Last year saw the launch by HM Revenue & Customs (HMRC) of their new Trust Registration Service (TRS). The TRS applies to trusts incurring, or which first incur, a relevant tax liability in tax year 2016/17 or subsequently. It replaces the paper procedure through which trustees used to obtain a tax reference number (UTR) for their trusts. More significantly, the TRS is designed to capture ‘beneficial ownership’ information for trusts now required by regulations implementing the EU’s Fourth Money Laundering Directive. So it affects trusts already registered under the old system.
Which trusts need to be registered?
Deliberately created trusts which incur a relevant UK tax liability and are either:
- UK resident
- Non-UK resident but with UK source income and/or UK assets
The relevant UK taxes include Income Tax, Capital Gains Tax, Inheritance Tax and Stamp duty land tax.
A ‘bare trust’ does not have to be registered because it is taxed on the beneficiary(ies) rather than the trustees. This includes co-owned land held under a declaration of trust.
When is registration required?
Where a relevant tax liability has arisen in a given tax year, the trustees must register:
- By 31 January after the end of that tax year if the trust already has a UTR or if the liability is other than for income tax or capital gains tax
- By 5 October after the end of that tax year if the trust does not have a UTR and the liability is in respect of income tax or capital gains tax (extended to 5 January 2018 only for tax year 2016/17).
Registration is the responsibility of the trustees and is carried out via HMRC’s online portal. When the TRS is fully rolled out later in 2018 trustees are going to be able to update their registered information. They will have a duty to do so for each tax year in which a relevant tax liability arises.
What details have to be registered?
The TRS requires:
- Details (including market value where ascertainable) of assets settled when the trust was first created, unless this information has already been provided under the old paper procedure
- The identity of the settlor(s), trustees, beneficiaries (see below) and any person exercising effective control over the trust, specifically their:
- Date of birth
- National Insurance Number (NINO) or address (and for non-UK residents, passport details) if no NINO is available.
Further assets settled after the trust has been created are to be reported through the trustees’ tax returns.
A person exercising effective control over the trust would include, for example, someone (other than the settlor or a trustee) who has power to add or remove trustees or beneficiaries.
Who counts as a beneficiary for TRS purposes?
Named beneficiaries in the trust documents (including a letter of wishes), unless their ability to benefit is contingent upon the happening of a certain event in which case they can be referred to generically.
Beneficiaries defined as a class may be described as such, but the details of individual members must be disclosed if and when they receive a financial or other benefit from the trust.
What are the penalties for not complying?
HMRC may levy a fixed penalty for delayed registration:
- £100 for registration up to three months from the due date
- £200 for registration three to six months from the due date
- £300 or 5% of the tax liability triggering the requirement (whichever the greater) for registration more than six months from the due date.
A penalty will not be payable if HMRC is satisfied that trustees have taken reasonable steps to comply with the regulations.
Are there any other requirements for trustees to be aware of?
Even if the trustees have not incurred a relevant tax liability necessitating TRS registration, they are still under a duty to maintain accurate and up to date written records of all actual and potential beneficial owners of the trust. This is because, under the regulations, any law enforcement authority in the UK can request such information. So all trustees need to ensure that they are in a position to provide details very similar to those called for in registerable cases.