The deadline of 1st September 2022 for registering trusts on the Trust Registration Service (TRS) is fast approaching.
As a reminder, the UK’s Trust Registration Service (TRS) is an online register of the beneficial ownership of trusts and was first introduced in 2017 as part of an EU anti-money laundering directive aimed at combating money laundering, serious crime, and terrorist financing, and to satisfy the requirements of the EU’s Fourth Money Laundering Directive. Initially, only express trusts with UK tax liabilities were required to register with the TRS and provide certain information on their settlors, beneficiaries, power holders and assets.
However, because of the Fifth Money Laundering Directive (5MLD), new rules were introduced on 6 October 2020. These extended the scope of the TRS to UK (and some non-UK) trusts, regardless of whether or not the trustees have become liable to pay any tax. Following this, many trusts that are not liable to tax, nor expected to be in the future, have been caught under the new rules and must register.
In particular, the TRS now applies to:
- all UK express trusts (regardless of whether they have UK tax liabilities);
- non-UK trusts with UK assets plus UK tax liabilities;
- non-UK trusts – with at least one UK resident trustee – which enter into a ‘business relationship’ in the UK after 6 October 2020; and
- non-UK trusts which acquire UK land after 6 October 2020.
There are various exemptions to these rules, with certain categories of trusts excluded from the registration requirements. For example, charitable trusts, pension scheme trusts, life insurance trusts, co-ownership property trusts, trusts imposed by a court order (e.g. on divorce) and certain trusts arising on death are generally exempt if they meet various conditions and unless they have UK tax liabilities. Existing trusts with a value of less than £100 created prior to 6 October 2020 are also exempt.
Certain types of bare trust (see Types of Trust below) or nominee arrangements may also qualify for an exemption. For instance, a bare trust established in the context of commercial transactions might not be required to register. It has also been confirmed recently that Junior ISAs and bank accounts opened by a parent on behalf of their minor child are excluded from the registration requirements. However, there is no general exemption for bare trusts so, for example, where parents purchase a property to hold as bare trustees for the benefit of their children rather than for themselves, the trust would not be excluded from registration.
The new rules require the trustees to register key information, for example:
- The trust: name of the trust and date when it was created.
- The settlor: trustees’ full name, date of birth, date of death (if applicable), country of nationality, and country of residence.
- The trustees: if they are individuals then their full name, date of birth, country of nationality, country of residence; and if they are the lead trustee, their national insurance number, postal address, email address, and phone number.
- Named beneficiaries: for bare trusts, the beneficiaries full name, date of birth, country of nationality and country of residence will be required.
- Class of beneficiaries: for discretionary trusts, a description of the class of beneficiaries taken from the trust deed, e.g. children of the settlor, and the name of anyone specifically named in a discretionary trust.
- Mental capacity of individuals: the mental capacity of an individual – whether they are the settlor, trustees, or beneficiaries – is assumed to exist unless there is proof to the contrary. HM Revenue & Customs need to know about an individual’s capacity as it cannot disclose information about those who lack mental capacity to third parties.
How do I register a trust with the TRS?
A trust can be registered on the GOV.UK website. In terms of who registers the trust, there are two possible options:
- The trustees can authorise an ‘agent’ (e.g. accountant or solicitor already registered with HMRC as an accountancy service provider) to register the trust on their behalf, or;
- The trustees can register the trust themselves, with one trustee designated as the ‘lead trustee’ for HMRC correspondence.
All trustees are equally legally responsible for the trust, but one must be nominated ‘lead’ trustee to be the main point of contact for HMRC. It should be borne in mind that the registration process is relatively straightforward, particularly for non-taxable trusts, and the trustees may wish to consider carrying out the registration themselves, rather than pay a third party. Following registration, the trustees need to be aware of their ongoing requirements.
What are a trustee’s responsibilities?
The trustees are required to keep accurate and up-to-date written records of the beneficial owners, including settlors (the persons who established the trust), trustees, and beneficiaries. The lead trustee is also obliged to keep the register updated each year or when certain specific events occur. HMRC may impose penalties and fines for non-compliance on trustees who fail to comply with the registration requirements.
If the trust is liable to tax for any tax year, trustees must declare on the trust register that the details of the persons associated with the trust are accurate and up to date. You must do this whether there have been any changes or not.
If the trust is not liable to tax, HMRC do not need an annual declaration.
Once registered, third parties who deal with the trust, such as an independent financial adviser, will need to see proof of registration, as part of the standard money laundering and ID checks that take place. A downloadable PDF can be obtained through the TRS as evidence.
The data on TRS is only available to those with a ‘legitimate interest’, such as law enforcement agencies investigating money laundering and the financing of terrorist activities. HMRC can refuse access where there is a disproportionate risk of exposing the beneficial owner for example to fraud, blackmail, or intimidation.
Further information can be found at:
Types of trust
What is an express trust?
An express trust is a trust created deliberately by the settlor, typically during the settlor’s lifetime.
Express trusts include Discounted Gift Trusts, Loan Trusts, Gift Trusts and trusts holding an investment bond (whether a discretionary or bare trust).
What is a discretionary trust?
Discretionary trusts allow the trustees to decide how income and capital from the trust is used.
Decisions may include whether income or capital payments are made, who should receive payments and how often, and whether beneficiaries of the trust should have any conditions imposed on them.
Typical uses of discretionary trusts include financial planning, putting assets aside for those who may need financial help in the future (this may include grandchildren, for example) and beneficiaries deemed not responsible or capable of looking after their finances.
What is a bare trust?
Bare trusts consist of assets held by a trustee for a named beneficiary to receive. The trustee has the responsibility of managing the trust assets prudently so as to generate maximum benefit for the beneficiary. This type of trust is often used for grandchildren until they’re old enough to look after their money. For example, the age is 18 or over in England and 16 or over in Scotland.
What is a Discounted Gift Trust?
A discounted gift trust allows a sum of money to be gifted into trust for inheritance purposes and the person who created the trust can receive fixed regular payments from the trust for life or until the trust has no remaining funds left. For the purposes of inheritance tax, the value of the original gift may be discounted which means part of the capital may be outside the client’s estate for inheritance tax immediately. The remaining part will also fall outside their estate providing the client lives for at least 7 years from the date they placed the capital into the discounted gift trust.
What is a Gift Trust?
A gift trust differs from a discounted gift trust in that the client doesn’t receive regular payments from the trust or benefit financially from establishing the trust.
Depending on the type of trust used, they may have control over when the beneficiary will benefit. If the client lives for at least 7 years from the date of the gift trust being established, the capital within it will not be included in their estate for inheritance tax purposes.
What is a Loan Trust?
A loan trust allows the person who sets up the trust to make a cash loan to the trustees. The loan is interest free and repayable on demand. The person who created the trust and made the loan can demand repayment of the loan, in whole or in part at any time. Any growth on that investment is outside that person’s estate for inheritance tax. Any outstanding loan at date of death remains in that person’s estate for inheritance tax.