Check if your farming partnership needs to register trusts

Farming partnerships could fall foul of new rules on the registration of trusts if they don’t act before 1 September 2022.

Complex rules introduced by the government to implement relevant parts of the EU’s Fifth Money Laundering Directive following Brexit require many trusts to be registered with HMRC’s Trust Registration Service (TRS) for the first time.

Farming partnerships are no exception: as general partnerships can’t hold property, it is common for land and assets to be held by partners in trust for the partnership.

Often this arrangement is put in place for inheritance tax (IHT) purposes, specifically to improve the prospects of claiming Business  Relief for property.

See also: Business Clinic – should I use a trust to bequeath farm?

Ben Taylor, associate solicitor at agricultural law firm Roythornes Solicitors, suggests it could affect thousands of farming families and their personal finances and trusts – he estimates that 90% or more of his farm business clients with partnerships have these trusts.

Despite the September deadline, the urgency to register is not being seriously recognised by many.

“Our advice is that partners with these arrangements should review the trusts affecting their land as soon as possible,’’ says Mr Taylor.

Are there exemptions to these rules? 

The guidance on this is not entirely clear, and Roythornes is seeking urgent clarification from HMRC.

There are some exceptions and the Law Society suggests that one of these might apply to partnerships, Mr Taylor says.

“If the owners of the land – the trustees – and the beneficiaries of the land are the same, there is no registration requirement.’’

There could also be an exception if there are more than four beneficiaries – for example two parents and three children farming together – as only four people can be on the legal title.

However, Mr Taylor warns that these exceptions may not always apply, so advice should be sought.

“The earlier partnerships address this the better,’’ he says.

What is the timeline?

For existing trusts, registration is generally required by 1 September 2022.

For trusts created after 4 June 2022, the deadline is likely to be within 90 days of creation.

What will it cost?

It is free to register but, because the rules are complex, there will be legal fees for advice taken on registration.

Many legal practices are providing a fixed-fee service, but as there may be multiple trusts associated with a single partnership, there could be more than one fee associated with this work.

What if I don’t register?

Failing to register may result in a financial penalty – if registration is delayed by up to three months after the deadline a £100 penalty is possible, rising to £200 for up to six months.

After this period a penalty of £300 could apply, or 5% of the tax liability.

“HMRC has previously been lenient with penalties, but this should not be relied upon,’’ says Mr Taylor.