Previously, only trusts with a tax liability had to register but now all so-called express trusts must register, regardless of whether they have a tax liability. There are some exemptions, such as trusts created on intestacy but bare trusts, loan trusts and discounted gift trusts all fall under the new rules. Failure to register in time for the new deadline, which is just over five months away, or failure to register a new trust within 90 days of it being set up, could result in a fine. To keep HMRC onside, read our Q&A below for all you need to know about the updated trust registration regulations.
What are the new rules regarding trusts?
The government is implementing its response to the 4th and 5th EU Money Laundering Directives (4MLD and 5MLD). This requires the registration of trusts with HMRC.
Initially (4MLD) only trusts with a tax liability had to register. The registration requirement is now being extended to all express trusts, regardless of whether they have a tax liability.
What does tax have to do with it?
On the face of it, not much; trust registration is primarily an anti-money laundering initiative. However, the online registration service is run by HMRC and is part of the general drive to increase tax transparency and reduce tax evasion.
On a practical level, prior to trust registration, anyone setting up a trust obtained a tax reference by filling in a paper form and sending it to HMRC. That form has now gone and taxable trusts get issued with a UTR (tax unique reference number) as a by-product of the registration process. Non-taxable trusts are issued with a URN (unique reference number).
Who is responsible for registering?
When do trusts need to register by?
The Trust Registration Service (TRS) came into effect in 2017 for trusts with any tax liability (income tax, CGT, SDLT, IHT, stamp duty reserve tax). These are now referred to as ‘registrable taxable trusts’. Most should already be registered, but if paying income tax or capital gains tax for the first time, then they should register by 5 October after the relevant tax year end to allow time for the issue of a UTR. If the first tax liability is IHT, SDLT (or Scottish or Welsh equivalents) or stamp duty reserve tax, then the trustees have until the following 31 January to register.
For existing trusts without a tax liability, the new deadline is 1 September 2022. After that, trustees will have 90 days to register any new trust. They will be known as ‘registrable express trusts’.
Are there any exemptions from registration?
Yes there are, but they’re limited. The main exemptions are:
- A trust created under a will holding estate property is exempt for a period of two years only.
- Trusts for bereaved minors – persons under 18 who have lost one or both parents.
- Trusts created on an intestacy.
- Personal injury trusts set up under a court order.
- Trusts holding a life insurance policy – but note this is limited to insurance policies for protection rather than policies with a significant investment element.
- Trusts holding insurance payouts on a death.
The idea is that where a settlor has deliberately established a trust arrangement, the trustees will be required to register. Where the trust is established by statute or by a court, there may not be a need to register.
Note that even if a trust is included in the above list, if it has a tax liability, it will be required to register.
Do bare trusts need to register?
Yes – there is no specific exemption for bare trusts although they are not required to register purely as a result of having a UK tax liability; as the beneficiary is the beneficial owner of the trust assets, they bear the tax obligations in relation to a bare trust.
HMRC has now confirmed that there is no need to register nominee accounts for minor children.
What about discounted gift trusts? Loan trusts?
These are non-income producing and so would not have been required to register under the 2017 rules on the basis of an income tax liability. Nevertheless, they generally have a significant investment element and are now expected to register under the 2020 regulations even if established on a bare trust basis and are non-income producing.
In the absence of an income tax liability most DGTs and loan trusts will register as registrable express trusts to begin with. If the trust becomes liable to tax, e.g. to inheritance tax on a ten-year anniversary, then it will need to register as taxable.
What about non-UK trusts?
General non-UK trusts with no UK resident trustee do not have to register unless they have UK property assets or a UK tax liability.
If the trust has a UK resident trustee then it will need to register if the trustees have a ‘business relationship’ in the UK with one of a list of professional agents and advisers.
What information is required at registration?
Information about the trust and those defined as ‘beneficial owners’ of the trust. In this case beneficial owners include trustees, settlors and anyone with control over the trust as well as actual beneficiaries. The result is that the term beneficial owner can encompass those who are in fact prohibited from benefitting from the trust. The registration requirements include details of:
- Identity of the settlor, trustees, other persons with control and beneficiaries. Where beneficiaries are a class rather than individuals, a description of the class is sufficient; the identity of the actual beneficiary is only required when the beneficiary receives a benefit.
- Beneficiary details required include name, date of birth, NI number if over 16, address and passport ID for non-residents.
- If the trust is taxable, trust assets including market value at the date of settlement and details of the tax liability.
Is the information made public?
Not directly and not to members of the general public. HMRC can already share TRS information with law enforcement authorities, but trusts that are registered only because of a UK tax liability are not subject to general third-party access provisions.
From 2022, third-party access requests can be made in relation to registrable express trusts on the TRS in two sets of circumstance:
- Legitimate interest requests by individuals or organisations with a demonstrable interest in the trust, e.g. because they are investigating money laundering or terrorist financing.
- Third country entity requests by individuals or organisations enquiring about a trust that has a controlling interest in an offshore entity.
What if the trust has already been wound up?
A trust which was in existence after the regulations came into effect on 6 October 2020, but wound up subsequently, may still need to register. As at 18 March 2022 HMRC hasn’t made a statement on this.
What happens if trustees fail to register before the deadlines?
There is a penalty regime, starting at £100 and rising the longer the failure continues. So far HMRC has taken a ‘light touch’ approach to enforcement.
What should trustees do now?
Registration can be done by the trustees themselves or they can ask their accountant or lawyer to do it for them.
If they want to do the registration themselves, trustees should visit Register a trust as a trustee – GOV.UK (www.gov.uk), which has helpful guidance on the information required and is the entry point for the registration system. A Government Gateway user ID and password will need to be set up for each trust being registered.
As at March 2022