From time to time, for various reasons, you or your clients may wish to change the trustee of a trust. When this occurs, all the trust assets held in the name of the retiring trustee need to be transferred to the name of the new trustee. Sometimes, the trust assets may include one or more motor vehicles. When vehicles are involved, you should be aware of potential hidden costs that may come up which are not an issue for other assets. Vehicle duty and vehicle certificate requirements are costs that should never be forgotten about.

Normally, there is an exemption from the requirement to pay transfer duty in transferring assets to a new trustee for the sole purpose of changing the trustee, provided that you meet certain requirements. The process of changing a new trustee can sometimes seem so straight forward that advisors or clients setting up a trust in a ‘rush’ may go with an initial trustee on the assumption, that they can ‘always change it later’ quite easily.

Each time a trustee is changed, there is a risk of duty and tax. The terms of the trust deed and the purpose the parties are trying to achieve are important considerations and trustees should never be changed without professional advice. However, when motor vehicles are included in the trust assets, there are further cost matters to consider. Duty on the transfer of a vehicle (called Vehicle Registration Duty (VRD)) is under a completely separate heading to transfer duty in the legislation and is calculated differently. There is no exemption from Vehicle Registration Duty specifically for a change of trustee.

VRD and transfer duty do overlap at times. For example, when you purchase vehicles as part of a business, the VRD payable on each vehicle is reduced by a formula based on what you have already paid in transfer duty for the purchase of the whole business. However, the section dealing with the reduction only applies where transfer duty has been paid or is payable – and when you change the trustee, no transfer duty is payable. Therefore, this section that reduces what you normally pay on VRD does not apply for a change a trustee.

There is also no exemption for a safety certificate or gas certificate to transfer vehicle registration specific to a change of trustee. The exercise of obtaining certificates can be costly and time consuming, particularly if there are a number of vehicles.

Depending on the particular situation, thought should be directed to whether another exemption from VRD and certificates could possibly apply. Also, where vehicles are registered in the business name, the registration details might not need to be transferred. Registration rules also change quite regularly. It is important not to assume that there are no costs in transferring vehicles.

Please keep in mind the risks of VRD and the added costs of further vehicle certificates where you or your clients are looking at changing the trustee of their business or asset holding trust.
To know more about trusts, change of trustees, duty and related issues, please contact us.