HMRC updated the TRS Manual during December 2021

New rules that came into force from 1 September 2021 that mean that most trusts (unless excluded) now need to be registered on HMRC’s Trust Registration Service (TRS). Registration should be completed by 1 September 2022 or within 90 days of the trust’s creation, if later.

HMRC made several updates to the TRS Manual during December 2021. Details of the sections updated in the manual are available here.

Whilst many of these amendments were largely cosmetic, some further clarification was provided around excluded trusts where the trust holds a life assurance policy(ies) which has acquired a surrender value. This may be of considerable significance to financial advisers.

The previous wording confirmed that a trust used to hold life insurance policies or healthcare policies is an excluded trust provided 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 also holds a policy(ies) that does not meet the above conditions or any other assets.

The amendment provides more clarity around a trust holding a policy that has acquired a surrender value. It makes a distinction between policies that can be surrendered (but are not able to pay out some or all of any surrender value without being completely surrendered) and those that can pay out part of the capital value during their lifetime whilst the policy remains in force.

Page TRSM23030 of the TRS Manual now confirms that a trust holding a policy with a surrender value which can only be accessed on full surrender of the policy during the lifetime of the person assured can qualify as an excluded trust as, in such cases, the full surrender of the policy is not the same thing as a ‘pay-out’ from that policy. Should, however, the policy be surrendered and the proceeds remain held in the trust, the trust would need to be registered at that point.

On the other hand, if the trust holds a life policy that ‘is designed to provide regular or periodic payments to the policyholder in the form of surrenders or part surrenders during the term of the policy, with a small life assurance element payable on death which is incidental to the benefits provided through the surrenders’ then the trust cannot qualify as an excluded trust.

This is because the ability to take such withdrawals is an integral part of the design of the policy and so constitute ‘pay-outs’ from the policy, whether or not such pay-outs are actually taken. Investment bonds are specifically referred to as being such policies. An example is provided which confirms that the exclusion remains unavailable even if the option to take withdrawals from the policy is not exercised.

Whilst this update provides a little more clarity, there are still some grey areas around, for example, flexible whole life policies which may have acquired significant surrender values due to selection of a relatively low sum assured and it is hoped that further clarification will be provided in the future.

In any event, trustees of trusts which qualify as excluded trusts, and their advisers, may wish to consider registering the trust voluntarily on the TRS to meet their general duties of record keeping. Further details are available here.

Our website provides further information on the TRS, trustees’ duties and responsibilities and on how we can register trusts on the TRS on the behalf of trustees.

Categories: TRS Manual