There will be further compliance requirements for trustees as major changes to the registration requirements for non-taxable trusts are now in force. The new rules mean that almost all UK non-taxable express trusts must be registered with HMRC’s online Trust Registration Service (TRS) by 1 September 2022 regardless of whether they have tax liabilities.
The online TRS was introduced in 2017 to replace the paper-based system to register trusts with HMRC and to comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
Currently, only UK express trusts which incur a tax liability, such as income tax, capital gains tax, or inheritance tax in any given year, or trusts which require a Unique Taxpayer Reference number are required to be registered via TRS.
What are the new changes?
With the UK’s implementation of the EU’s Fifth Money Laundering Directive (5MLD) almost all UK express trusts must be registered even if they have no tax liability. Furthermore, even some non-UK express trusts will be required to be registered.
This will be the case if the trust in question acquires land or property within the UK, or at least one trustee is a resident in the UK and enters into a business relationship with a UK service provider. This includes lawyers, accountants and banks.
The following trusts are, however, exempt from registration requirements:
- Trusts which hold money or assets for a UK pension or life policy
- Charitable trusts
- Trusts created by a person’s will which come into existence on a person’s death and which is then wound up within two years of the person’s death
- Trusts for bereaved children under the age of 18
- Trusts which come into existence by operation of law, e.g. trusts arising on intestacy or under a court order, such as on divorce or to hold compensation payments
- Property trusts where the legal and beneficial owners are the same. This would apply where property is held by two or more people as ‘tenants in common’
Even if a trust falls into one of the above exemptions it will be required to be registered if it has UK tax liabilities.
What are the registration deadlines?
All non-taxable trusts which were in existence on 6 October 2020 must be registered by 1 September 2022. This is the case even if the trust has subsequently been brought to an end.
Any non-taxable trusts which are created after 6 October 2020 must be registered within 90 days of being created or by 1 September 2022, whichever is later.
Ultimately, it is a trustee’s responsibility to ensure that a trust is registered on or before the above deadlines. Failure to do so may result in penalties being issued by HMRC. HMRC has indicated that there will be some leniency with penalties and that there will be no penalty for the first failure to register.
In such circumstances, HMRC will write to the trustees and remind them to register the trust. There will, however, be a penalty of £100 for each successive failure. If trustees are deliberately not complying with their registration obligations, HMRC has warned that more severe penalties will be issued.
Many have raised concerns about their confidential information being accessible to the public. However, the register can only be accessed by a third party who must provide evidence that they have a legitimate interest in accessing the register. For example, this could be that they believe the trust is contravening the 5MLD.
Generally, information will not be disclosed where the beneficial owner of a trust is a minor or there is a significant risk of harm to the beneficial owner of a trust.
Action steps for trustees
It is recommended that trustees review the information required by the TRS for the registration process and start gathering the relevant information to keep an internal register, should this be required by HMRC at any point.
There are a few months before the deadline for mandatory registration. However, trustees should not be complacent and should start reviewing their trust structure to establish whether the mandatory registration rules apply to them. If they are unsure whether the rules apply, they should obtain appropriate advice.