By 1 September 2022, a significant majority of trusts in the UK need to be signed up for and ready to use HM Revenue & Customs’ (HMRC) Trust Registration Service (TRS), including non-taxable trusts.
Not sure what steps you need to take? Or how this change affects you and your trust? We have answered some of the common queries below.
What is the Trust Registration Service?
The TRS is part of the UK’s implementation of the Fourth Money Laundering Directive and was launched in 2017 by HMRC.
When it was initially launched, only certain taxable trusts were required to register where they incurred a specific UK tax liability in the tax year.
This included those with a tax liability under self-assessment, as well as those not under self-assessment, which incurred one-off taxes like SDLT and inheritance tax (IHT).
Under the TRS, these are known as “Registerable Taxable Trusts” and their obligations to keep details updated and make annual declarations by 31 January continues for as long as they are taxable.
However, under the Fifth Money Laundering Directive, the TRS is being extended to all express trusts save for a limited number of exempt categories.
These are known as “Registerable Express Trusts” and they are not required to submit quite as much information but must be registered by the deadline later this year.
As a result of this change, the majority of non-taxpaying trusts will now need to register and provide specified information, including the details of trustees, beneficiaries and any UK land or property held by the trust.
This registration process has been open since 1 September 2021 and includes:
- All UK express trusts unless they are specifically excluded;
- Non-UK express trusts that acquire land or property in the UK; or
- Have at least one trustee resident in the UK and enter into a ‘business relationship’ within the UK.
Are any trusts exempt from registration?
Certain trusts do not need to register unless they are liable to pay UK tax. These include:
- Trusts used to hold money or assets of a UK-registered pension scheme, such as 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;
- Pilot trusts that were set up before 6 October 2020, and which hold no more than £100;
- Co-ownership trusts set up to hold shares of property or other assets that are jointly owned by two or more people for themselves as tenants in common;
- Will trusts that 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; or
- Financial trusts created in the course of professional services or business transactions for holding client money or other assets.
Some other less common types of express trusts that are set up for particular purposes are also excluded from registration unless they are liable for tax.
Do I need to register for the Trust Registration Service?
Many trusts will now need to be registered on TRS by 1 September 2022 and this includes trusts set up many years ago, which may have been forgotten about or lay dormant but still exist.
It should also be remembered that trusts may switch between the different sets of rules, and this will depend on whether they are liable to pay one of the specific taxes that causes them to be a Registerable Taxable Trust. The information required and deadlines differ, further adding to the complexities for Trustees to consider.
If the trust needs a Unique Taxpayer Reference (UTR) for Self-Assessment purposes, it must still register to get this, even if it is included in the exclusion list for Registerable Express Trusts.
The changes are due to the mix of tackling money laundering and also trust tax relationships with HMRC.
The distinction has been hard to draw, and this leads to some trusts being caught which may come as a surprise.
Trusts caught in this way, and that need disclosing include:
- Bare trusts (unless they fall within one of the exclusions);
- Trusts holding investment bonds;
- Discounted gift trusts;
- Pilot trusts set up to receive pension death benefits and life assurance;
- All-new pilot trusts set up since 6 October 2020;
- Child ISAs (child trust funds are not caught, and it seems child bank or building society accounts are to be excluded but this will not cover Child ISAs or other accounts holding shares for example);
Co-ownership trusts (such as declarations of trust over property) where the trustees and beneficiaries are not identical.
- Situations caught include scenarios where the number of trustees differs from the number of beneficiaries. Situations with minors as beneficiaries would be impacted as they cannot be trustees;
- Employee benefit trusts (EBTs) and Employee Ownership Trusts (EOTs) are not exempt and so those in existence on or after 6 October 2020 must be registered by 1 September 2022, including those that have already been distributed; and
- Trusts would up in the period between 6 October 2020 and 1 September 2022 also seem to be caught (unless they fall within one of the exclusions).
Any non-taxable trusts created after 1 September 2022 must be registered within 90 days, plus any trusts which start to have a duty to register like will trusts continuing beyond two years after death. Any changes to the trust details or circumstances must also be registered within 90 days.
Registering a trust
Trustees are being encouraged to register their trust online by following HMRC’s guidance here.
Some trusts may have already completed a 41G form, however, HMRC has confirmed that this did not collect sufficient information to meet the requirements of this new legislation, therefore, those trusts which registered separately with HMRC before must now use this service to provide the information that is required.
Trustees now have less than eight months left to register these details. HMRC recommends that trustees and their agents familiarise themselves with the TRS system and gather the information required to register in advance of the final deadline this September.
Failure to register on time could lead to action being taken against a trustee, including potential penalties. Do you need help preparing your trust for registration? Get in touch.