HM Revenue & Customs (HMRC) have recently confirmed details of the extension to their Trust Registration Service (TRS) which will cause more trustees to have increased compliance obligations. With HMRC able to issue penalties for non-compliance, trustees need to be aware of the impact of the new measures and the timetable for reporting.
In July 2017, many trustees became faced with new compliance obligations when HM Revenue & Customs (HMRC) introduced their Trust Registration Service (TRS). Designed to implement the requirements of the EU Fourth Anti-Money Laundering Directive (4MLD), this imposed a requirement for trustees to register under TRS any express trust that had a liability in respect of any of the following taxes:
- income tax
- capital gains tax
- inheritance tax
- stamp duty land tax / land and buildings transaction tax / land transaction tax
- stamp duty reserve tax
TRS registration was required whether or not the trust was already registered with HMRC for self-assessment.
The trustees are also obliged to ensure that the TRS is updated as necessary by 31 January following the end of a tax year in which the trust has a tax liability.
The TRS is also used to formally report the cessation of a trust.
What has changed?
In October 2020 HMRC extended the reporting requirements of the TRS in order to comply with the EU Fifth Anti-Money Laundering Directive (5MLD). This Directive continues to apply even though the UK has now left the EU.
Under the new 5MLD rules the following trusts will be included within the scope of the TRS:
- UK express trusts – that is to say trusts that are purposely set up as opposed to implied trusts arising by operation of law – unless specifically excluded.
- Non-UK express trusts – unless specifically excluded
– where one or more of the trustees are UK resident and:
- hold an interest in UK land; or
- enter into a business relationship with a relevant person (such as an accountant or lawyer) – unless registered under an equivalent EEA register
- Non-UK express trusts where none of the trustees are UK resident but where the trust acquires an interest in UK land
However, non-express trusts or specifically excluded trusts will still need to be registered under TRS if they have a tax liability.
Who is out and who is in?
The full list of excluded trusts is included in Statutory Instrument 2020 No 991 but the most common types include:
- trusts imposed by statute e.g., trusts arising on intestacy, or by a or Tribunal Court Order
- UK registered pension trusts
- trusts holding life insurance policies or policies paying out on critical illness or disablement, or to meet the healthcare costs of the assured
- charitable trusts regulated in the UK, or such trusts not required to register as a charity e.g., museums, galleries, churches etc.
- Pilot trusts set up prior to 6 October 2020 with assets of a value of no more than £100
- will trusts that come into effect on the death of the settlor, receiving estate assets, or benefits from a life insurance policy, which are wound up within 2 years of the person's death
- a trust of jointly owned property where the trustees and beneficiaries are the same persons i.e., for owning property as "tenants in common" or joint bank accounts
- financial or commercial trusts created in the course of professional services or business transactions
- trusts for vulnerable beneficiaries or bereaved minors
- personal injury trusts
- authorised unit trusts, save as you earn schemes & share incentive plans
- Maintenance fund trusts
What information needs to be provided to HMRC?
The information that needs to be submitted under TRS depends on whether the trust has a tax liability.
For trusts which are not liable to tax the trustees will need to confirm details of the settlor, trustees, and beneficiaries. Where these are individuals this will mean their full name, date of birth, country of residence, nationality, and role in the trust. Where a company fulfils this role, the required details will be the company name, registered office, and role in the trust.
Lead trustees will be required to provide further details to identify themselves to HMRC such as their National Insurance number (or address and passport details if a National Insurance number is unknown or does not exist), and a telephone number.
For trusts with a tax liability, in addition to the basic information required to be submitted by non-taxable trustees, the trustees will also need to confirm the full name of the trust, the date it was established, confirmation of the nature and value of the trust assets at the date of registration, confirmation of the country in which the trust administration takes place. They will also need to provide for the settlor, all trustees, and all named beneficiaries a National Insurance number and address. Where beneficiaries are not names a description of the class of beneficiaries will be required.
Registration deadline and penalties
Trustees of any trusts that currently meet the registration criteria must complete their TRS registration by 10 March 2022.
For newly set up trusts created after 9 February 2022, registration will be required within 30 days of the trust being set up and meeting registration criteria.
Currently, the TRS system cannot accept the details of any trusts that do not have a tax liability and it is anticipated that HMRC's service will be fully functional later in the year. This could mean that the March 2022 registration deadline will be extended, however, it would be prudent for trustees to assume that this is the deadline they are currently working to.
HMRC can issue penalties to the lead trustee if a trust is not registered by the relevant deadline or if trust information is not reported or updated by the relevant due dates. The penalties are based on the length of delay as follows:
- up to three months after the relevant deadline = £100
- between three and six months after relevant deadline = £200
- over 6 months after the relevant deadline = higher of £300 or 5% of trusts total tax liability for the relevant year
Penalties for a delay in updating the TRS are expected to follow the same pattern. The first TRS updates were due by 31 January 2021. However, as TRS functionality to update a trust record had been problematic in the run up to that date HMRC have indicated that they will take a pragmatic approach to penalties for that year if trustees have made "every effort to meet their obligations".
What if the trust assets don't generate any income?
Unfortunately, under the extended TRS rules the trustees will still be obliged to register the trust – unless the trust comes under one of the specifically excluded categories.
Jane Smith is one of the trustees of The John Smith Will Trust which was created many years ago on the death of her husband. Under the terms of the trust, she has a life interest in the family home which entitles her to live there rent free. The house is the only trust asset. As there have not been any tax liabilities arising there was no requirement for the trustees to register the trust under the original TRS. However, under the new rules the trustees will be required to register.
It's not just property owning trusts that will be caught by the new rules, they will also apply to trusts where, for example, the trust fund has been used to purchase an investment bond and there have not been any taxable withdrawals or encashments to date.
How can we help?
For many of our trustee clients we are already involved in trust compliance, including their initial TRS registration and ensuring that the annual TRS update is submitted by the filing deadline. This means that the trustees know that the correct information is being submitted to HMRC and within the appropriate time limits.
Due to the extension of the TRS, in your capacity as trustee you may need assistance in reviewing the trust documents and assets in order to establish if you actually do have any filing obligations, or whether your trust may fall into one of the excluded categories.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.