Managing trusts and tax

Publish date

6 September 2021

Changes to the Trust Registration Service: What trustees and their agents need to know

Alan Kitcher recently shared his expertise in an article for ePrivate Client

From the start of September 2021, the Trust Registration Service (TRS) will open for non-taxable trust registration. This will cover nearly all express trusts, with a few exceptions, and will impact a large number of trustees.

The TRS was first set up in 2017 by H M Revenue & Customs  to comply with the requirements of the EU Fourth Money Laundering Directive, and initially the only trusts which needed to register were those that were liable to pay any of the below taxes:

  • Capital Gains Tax
  • Income Tax
  • Inheritance Tax
  • Stamp Duty Land Tax
  • Stamp Duty Reserve Tax
  • Land and Buildings Transaction Tax (in Scotland)
  • Land Transaction Tax (in Wales)

Information on the register is available to HMRC and law enforcement agencies, with the aim of helping to reduce and combat money laundering. New rules as part of the UK’s implementation of the Fifth Money Laundering Directive (5MLD) were introduced in October 2020 to extend the scope of the TRS to include UK and some non-UK trusts regardless of whether or not the trust is liable to pay any tax.

These new rules will now come into force from 1 September 2021, after which date, trustees and their agents will have 12 months to register their trusts, or potentially face penalties.

Which trusts are impacted by these changes?

Broadly speaking, all UK express trusts, including bare trusts, will now need to be registered. In addition, non UK express trusts which acquire land or property in the UK or have at least one trustee resident in the UK will also need to be registered.

Trustees, as part of their wider role, have certain legal duties to uphold and ensuring that their trust(s) are registered with the TRS is one of these duties.

However, there are some exceptions. For example:

  • Trusts used to hold money or assets of a UK-registered pension scheme, i.e. an occupational pension scheme
  • Trusts used to hold life or retirement policies providing that the policy only pays out on death, terminal or critical illness or permanent disablement, or to meet the healthcare costs of the person assured
  • Trusts holding insurance policy benefits received after the death of the person assured, providing the benefits are paid out from the trust within two years of the death
  • Charitable trusts which are registered as a charity in the UK or which are not required to register as a charity
  • Co-ownership trusts set up to hold shares of property or other assets which are jointly owned by two or more people for themselves as ‘tenants in common’
  • Will trusts which are created by a person’s Will and come into effect on their death providing they only hold the estate assets for up to two years after the person’s death
  • Trusts for bereaved children under 18 or adults aged 18 to 25 set up under the Will (or intestacy) of a deceased parent or the Criminal Injuries Compensation Scheme
  • ‘Pilot’ trusts which were set up before 6 October 2020 and which hold no more than £100 – pilot trusts set up after 6 October 2020 will need to register

Do not need to be registered unless they are liable to pay tax in the UK.

In addition, trusts which are imposed by Courts or created by legislation do not have to register unless they are liable for tax. So for example a trust set up under intestacy laws, or a trust set up as part of a Court Order to hold compensation payments.

What does the registration process involve?

The registration process is detailed by HMRC on the website, as well as in the specialist TRS Manual.

There are different processes in place for trustees and agents. The process is fairly lengthy and complex and involves submitting extensive information on the trustees, beneficiaries and settlors.

Law enforcement agencies can access the register information to help counter money laundering and terrorist financing. In addition, under the changes coming in under 5MLD, HMRC will also be able to give information to an outside party in specific limited circumstances.

Again, the rules around who can access which information under which circumstances is complex, and there are safeguards in place to protect beneficiaries who are vulnerable or under 18.

Trustees will also need to download an extract from the register to confirm that the trust has been registered with the TRS.

Due to the complicated nature of the registration process, it is highly recommended that trustees seek professional guidance.

Registration deadlines

Existing trusts that are within the current Fourth Money Laundering Directive regulations and incur a UK tax liability in 2020/21 have until 31 January 2022 to register details on the TRS.

The original deadline for registering existing non-taxable trusts was 10 March 2022.  HMRC announced on 15 March 2021 that their systems would not be updated in time to facilitate the registering of non-taxable trusts by 10 March 2022 and consequently the deadline would be deferred for 12 months after the relevant updates to their systems were complete.

Unregistered trusts that fall within the registration requirements from 9 February 2022 must provide the necessary information about their beneficial owners within 90 days of coming within the requirements. Any changes to the details of the beneficial owners will also have to be reported on the TRS within 90 days of the change.

Every 31 January thereafter, Trustees must update the trust register for any previously unreported changes to the trusts or confirm that there are no changes required to the information held on the register.

Information that will be required to register

  • Type of trust, country of tax residence and date established
  • Settlors – full name, date of birth, national insurance number (or passport details if national insurance number is not available) plus telephone number and email address.
  • Deceased settlors – full name, date of birth, national insurance number, date of death and last known address.
  • Trustees – as above for living settlors, or company name, UTR and email address for corporate trustees.  Only lead trustees will be required to give details of telephone number and email address.
  • Beneficiaries – full name, date of birth, national insurance number (or passport details if national insurance number is not available) together with details of benefit received (for example 40% of the trust income) where applicable.

A beneficiary means a named beneficiary in the trust deed or a letter of wishes.

Details of an unnamed member of a general class of beneficiaries (for example “my children and grandchildren”) are not required unless and until he or she receives some benefit from the trust.

  • Person(s) exercising effective control – as above for living settlors

For example, someone (other than the settlor or trustee) who has power to add or remove trustees and/or beneficiaries.

  • Trust assets – Current value of all classes of assets within the trust

Are there penalties for non-compliance?

HMRC has been urged to take a soft-handed approach to enforcing registration. Trustees will have 12 months from 1 September to register trusts. After this date, penalties may be imposed. These will include:

  • Where registration is made up to three months from the due date the penalty will be £100
  • Where registration is made three to six months after the due date the penalty will be £200
  • Penalties will be tax-geared at 5% of the tax liability paid by the trust in the relevant year (or £300 whichever is greater) if the registration is over 6 months late.

Next steps

While trustees have a year to register any trusts, perhaps the biggest challenge will be in ensuring that they are aware of the changes to the TRS and their new obligations in light of this.

Professional advisors have a key role to play in highlighting to clients who are also trustees that these changes are being introduced.

It would also be prudent for advisors to urge clients with roles as trustees to seek expert advice from a trust management specialist before attempting to tackle to registration process themselves.

This article first appeared in ePrivate Client


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