointments were likely to be treated as gifts with reservation of benefit.

As to the amount of tax payable in consequence of the appointments, the trustees were advised that there was an immediate charge of £365,000, plus interest of over £68,000. In addition, ten-yearly IHT charges would apply and appointments out of the trust fund would be subject to exit charges.

The application (claim) to set aside the two “offending” deeds was made by the trustees in 2021. The main ground was that the trustees made an operative mistake as to the substance or effect of the deeds. In particular, the 2013 appointment was said to have mistakenly (and unnecessarily) included provisions which terminated existing interests in possession and appointed new ones in their place, when there was no intention to do so.

After considering the evidence, in particular the subsequent actions of the trustees (who made capital distributions which they could make under the original trust but not under the deed of appointment) and the relevant case law, the judge decided that the 2013 appointment indeed created radically different interests held by the immediate beneficiaries, and that the trustees were mistaken in doing so.

This mistaken belief was in his judgment “sufficiently serious as to make it unconscionable not to set aside both appointments”.

Comment

This case perfectly illustrates the dangers of making changes to beneficiaries under pre-22 March 2006 flexible interest in possession trusts (*). And as can be seen from the above, even the involvement of solicitors does not necessarily save you from getting it wrong (compounded in this case by different members of the firm dealing with different aspects of the case and clearly not communicating sufficiently well). Thankfully, the trustees in this case managed to avoid the eye watering tax bill, but bringing such an application to Court must have cost a substantial sum as well.

Remember that in the case of a mistake, there are two possibilities of a remedy – either to rectify the deed or to rescind (set aside) the transaction. In both cases, a Court application will be needed. Obviously, the Court will examine any evidence and decide on the facts of the case. But nothing is ever guaranteed, so it’s best not to get it wrong in the first place.

(*) those who need a refresher of the rules on this can find these here.

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk