HMRC published a further set of updates to the Trust Registration Service (TRS) Manual on 18 March 2022. This blog summarises these new updates. Each section’s title is a link to the relevant page.
Further examples have been added to show when trusts created by a will may be required to register on the TRS (generally, a trust created by a will is not required to register unless assets remain in the trust two years after the date of the settlor’s death, unless the trust incurs an earlier tax liability).
The example, Alice and Bob, who own a property as tenants in common raises some interesting points around trust registration. Whilst both Alice and Bob are alive, the trust is an excluded trust for the purposes of registration as an exempt co-ownership trust. However, on Alice’s death, her will gives Bob a life interest in her share of the property with this share then passing to Alice’s daughter, Clara, on Bob’s death. Alice’s will appoints her son, David, as executor and trustee of her estate and also as a second trustee of her share of the property with Bob.
On Alice’s death, two trusts are then in existence – the Immediate Post Death Interest (IPDI) trust created by her will and the ongoing trust of the property.
The IPDI trust created by Alice’s will is not required to be registered on the TRS until two years after Alice’s death (assuming that Bob remains alive and his life interest has not been revoked).
The ongoing trust of the property is no longer an exempt co-ownership trust as the trustees and beneficiaries are no longer the same persons. Because of Alice’s death, this trust therefore now requires to be registered within 90 days of Alice’s death (or 1 September 2022, if later).
Had Clara been appointed the second trustee of the property trust, rather than David, this trust would have continued to be an exempt co-ownership trust and, therefore, Alice’s death would not then require the trust to be registered on the TRS. The wording of a will may, therefore, determine whether or not a trust may require registration.
The member states of the EEA have each drafted their own sets of rules which determine whether trusts are required to register on their (local) register, and when. In some cases, local rules may provide that a trust must be registered in that jurisdiction where, for example, the trust holds an investment that was issued in that member state (such as an investment bond – referred to as an offshore bond by UK investors), or where a trustee(s) is resident in that member state. This is a complicated area and will the subject of another blog to be published shortly.
For the purposes of the TRS, if a trust is established in an EEA member state and is required to be registered on that member state’s register, it is excluded from the requirement to register on the TRS as an express trust. However, this exclusion does not apply if the trust incurs a UK tax liability or if the trust is a non-UK trust with no UK trustees and the trustees acquire UK land.
A trust is considered to be established in an EEA member state for TRS purposes if the trustees are resident in that state or the administration of the trust is carried out there.
This update clarifies that a trust may require to be registered on more than one jurisdiction’s register of beneficial ownership (TRS equivalent). This could obviously create huge logistical problems, not only for lay trustees but also for their advisers and some professional trustees, and additional costs may be incurred where, for example, registration is required in a different language.
UK pension schemes that are registered under Part 4 Finance Act 2004 are excluded trusts for the purposes of the TRS as they are already registered with HMRC.
However, other schemes that are not registered under Part 4 are required to be registered on the TRS. This includes schemes such as employer financed retirement benefit schemes (EFRBS) and other schemes such as pre-6 April 2006 funded unapproved retirement benefit schemes (FURBS).
Action may, therefore, need to be taken by trustees of such schemes, and their advisers, to register them on the TRS by 1 September 2022.
This page sets out the main types of trust and gives an indication of whether the trust is required to be registered on the TRS. There are several points to note, including:
(i) Child Trust Funds (CTFs) are not trusts and are not required to be registered on the TRS. Currently, no specific exemption applies to Junior ISAs (JISAs) but it is understood that HMRC is considering this.
(ii) A disabled person’s or vulnerable person’s trust is not required to be registered on the TRS as an express trust but is required to be registered if the trust incurs a UK tax liability.
(iii) Employee Benefit Trusts (EBTs) are, in general, required to be registered on the TRS.
(iv) Mixed trusts (combinations of more than one type of trust) are required to be registered if any of the individual sub-trusts require registration.
(v) Settlor interested trusts (which include probate trusts and some ‘family’ trusts) may be required to register according to the rules that apply to that type of trust (e.g. discretionary trust or interest in possession trust). Whilst income arising to a settlor interested trust is treated as the settlor’s income for tax purposes, S646 ITTOIA 2005 provides that the trustees also have a concurrent liability to that tax and, therefore, settlor-interested trusts are required to be registered as taxable trusts if the trust has accrued taxable income or incurred other tax liabilities.
(vi) Sub-fund settlements do not need to be separately registered on the TRS if the principal settlement is registered and the trustees of both the principal settlement and the sub-fund settlement(s) are the same.
(vii) Unit trusts (both authorised and unauthorised), as collective investment schemes, are not required to be registered on the TRS. However, an express trust (or another trust that has incurred a tax liability) holding unit trusts as an investment vehicle is required to be registered on the TRS unless it is an excluded trust.
Whilst the further clarification provided by these updates is useful, there still remain grey areas. Trustees who are unsure whether or not a trust should be registered on the TRS should look to take action before 1 September 2022 to avoid possible fines or penalties from HMRC or if they are looking to invest trust assets – see our blog ‘What happens if I don’t register a trust on the TRS?’ for further details.
Whilst trust registration is the responsibility of the trustees, they are able to appoint an agent to register the trust on their behalf. Trustee Support Services can register trusts on behalf of trustees. Full details of our services are available on our website.