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The Money Laundering Directives mean that certain key information on trusts needs to be disclosed to HMRC by being recorded on the Trust Registration Service (TRS). Trust, in this context, means a trust that is a legal vehicle.
This enables government authorities to monitor assets held in trust so that law enforcement agencies can determine whether those assets are “clean” and have not arisen as a result of money laundering. It also enables HMRC to collect information on any potential tax liabilities of the trust.
Until the end of August 2021, information on trusts needed only be given if the trust had incurred a tax liability (see Section (2) below).
However, new regulations were passed on 6 October 2020, which came into effect on 1 September 2021, which extend this obligation to virtually all express trusts – irrespective of whether they have a tax liability or not and irrespective of when they were established. An express trust is a trust that was deliberately created by a settlor during lifetime (typically by executing a trust deed) or on the settlor’s death (typically, the trust being created by the deceased’s will). Some exclusions to registration do, however, exist (see Section (4) below).
The trusts that need to register
There is already an obligation to register all express trusts, even if they were previously covered by an exclusion, which incur a liability to income tax, capital gains tax, inheritance tax, stamp duty land tax, land and buildings transaction tax (in Scotland), land transaction tax (in Wales) or stamp duty reserve tax in a given tax year need to be registered on the Trust Registration Service. Registration must be completed by the 31 January following the end of the tax year in which the liability arose unless the trust suffered a liability to income tax or capital gains tax for the first time, in which case registration must be completed by the 5 October following the end of the tax year in which the liability arose. In the event that more than one deadline applies, the earliest deadline takes precedence.
In practice, whether a tax liability arises will frequently depend on the investments that the trustees hold.
If tax implications for a trust have already arisen, the trustees may already have been under an obligation to register the trust on the Trust Registration Service. In this respect, a tax consequence will frequently arise during the trust’s lifetime – and this, in turn, may create reporting and compliance obligations for the trustees. An example could be income arising on a trust asset or a 10-year inheritance tax periodic charge occurring with the trust holding assets of more than the available nil rate band.
Trusts that will now need to register
Previously, only trusts that had a tax liability had to be registered. So, for example, a discretionary trust holding a single premium investment bond, where no encashments had been made, would not necessarily have needed to be registered until a 10-year periodic (inheritance tax (IHT)) charge arose. Indeed, even if a chargeable event was triggered in the investment bond, if the settlor was alive and UK resident in the tax year of the chargeable event, any chargeable event gain would have been taxed on the settlor, so registration would have been unnecessary. However if the chargeable event occurs in a tax year in which the settlor is dead or non-UK resident, the tax charge on any chargeable event gain falls on the trustees, rendering the trust requiring to be registered.
The registration provisions have now been extended by the 2020 Regulations. With effect from 1 September 2021, all express trusts now need to be registered on the Trust Registration Service (unless excluded under the new rules (see (4) below)). This requirement applies irrespective of whether or not the trustees incur a tax liability. Importantly, this includes bare or absolute trusts that have been created expressly (i.e. deliberately by the settlor) and, in some cases, trusts with non-UK resident trustees.
For trusts that are already registered on the Trust Registration Service, there is a new requirement to include additional information depending on whether the trust is a ‘taxable’ or ‘non-taxable’ trust. Trusts are required to be registered by 1 September 2022 or within 90 days of the date of creation of the trust, whichever is the later.
There are, however, some important exclusions to the requirement to register these “non-taxable” trusts which apply because the additional administration required would be disproportionate to the risk of these trusts being used for money laundering or terrorist financing activity. These trusts are known as “excluded trusts”.
HMRC has confirmed the types of excluded trust (whether UK resident or non-UK resident) that will not have to be registered on the Trust Registration Service, unless the trust has incurred a tax liability. These excluded trusts include:
- UK charitable trusts.
- Trusts that arise as a result of statutory requirements – for example, statutory trusts arising for minor children under the UK intestacy rules.
- Trusts for a bereaved minor (TBM) and “18-to-25” trusts, i.e. trusts set up under the will of a deceased parent of the child where the child will become absolutely entitled to the trust property on or before attaining the age of 25.
- Trusts created by a will which only holds assets forming part of the deceased’s estate and that are wound up within two years of the deceased’s death. If the trust still exists 2 years after death, or starts to hold other assets, it will then have to be registered.
- ‘Pilot’ trusts created before 6 October 2020 where the value of the property held by the trust does not exceed £100 (if further funds are added to the trust so that the trust fund exceeds £100 the trust will have to be registered at that point). Any pilot trusts created after 5 October 2020 are not excluded trusts, regardless of the value of assets held within the trust.
- Trusts created by, or to satisfy, a court order – for example, on divorce or the dissolution of a civil partnership.
- Co-ownership trusts that exist solely for the purpose of jointly owning UK land.
- Trusts that exist where two or more people co-own an asset legally and beneficially for themselves – for example, a joint bank account or shareholding.
- Trusts of registered pension schemes.
- Trusts used to hold a life insurance policy, income protection policy or retirement benefits policy if the policy only pays out on death, terminal or critical illness or permanent disablement, or to meet the health care costs of the person assured. As at 13 September 2021, there is still some uncertainty around the position of policies which have acquired a surrender value. HMRC has said that it will issue further guidance in the future. Our understanding is that this exclusion does not extend to life assurance policies with a minimal protection element and a significant investment element, such as investment bonds and capital redemption policies.
- Trusts holding only benefits received on the death of a life assured from a policy described immediately above, provided the benefits are paid out to beneficiaries within two years of the death of the person assured.
- Trusts incidental to commercial transactions.
- Authorised unit trusts, unless an express trust has been created through designation of the units.
It is important to note however, that, if the trustees of a trust that falls within one of the above exclusions become liable for UK income tax, capital gains tax (CGT), inheritance tax (IHT), stamp duty land tax (SDLT), land and buildings transaction tax (LBTT) in Scotland, land transaction tax (LTT) in Wales or stamp duty reserve tax (SDRT), the trust will need to be registered on the Trust Registration Service in order for the trustees to receive a UTR to enable the SA900 Trust & Estate tax return to be submitted.
Furthermore, as trustees are under a general duty to keep records for money laundering purposes, it may be appropriate for trustees of excluded trusts to consider registering the trust on the Trust Registration Service to ensure that, should a request be received from a law enforcement agency for information on the trust, it is readily available in the required format.
Non-UK resident trusts
The only non-UK resident express trusts which will have to register on the Trust Registration Service are those where the trustees (in their capacity as trustees):
- Acquire an interest in UK land; or
- Enter into a new business relationship with an entity in the UK that is required to carry out customer due diligence checks in relation to the trust (e.g. a bank, lawyer, estate agent, accountant) where at least one of the trustees is UK resident and the beneficial owner information in relation to the trust is not held on a central register in another EEA country; or
- Are liable to UK tax on UK source income or UK assets.
Non-UK resident trusts where all the trustees are non-UK resident and where the trust has no UK tax liability or directly held UK assets will not have to register on the UK Trust Register simply because they enter into a business relationship with UK lawyers, banks, estate agents or accountants.
Uncertainties arising from the new regulations
The new rules give rise to a number of contradictions, especially in relation to trusts arising on death. For example, for will trusts, the exclusion from registration will generally only apply if a will trust is wound up within two years from death unless the trust is a trust for a bereaved minor (TBM) or an “18-to-25” trust. On the other hand, statutory trusts arising on intestacy are wholly excluded (unless, of course, they become liable to tax).
There is also no general exclusion for bare trusts and nominee arrangements which appears to mean designated accounts of unit trusts and/ or open-ended investment companies (OEICs) need to be registered. Indeed, registration of a designated account on the Trust Registration Service would confirm that the arrangement is a trust and should then prevent HMRC challenging the arrangement as merely ‘ear-marking’ of the designated assets.
Another apparent anomaly is that pilot trusts (such as “by-pass trusts” created with a nominal sum), are only exempt from registration if they were created before 6 October 2020 and have a current value of less than £100.
The current position on the deadlines for registration depends on whether the trust is already registered for self-assessment (SA) for income tax or CGT and, if not, what type of tax liability arises. Different rules apply to those non-taxable trusts that now need to register under the rules introduced on 1 September 2021.
What time limits apply to registration
This depends on whether the trust is being registered because there is a tax liability or because it is an express trust that needs registration as a non-taxable trust under the new rules.
Trusts with a tax liability
The deadline for registration for taxable trusts has been linked to the deadline for submitting a tax return and depended on the type of tax liability incurred and whether the trust was already registered for self-assessment (SA) for income tax or capital gains tax. In general, a trust would usually only be registered for self-assessment if it is invested in income-producing assets, such as collectives (whether in income or accumulation shares/ units) or direct investments or receives income from another source (such as rental income), or has made a capital gain. The deadlines were as follows:
- If the trust was not already registered under SA but incurs either an income tax or a capital gains tax liability for the first time in a tax year, then registration must be completed by no later than 5 October after the end of that tax year.
- If the trust is not already registered for SA, or does not need to register for SA, but has incurred an inheritance tax or stamp duty (SDLT, LBTT (in Scotland), LTT (in Wales) or SDRT) liability in that tax year, then registration must be completed by no later than 31 January after the end of that tax year.
- If the trust is liable for more than one tax and both deadlines could apply, the trust must be registered by the earlier of the two deadlines.
However, under the new rules effective from 1 September 2021, all express trusts that are not excluded trusts need to be registered by 1 September 2022 or within 90 days of the trust’s creation, if later. These dates are likely to supersede the registration deadlines above for taxable trusts incurring a tax liability for the first time in 2021-22 or in subsequent tax years.
If the trust is already registered on the Trust Registration Service and the trust incurs a tax liability in a given tax year, then the trustees must update, or confirm as correct, the details held on the Trust Register no later than 31 January after the end of that tax year.
Penalties may apply if deadlines are not met, although we understand that HMRC will, initially, issue ‘nudge’ letters to the trustees of trusts that they believe should have been registered.
Registration under the new regulations
Under the new rules introduced by the 2020 Regulations, all trusts – irrespective of whether they incur a tax liability in a given year – must now register unless the trust is an excluded trust. The deadlines here are 1 September 2022 or 90 days from the date the trust was created, if later. This new rule applies to all trusts whenever created unless they are excluded – see above.
As mentioned above, expressly created bare trusts (including designated accounts, where the donor’s intention is to create a bare trust) will need to register under the new system as will other trusts holding non-income producing assets, such as investment bonds, capital redemption policies and other life assurance policies with a substantial element of investment.
Deadline for new trusts
All new trusts – irrespective of tax liability – will need to be registered on the Trust Registration Service within 90 days of creation after 3 June 2022, unless an excluded trust.
Keeping the register up to date
Trustees are obliged to update the details on the Trust Register via the Trust Registration Service if there is any change to information previously supplied.
Updates should be made within 90 days of the date of the change.
Details of the trust assets (and a good estimate of their market values) need only be provided by taxable trusts once, at the point of first registration, and are not required by HMRC to be updated. Information on assets later added or held is to be provided in the annual SA900 Trust and Estate tax return.
What information must be disclosed?
The information that will need to be included on the register depends on whether or not the trust is a “taxable trust” (one with a tax liability) or not.
Trusts which are not liable to tax
For those trusts without a tax liability which have to be registered under the 2020 regulations, the trustees (or their agents) will have to give some information about the trustees, settlor(s), beneficiaries and any other persons with control over the trust (the “beneficial owners”).
For individuals this will include:
- full name;
- date of birth;
- country of residence;
- country of nationality;
- National Insurance number or valid passport/ ID card details and address;
- role in the trust; and
- whether they lack mental capacity.
Trustees will also need to nominate a ‘lead trustee’ who will be the main point of contact with HMRC. For lead trustees, trustees or agents will have to give more details such as their telephone number and email address. If they do not know or do not have a National Insurance (NI) number, their address and valid passport/ID card details will need to be given.
If the trust controls a company or other legal entity, the trustees or agents have to give the entity’s corporate or firm name, the country by whose law the entity is governed, its registered or main office address and the start date from which the trust controls the company.
Trustees or agents will also have to give some other details to check that they should be registering the trust and determine whether the information on the register can be made available in certain situations. This includes:
- whether the trust has started receiving financial services, or professional or legal advice from a UK based business;
- if the trust has acquired land and property in the UK; and
- whether any of the people associated with the trust lack mental capacity.
For new registrations of taxable trusts on the Trust Registration Service, the trustees or agents will have to give the details above as well as some additional information about the trust, the beneficial owners and the assets held in the trust.
Trustees or agents will also have to give other details about the trust if they are registering it for self-assessment purposes, such as the years that it has to pay tax.
Where a trust is already registered, the trustees or agents will need to give a few additional details so that it is possible to determine whether information on the register about the trust and its beneficial owners can be provided under the new rules. This includes whether the trust is an express trust and if it is taxable. Trustees or agents can also give any of the details above that are missing.
The information required to be provided to HMRC on registration of taxable trusts is as follows.
- the full name of the trust;
- the date it was established;
- a “statement of accounts” describing the trust assets and identifying the value of each category at the date on which the information is first provided to HMRC;
- the country in which the trust is resident;
- the place in which it is administered;
- a contact address for the trustees; and
- the full name of any advisers being paid to provide legal, financial or tax advice to the trustees in relation to the trust.
Details of beneficial owners
In relation to all the beneficial owners (settlor(s), trustees, current/ potential beneficiaries and persons with control over the trust):
- the individual’s full name;
- date of birth;
- country of residence
- country of nationality
- NI number or valid passport/ ID card details and address; and
- the nature of his or her role in relation to the trust.
Where the individual has no NI number, and is resident outside the UK, he or she will need to supply valid passport or ID information and their address. As above, the nominated ‘lead trustee’ also has to provide an email address and telephone number.
In relation to any case where the settlor is a company, or there is a corporate beneficiary:
- the company’s name;
- its UTR;
- its registered or principal office;
- legal form and governing law;
- the country and registration details; and
- the nature of its role in relation to the trust.
Details of beneficiary classes
If the beneficial owners include a class(es) of beneficiaries not all of whom have been determined, it is possible to give a description of the class(es) of beneficiaries or potential beneficiaries under the trust.
This simplifies reporting matters, as otherwise all possible beneficiaries would need to be reported. For some family trusts, this could involve trustees in obtaining personal data from a very large number of people, many of whom may not be intended ever to benefit. Furthermore, some beneficiaries – such as future unborn children – will be unknown.
However, once benefits are appointed to a beneficiary who has not previously been named on the Trust Register, trustees should then update the details held on the Trust Register to give details of the beneficiary(ies) receiving trust assets. These records should be updated, via the Trust Registration Service, within 90 days of the beneficiary(ies) receiving the assets.
The information collected enables HMRC to set up a tax record for the trust, provide a unique taxpayer reference (UTR) for the trust and issue a demand to complete a SA900 Trust & Estate tax return where required. For trusts already completing self-assessment tax returns, there is a tick-box on the tax return to confirm that the Trust Registration Service data is correct or has been updated.
Trusts already registered on the Trust Registration Service need to give further information under the new system by accessing the updated Trust Registration Service system. Where a newly-registered trust has no liability to tax, the trustees will only need to provide information about the beneficial owners of the trust – settlors, trustees, beneficiaries and persons with control over the trust.
HMRC will issue a unique reference number (URN) to trusts that are registered which have not incurred a tax liability. Should the trust subsequently incur a tax liability, the URN will be required when applying for a UTR. Going forwards, the TRS is the vehicle to be used by trusts and estates to apply for a UTR to then enable a SA900 Trusts and Estate tax return to be submitted.
The above comments are based on Trustee Support Services Ltd’s understanding of UK law and tax practice as at 13 September 2021, both of which can change. If in doubt, individual trustees should take their own professional advice.
HMRC’s Trust Registration Service manual can be accessed here.