Deed of Trust CONFUSION! HELP!

Stuart, I think you need to take legal advice on this.

My reading of https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem9230

is that a declaration of trust itself is enough, but it looks like Steve has received advice that a restriction on the land registry title needs to be there also. But I don't think this is necessarily the case.

One reason is that on the HMRC website they give examples where, for example, a couple claim that there is a verbal equivalent of a DoT. HMRC says that if this is the case evidence needs to be provided.
see
https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem9550
and
https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem9140
which says:
"In the case of Stack v Dowden [2007] 2 All ER 929, Baroness Hale of Richmond, who gave the leading judgment, commented on the general principle that ‘The onus is upon the person seeking to show that the beneficial ownership is different from the legal ownership’ and ‘The burden will be on the person seeking to show that the parties did intend their beneficial interests to be different from their legal interests, and in what way. This is not a task to be lightly embarked upon.’"

My take would be that it would help a lot in providing evidence if a restriction proving that you hold as tenants in common is on the land registry, but that you still need a DoT behind that to have non 50/50 ownership. But you can probably also argue that you didn't want trouble with mortgage companies and so didn't put the restriction on, and as long as you have a properly executed DoT, with dates etc.. then that should be enough evidence.

But again, this is very tricky stuff that is best left to a good professional legal expert.

Mark Smith at Cotswold Barristers advises that a trust does NOT need to be registered as a restriction with HMLR to satisfy HMRC.

Given that he's the Barrister who helped us to recover £27,500,000 from The West Brom of tracker rate over charges I am inclined to trust his judgement. He's also the creator of the Beneficial Interest Company Trust strategy used by many landlords to avoid the need for refinancing whilst incorporating their business.

Hi Mark this is all proving very interesting, I've been away for the weekend and got back to find this discussion has taken off which I think is pretty important as many of us are involved in trusts. I will comment further shortly but I do have a question to your previous comment, sorry I am not trying to get free legal advice here (god knows I've received enough advice lately that has cost a fortune), but just a little clarification on what Cotswold's Barristers are saying (I could not agree more that they will certainly know what they are talking about). It is the use of the word REGISTERED with the Land Registry. This is true but it's not that a trust does not need to be registered with the HMLR you CAN'T register a trust with HMLR. They clearly state so within their guidance which is based on The Land Registry Rules 2003 and Land Registry Act 2002. They are only concerned with legal ownership not beneficial ownership. This is the very reason that HMLR PG states that if a trust exists a Form A restriction must be entered on the register. It is to make sure that the interests of any beneficiary or existence of a trust is protected without acknowledging that a trust exists or for whose benefit. It is to ensure that when a disposition (pretty much borrowing monies or a sale) takes place those lending or buying can do so with assurance that no third party (for instance a beneficiary) can later lay claim. I.e. the restriction ensures that when such a transaction occurs any third party interest is overreached (becomes unattached from the original property and instead the beneficiary or third party has claim on the proceeds of the mortgage or sale and not a right to lay claim on the actual property).
I guess what I am asking is some clarification on the use of the word Registered which as shown in its legal sense cannot apply to HMLR anyway.
Are Cotswold Barrister's saying that in their wealth of experience, HMRC are prepared to ignore what constitutes a legal land bare trust (i.e. a Form A restriction must be entered on deeds) and accept a DoT as the only evidence that a trust existed. If so this is very useful information as it then makes the legal requirements of a trust irrelevant. At the end of the day all us landlords are concerned with is what HMRC's stance on our taxation will be with reference to a DoT. Whether HMRC's criteria matches law of what constitutes a trust is pretty irrelevant.
One final point is does HMRC's stance apply even if there is only 1 legal sole owner. For instance if a property is jointly owned (say by husband and wife) as tenant's in common a Form A restriction will already be entered in the register. This is because a trust automatically exists in this type of ownership, husband and wife hold the property on trust for themselves both being the settler's, trustee's and beneficiaries at the same time. HMRC regard this arrangement as being taxed 50/50 between the spouses regardless of % ownership. If one wished to change this they could write a DoT specifically stating their beneficial ownership ( which does not need to be the same percentage as how they hold legal title) send off HMRC form 17 within 60 days and they would be taxed by their desired % beneficial ownership. This would most certainly not require any further restrictions to be entered with HMLR for two reasons. A Form A restriction is already entered and you can't enter it twice and the beneficiaries are already the trustees.
However sole ownership is a different situation. If you have a property which you hold sole legal title and wish to gift your wife (or anyone although GCT would come into play) a % of beneficial ownership, then matters are a bit different. To set up a legal trust one needs to write a deed of trust gifting your wife the right to income and capital (if you only gift income you will be caught by settlement rules see TSEM) stating the percentage. Under trust law (see Law and Property Act 1925 ) for any disposition to take place (i.e. a mortgage re-mortgage or a sale) two trustees must be in existence. The reason for this is simple the law believes that two trustees are less likely to defraud a beneficiary than one trustee. To ensure that this takes place the Land Registration Act and resulting practise guides states that a Form A restriction must be entered for reasons explained above. As a result to make a disposition and comply with a form A restriction, two trustees must be appointed (already done in the case of legal joint owners). As HMLR are not allowed to get involved with beneficial ownership but never the less have to protect its rights, their practise guides state that to appoint a second trustee means to put a second owner on the title deeds. This would also invalidate the original trust.
Are Cotswolds Barristers saying that in the case of a sole legal owner gifting beneficial ownership all that HMRC is that a Deed of Trust exists? This would be very useful. I appreciate they could only say this based on their experience.
This would mean that in my case employing a specialist trust solicitor was a mistake. She formed the trusts according to what was required by law. She did not approach it from a taxation point of view which, if Cotswolds Barristers confirm is that HMRC accept the existence of a trust purely by there being a DoT in existence and not by what is legally required in law.
Please Mark, if there is any possibility you could confirm the above I can get out of this mess I am in and hopefully others minds would be put at rest.
Thanks Steve Gilbert

Reply to the comment left by "steve gilbert" at "04/09/2016 - 13:17":

Sorry, my mistake, when I typed trust I meant restriction. Mark Smith says there is no need to register one.

hi Steve, i am in exactly in the same boat as you as i cant get a clear answer on deed of trust. i have two blt properties under my name, my wife does not work , so can i set up two deed of trust and pass the rental income to her ? nobody can give a straight answer !>

I can give you a straight answer and so can Cotswold Barristers who are prepared to back their opinion with their professional qualifications and their Professional indemnity insurance.

They will charge you 500 + VAT for the advice, drafting of documentation and implementation of the correctly worded Declarationa of Trust for both properties inclusive.

It CAN be done.
.

FACTS

The donor/trustee does not need to register the trust with the Land Registry, nor does the document require delivery or a witness to signatures. - source https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem9520 penultimate paragraph.

Also, form 17 applies to division of beneficial interests in jointly owned properties only. If the property is not owned jointly at the time the declaration of trust is made then Form 17 is not applicable.

If the property is jointly owned at the time a declaration of trust is made then Form 17 must be submitted to HMRC within 60 days of the declaration being made. https://www.gov.uk/government/publications/income-tax-declaration-of-beneficial-interests-in-joint-property-and-income-17
.

Reply to the comment left by Mark Alexander at 29/10/2016 - 09:54
In the case of mortgage free rental properties legally owned outright by settlor A ,who wishes to transfer beneficial ownership (and thus rental income) to a long term live in partner B by a Declaration of Trust (TSME9520)
Does A need to actually deliver a signed Declaration of Trust to HMRC or does B just declare the income (and deductible expenditure) on their tax return.
As far as I can see the guidance is silent upon the need to submit the D.of T. to HMRC.
If required should B submit D.of T. with their their tax return.?

Look upon the DoT as you would a receipt, bank statement or mortgage statement.

There is no requirement to submit to HMRC unless requested in an aspect enquiry or an investigation.

Reply to the comment left by Mark Alexander at 26/09/2017 - 16:29
Many thanks for the clarification.