By Ronnie Myers
Earlier this year, the Society of Trust and Estate Practitioners (STEP) wrote to HMRC to clarify its view on offshore trusts owning overseas companies that own UK residential property. HMRC’s view in these circumstances had been that trusts should be registered on the UK trusts register in respect of a tax year when the trustees are subject to inheritance tax.
This view is set out in the current HMRC guidance, ‘TRS – Frequently Asked Questions’, which was published in November but is still unhelpfully listed as being in draft form.
STEP's letter to HMRC helpfully draws HMRC's attention to the fact that the effect of the relevant inheritance tax legislation is not to treat the trustees of the offshore trust as owning UK assets directly. Instead it is merely to disapply excluded property treatment to the shares in the overseas company. As a result, it is incorrect to contend that the trustees of the non-UK trust own a UK asset (which is a requirement for reporting under the trusts register).
HMRC's Response
HMRC has now confirmed that it no longer believes that non-UK trusts are reportable in these circumstances, since the non-UK trust does not own any UK assets - it holds shares in the overseas company which owns a UK asset (UK residential property). The position would be different if other UK assets were held at trust level and the trustees were liable to a tax charge on such UK assets.
HMRC's response confirms that HMRC will be reflecting its revised position in its forthcoming updated guidance on the trusts register. Unfortunately, no date has been communicated for the publication of this revised guidance yet.
HMRC's reply to STEP also states ‘[a]s you may know, non-UK companies that own UK residential property are already obliged to register with the Department for Business, Energy and Industrial Strategy (BEIS)’. We understand that in subsequent correspondence HMRC has confirmed that the reference to there being an existing obligation to inform BEIS is also incorrect and that that won’t be the case until 2021.
How can Burges Salmon help?
The Burges Salmon private client and wealth structuring team has a breadth of expertise in trust and tax law and would be happy to discuss the impact of the UK trusts register with you. For more information, whether as a trustee or an individual involved with a trust, please contact John Barnett, Suzanna Harvey or Ronnie Myers.