For those who have not been following this, new Anti Money Laundering requirements are coming into effect on 1 September 2022 that require the majority of all trustees of UK trusts to register the details of the trust with HMRC. There are some exceptions, such as where property is held by two or more owners on trust for sale for themselves and the other owners. There is, however, a lack of clarity around trading and property assets held within a partnership. The way the guidance from the HMRC Trust Registration Service (TRS) has been interpreted had suggested that where assets that are held in a partnership business are not owned by all the partners those arrangements would create a registrable trust.
In an attempt to clarify the new rules, the TRS has published additional guidance around property held on behalf of a partnership. That guidance states that where property is purchased using partnership money but is held in one partner’s name, there is a general presumption under sections 20-21 of the Partnership Act 1890 that the property belongs to the partnership as a whole, without the creation of an express trust. In those circumstances, a partner holding property on behalf of the partnership does not automatically result in a trust that must be registered on the TRS.
However, the guidance states that where there is a written partnership agreement/deed that states that partnership assets are held by one or more partners on trust for the partnership then that would constitute an express trust which would be registerable on TRS if none of the other exclusions from registration apply.
The reference to property that is purchased using partnership money but is held in one partner’s name is not particularly helpful in the context of assets that were not purchased with partnership money. By way of example, that would include land that was purchased from personal rather than partnership funds or land that was inherited by one of the partners and subsequently introduced to the partnership by that partner. In such circumstances it would be common for the partnership accounts to include a separate property capital account that allocated the value of that asset to the partner who introduced it.
The new guidance suggests that, as long as there is no partnership deed that creates an express trust, the provisions of the Partnership Act 1890 may also apply in those circumstances and that the resulting statutory trust, as distinct from an express of contractual trust that is created by a trust deed, would continue to be exempt from registration.
It is an irony that partners who that have taken the advice of their professional advisers to put in place a written partnership agreement will be caught by the new regulatory requirements and burdens whereas those that have not, or have chosen not to have a written partnership agreement, will not. It is also unhelpful that the guidance dos not provide clarity. It suggests that the implications of the new requirements on “old fashioned” unwritten partnerships under the Partnership Act 1890 – of which there are many in family farming businesses – were either overlooked or not properly understood.
The penalties for non compliance with the TRS registration requirements is up to £5,000 per offence so if any partnership businesses are unsure as to whether the new rules apply to them they should take appropriate professional advice as soon as possible.
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