When a trust company is not a trust corporation

A recurring point of concern (and, most recently, with the need to change trustees to satisfy the changes in capital gains tax legislation applying to trusts) is the lack of recognition of what is required for a company to qualify as a trust corporation, with this most commonly arising with offshore trustee providers who seek to take on responsibility for English law trusts.

A company acting as trustee does not automatically and, indeed, in practice, rarely, qualifies as a trust corporation. A trust corporation is a company which meets the requirements of the Public Trustee Act 1906, the Public Trustee Rules 1912 and the Public Trustee (Custodian Trustee) Rules 1975. The main requirements being that the company is incorporated in the EU, has trust administration as its objects and a share capital of £250,000 of which at least £100,000 must be paid up. There is an alternative route to qualification which requires court sanction of the trustee appointment.

Why does this matter ? Absent an express clause to the contrary in the trust deed, the trustees will be bound by section 37 Trustee Act 1925 which, prior to 1997, required that a current trustee could not be discharged unless the trust continued to have either a trust corporation, or at least two individuals, to act as trustees.

(A company which does not qualify as a trust corporation does not then fall to be treated as an individual for this purpose where the relevant time was prior to amendment by the TLATA 1996, which changed the section 37 definition.)

Jasmine Trustees Limited and others v Wells & Hind and others [2007] EWHC 38 (Ch) serves as a reminder over what can happen if trustees, and their advisers, are not alert to this point. Here, in 1982, two individuals purported to resign as trustees in favour of a third individual and a company. The company was not a trust corporation and fell to be ignored; there was, therefore, only one individual to act as trustee moving forward and the purported resignations did, therefore, fail.

One of the consequences of this failure is that the primary objective, of exporting the trust for CGT purposes, also failed. With the exportation of a trust being achievable only through a valid change in trustees, one wonders how many English law trusts have been used as non UK tax resident CGT planning vehicles whilst, all the while, the trusts have, at law, remained UK tax resident ? And how many offshore company trustee providers have been acting only as trustees de son tort ?