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Penalties for failing to register a trust with HMRC’s Trust Registration Service
Following legislation introduced on 6 October 2020, all express trusts (other than excluded trusts) now have to be registered on the Trust Registration Service (TRS) by the later of 1 September 2022 or 90 days from the date the trust was created. Details of the trusts that are required to register on the TRS are set out at TRSM21010 of HMRC’s Trust Registration Service Manual.
Penalties for non-compliance with the regulations
To date, very little has been said about the penalties that will apply for non-compliance. HMRC updated the TRS Manual on 2 August 2022 and added a new section to the manual, TRSM80000, dealing with the penalties that HMRC may levy against trustees.
The text below is reproduced from TRSM80020:
“In recognition of the fact that the registration requirement is a new and unfamiliar obligation for many trustees, there will be no penalty for a first offence of failure to register or late registration of a trust unless that failure is shown to be due to deliberate behaviour on the part of the trustees.
Where failures to register are due to deliberate behaviour on the part of the trustees, a £5000 penalty may be charged per offence.
In practice this means that should HMRC become aware of a trust which has not been registered by the relevant deadline – either because that trust has been registered late or because HMRC have identified that trust’s existence by other means – HMRC may issue a warning letter to the trustee or agent. If the trust is not yet registered, the trustee or agent should register it at that point. If the trustee or agent then fails to register the trust within the time period stated within the warning letter, or fails to explain why their trust is not liable to registration, a penalty may be issued to the lead trustee.
Penalties for deliberate non-compliance will be applied on a case-by-case basis. Examples of the circumstances in which such a penalty might apply include: continued failure to register a trust following repeated warnings; or providing details on a given trust that are deliberately inaccurate accompanied by continued failure to amend those details.”
What does this mean to the trustees of a trust who fail to register the trust?
Whilst there should be no penalty for “innocent” failure to register a trust requiring registration, should HMRC discover a trust that has not been registered when it should have been, we expect that they will send a ‘nudge’ letter to the trustees explaining the need to register and giving a time period for them to register the trust. Should the trustees then fail to take the necessary action within the time period given by HMRC, the lead trustee could face a fine of up to £5,000, for which they would be personally liable (i.e. it cannot be paid from the trust’s assets).
Trustees’ duty to keep the details on the Trust Register up to date
Trustees of trusts that have been registered on the TRS also have a duty to ensure that the details on the Trust Register remain accurate and up to date. Any changes to these details must be notified, via the TRS, within 90 days of the date of the change.
Such details include not only details on the beneficial owners (settlors, trustees, beneficiaries and others with control over the trust) but also changes to the trust itself, for example, the trust incurring a UK tax liability or the purchase of UK land or property.
Again, whilst HMRC may issue a warning (or ‘nudge’) letter in the first instance, giving the trustees time to amend the Trust Register, the lead trustee could also face fines of up to £5,000 per offence, including in the first instance the failure to keep the details up to date.
It is also worth remembering that the TRS is now the only route for trustees to obtain a UTR (unique taxpayer reference) so that a self-assessment SA900 Trust and Estate tax return can be submitted to HMRC.
How will HMRC find out about non-compliance with the regulations?
Trustees need to be aware that HMRC receives information from multiple sources within the finance sector and, therefore, its systems may identify non-compliance with the regulations.
Such information includes, but is not limited to, the reporting of interest paid on deposits, chargeable event gains on investment bonds and other life assurance policies, capital gains on, say, the sale of a residential property and the death of an individual
Ongoing administration of the trust
Furthermore, it should be remembered that, with effect from 1 September 2022, obliged entities (also known as UK relevant persons), such as banks, insurance companies, investment providers and professional advisers, will not be able to establish new business relationships with trustees unless the trustees can demonstrate that they have registered the trust on the TRS. This could severely hamper the trustees in their duties to beneficiaries under the trust.
Some obliged entities may also require trustees with whom they have existing business relationships to provide proof of the trust’s registration before processing any transactions after 1 September 2022.
Obliged entities who identify discrepancies in the information held on the Trust Register for a trust may, in some circumstances, be required to report these to HMRC.
As can be seen above, the penalties for non-compliance with the regulations around the registration of trusts can be substantial and trustees will be found to be personally liable for any breaches. Whilst fines may, initially, be levied against the lead trustee, all trustees are jointly liable for ensuring that the trust is correctly administered.
It is likely that trustees will become increasingly reliant on the professional advisers to keep abreast of the regulations, including any updates.
Trustee Support Services can assist trustees with the registration of trusts on the Trust Registration Service and also provide other consultancy services to trustees.