Certain trusts do not need to register on the Trust Registration Service, although, in general, most trusts which are not currently registered will now be required to register. Further details on excluded trusts are given below, however, when deciding whether or not the trust needs to be registered, the trustees may also wish to consider voluntary registration now to fulfil their general record keeping duties or to ensure that the trust is already registered should, say, a future tax liability arise.
In any event, a trust that incurs a tax liability (income tax, capital gains tax, inheritance tax, stamp duty land tax, land and buildings transaction tax (in Scotland), land transaction tax (in Wales) and/ or stamp duty reserve tax) is required to register on the TRS, whether or not it is an excluded trust.
Excluded trusts include:
- A trust under which the assets in the trust go back to the settlor (a ‘resulting’ trust) — for example, when the trust ends and all the possible beneficiaries have died.
- A trust created by legislation (a ‘statutory’ trust) — for example, when a person dies without making a valid will and the estate passes to their minor children or other relatives under the intestacy rules.
- A trust that has been imposed by a court (a ‘constructive’ trust) — for example, when someone has acted improperly or to hold compensation for a child aged under 18.
- A trust where the trustees have to report for Foreign Account Tax Compliance Act (FATCA) or Common Reporting Standard (CRS) purposes. In these cases, as the trust does not need a UTR, the trustees do not need to register.
- A trust used to hold money or assets of a UK registered pension scheme — such as an occupational pension scheme or a personal pension scheme.
- A trust used to hold life insurance policies or healthcare policies providing that the policy can only pay out on the death, terminal or critical illness or permanent disablement, or to meet the healthcare costs, of the person assured. If the trust holds multiple policies, all policies must meet these conditions for the trust to be excluded from registration. This exclusion is not available if the trust holds policies that do not meet the above conditions or any other assets.
If the policy acquires a surrender value that can be accessed, the trust does not need to be registered until such a time that the policy is surrendered. This is on the basis that the cash sum from the surrender is retained in the trust. Our understanding is that HMRC intends that this exclusion only applies to whole of life policies with surrender values (and, HMRC would expect such surrender values to, typically, be low) and not to other life policies, such as endowments.
This exclusion does not extend to policies such as investment bonds or capital redemption policies which are designed to provide regular or periodic payments to the policyholder and which only have a small life assurance element payable on death. Trustees of a trust holding an investment bond(s) and/ or capital redemption policy(ies), therefore, need to register their trust.
- A trust holding insurance policy benefits received after the death of the person assured — as long as the benefits are paid out from the trust to beneficiaries within 2 years of the death. If such benefits are still held in the trust after 2 years, the trust will need to be registered.
- A charitable trust which is registered as a charity in the UK or which is not required to register as a charity.
- A ‘pilot’ trust which was set up before 6 October 2020 and which currently holds no more than £100 — pilot trusts set up after 6 October 2020 will need to be registered. If a pre-6 October 2020 pilot trust subsequently receives further assets so that its value then exceeds £100, it will have to be registered at that time.
- A co-ownership trust set up to hold shares of property or other assets which are jointly owned by 2 or more people for themselves as joint tenants or tenants in common.
- A trust required to allow a bank or building society account to be opened for a minor child.
- A will trust created by a person’s will and coming into effect on their death — as long as they only hold the estate assets for up to 2 years after the person’s death. If assets continue to be held in the trust after 2 years, or if property is added to the trust from outside of the estate within this 2 year period, it will then need to be registered.
- A trust for a bereaved child or children aged under 18 (a trust for a bereaved minor), or adults aged 18 to 25 (an 18-25 trust), set up under the will (or intestacy) of a deceased parent or established by the Criminal Injuries Compensation Scheme.
- A trust for a disabled person, subject to the trust meeting the relevant conditions for such trusts.
- A ‘financial’ or ‘commercial’ trust created in the course of professional services or business transactions for holding client money or other assets.
Trusts which are not set up deliberately by a settlor or donor but which are imposed by courts or created by legislation, are not ‘express trusts’ and therefore do not have to register unless they are liable to tax. Examples of such trusts include:
- A trust set up under the intestacy laws when a person dies without a valid will and the assets in the estate are held by a trust before passing to minor children and other relatives; and
- A trust set up under a court order to hold compensation payments.
Some financial products and arrangements with ‘Trust’ in their description, such as the Child Trust Fund, investment trusts or Venture Capital Trusts, are not really trusts, so do not need to be registered. A unit trust which has designated beneficiaries which have created a trust, will require to be registered.
If in doubt whether a trust should be registered, trustees may wish to consider registering the trust ‘voluntarily’ now as a means of fulfilling general record keeping duties and to prevent possible future issues in the event that it transpires that the trust was not an excluded trust and should have been registered.
In any event, a trust which incurs a tax liability requires registration, even if it was previously an excluded trust.
Detailed guidance on excluded trusts is available in HMRC’s Trust Registration Service Manual here.