HMRC has recently updated the Trust Registration rules, extending the scope of the trust arrangements that are required to be registered in the UK.

Under the new rules all UK Trusts must be registered unless they meet one of the limited exemptions.

Effect on partnerships:

Unlike Companies or LLP’s, partnerships do not have a separate legal identity and a partnership cannot hold assets on its own behalf. As a result, individual partners traditionally hold the assets of the partnership (including land) as trustees for the partnership.

Where all of the partners are entitled to a share of the land and are registered as the owners there is no requirement to register the trust that is created, however it is often the case that the legal owners of the land (the people registered at Land Registry as the owners) are different from the beneficial owners (those who are actually entitled to share in the value of the land).

This is particularly relevant for Farming Partnerships, GP’s, Vets and other professional partnerships where it is common for the land/premises to be registered in the name of a small number of partners and held on trust for the partnership.

The requirement for registration of the trust only applies where there is a written partnership agreement confirming that the partners hold the property on trust for the partnership. One might reasonably propose a solution is therefore to leave such a clause out of the agreement – however this can have other adverse effects. For example:

• Without a clear statement of who is entitled to the value of property, there is obvious room for dispute; and
• There may be adverse tax consequences (such as a relevant party might not be able to benefit from 100% business property relief from inheritance tax on their death).

There are few exceptions to the new rules:

• Where land is held by individuals for the benefit of themselves and no one else – for example in smaller partnerships where all the partners equally hold the land.
• The beneficial interest in land is owned by 5 or more people but only 4 of them hold the legal title (under the Law and Property Act 1925 a maximum of 4 people can be named as legal owners at Land Registry).

Landowners and partnerships should consider as soon as possible whether they will be caught by the new rules. Existing trusts were required to register by 1st September 2022 and penalties accrue for late filing.

What you should do

Ownership of property should be carefully considered alongside your partnership agreement and be properly reflected in all documentation. You may wish to use this as an opportunity to put in place a partnership agreement or refresh the existing agreement to ensure that your arrangements are both compliant and fit for your future life plans.

If you have any queries or concerns about the new rules, assistance with registration or partnerships generally our Corporate and Trusts Teams would be very happy to help.