With a constant flow of anti-tax avoidance legislation, HM Revenue & Customs has long since woken up to the benefits of being informed and improving Treasury cash flow.
Recently, the Trust Registration Service has reminded us of the importance of information to HMRC. The TRS is anchored in the anti-money laundering requirements and the digitisation of tax provisions. So what is it?
The TRS is a new online service that provides a single route for trustees and personal representatives of complex estates to comply with their registration obligations under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI No. 2017/692), which came into force on 26 June.
Registering trusts is not a new provision, though. The TRS replaces the paper 41G (Trust) form and the ad hoc process for trustees to notify HMRC of changes in their circumstances. Trusts required to register with HMRC are now required to do so through the TRS.
Which trusts need to register on the TRS?
- All UK express trusts where the trustees have incurred a tax liability in a given tax year; and
- All non-UK express trusts which receive UK source income or have UK assets on which the trustees have incurred a UK tax liability in a given tax year.
The term “express trust” covers all trusts that have been deliberately created by a settlor (i.e. as opposed to statutory, resulting or constructive trusts), while a “UK tax liability” for these purposes includes a liability to income tax, capital gains tax, inheritance tax and/or stamp duty land tax.
As the 41G form did not collect sufficient information to meet the requirements of the new legislation, those trusts which registered with HMRC before the launch of the TRS will also need to use the service to provide all the information now required.
Note that if the trustees have not incurred a tax liability, either because they have claimed a relief or because the liability falls on the settlor or on a beneficiary, registration on the TRS is not required. This would include the situation where income is mandated directly to an interest in possession beneficiary.
Trusts that have no UK tax liability other than a tax liability of less than £100 on bank or building society interest income are also exempt from the requirement to register.
Registration will not be required if the trust is a bare trust, although trustees of bare trusts are nonetheless required to keep accurate and up-to-date written records of the beneficial owners in the same way trustees of any other trust type must do.
The TRS is anchored in the anti-money laundering requirements and the digitisation of tax provisions
Do trusts holding unit trusts and other collective investments need to register?
HMRC guidance originally stated that authorised unit trusts fell outside the scope of the TRS and that unauthorised unit trusts fell within its scope. However, following further consideration of the representations it received, it decided unit trusts do not fall within the definition of an express trust.
As such, they fall outside the scope of the TRS registration. This includes unauthorised unit trusts and offshore unit trusts. HMRC is in the process of updating its guidance about this accordingly.
How about settlor interested trusts?
It appears to be the view of the Chartered Institute of Taxation that, by virtue of s646(8) ITTOIA 2005, registration is necessary – despite the liability being that of the settlor.
What about trusts invested wholly in non-income producing assets, such as life insurance investment bonds or capital redemption policies?
Trusts invested wholly in non-income producing life insurance policies or capital redemption policies will not usually be required to register on the TRS unless and until:
- A chargeable event under the policy arises at a time when the settlor is deceased or non-UK resident;
- There is a chargeable transfer for IHT purposes because funds or assets greater than the settlor’s available nil rate band are added to the trust and the trustees pay the tax; or
- A periodic charge or exit charge arises for IHT purposes.
If a chargeable event arises under the policy while the settlor is alive and UK resident, the tax liability will fail to be assessed on the settlor rather than the trustees, and the trust will not therefore be required to register at that time.
The requirement to register and/or update or confirm the information contained in the register only arises if the trust has a tax liability in the given tax year. This means that, in the case of a life policy trust, registration may be necessary in one year (perhaps because a part surrender is made and an excess arises) but the requirement to register or update may not then arise again for several years (that is, until there is a further chargeable event).
What is the position for trusts that hold property?
Trusts that hold property will, like other trusts, only need to be registered if the trustees incur a liability to tax. Thus, if the property is occupied by a beneficiary – and is not income-producing – no requirement for registration will exist unless a taxable event occurs for IHT, CGT or SDLT purposes.
If the trust holds an investment property which generates a rental income, the trustees will usually need to register the trust on the TRS. The exception will be where the trust is an interest in possession trust where all the trust income mandates directly to the beneficiary.
What are the deadlines for registration?
The deadline for registration depends on whether the trust is already registered for self-assessment for income tax or CGT:
- If the trust is already registered for income tax or CGT and the trustees of the trust have incurred a relevant UK tax liability in a given tax year, registration must be completed by no later than 31 January after the end of that tax year.
- If the trust is not registered under self-assessment but has incurred an income tax or a CGT liability for the first time in a given tax year, 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 self-assessment or does not need to register but has incurred either an IHT, SDLT, stamp duty reserve tax or a land and buildings transaction tax (Scotland) liability in that tax year, then registration must be completed by no later than 31 January after the end of that tax year.
Penalties will apply if deadlines are not met. However, for the first year of the TRS only, HMRC has extended the registration deadline for new trusts and complex estates that have incurred a liability to income tax or CGT for the first time in the tax year 2016 to 2017, from 5 October 2017 to 5 January 2018, and has extended the deadline for existing trusts from 31 January 2018 until 5 March 2018.
Who is responsible for registering the trust?
The responsibility for registration lies with the trustees, although trustees can appoint a lead trustee to complete the registration process or may alternatively appoint an agent to register the trust on their behalf.
Are there any registration responsibilities for institutions that provide draft trusts or for advisers who use the draft trusts for their clients?
No. Providers of trust documents and advisers have no TRS obligations in relation to the trusts they provide/advise on. However, advisers will need to ensure they understand their clients’ reporting obligations under the new regulations and should make their clients aware of those obligations when recommending trust-based solutions.
What steps must be followed to register a trust on the TRS?
Trustees required to register must do so online at https://www.tax.service.gov.uk/gg/sign-in?continue=/trusts-forms/form/registration-of-a-trust/new
Before they can register, they must apply online for an “organisation” Government Gateway account to obtain a Unique Taxpayer Reference. A separate account is required for each trust even if the settlor and trustees are the same.
What information is required by the TRS?
The TRS will ask for:
- The name of the trust;
- The trust address and telephone number;
- The date the trust was established;
- The country where the trust is resident;
- Details of the trust assets, including addresses of properties, and an estimated market valuation of assets held at the date the assets were settled; and
- Identity details – i.e. name, address, date of birth and National Insurance (or passport/ID number if no NI number) – of the settlor, trustees, the beneficiaries (or class of beneficiaries where individual beneficiaries have yet to be determined or identified) and any person exercising effective control over the trust, such as a protector or appointor.
Agents acting on behalf of trustees will also be required to provide contact information about themselves. However, no information is required in respect of other advisers who may be providing legal, financial or tax advice to the trustees in relation to the trust.
What needs to be disclosed in relation to beneficiaries?
The trustees will need to disclose to HMRC the identities/names of all actual or potential beneficiaries. Where the beneficiaries are not named but there is simply a class of beneficiary, then a description of the class of beneficiary should be recorded. That said, trustees will need to disclose the identity of any potential beneficiary who receives a financial or non-financial benefit from the trust after 26 June 2017.
What obligations exist after the first registration?
Where no relevant changes have taken place since the end of the previous tax year, the update can be limited to confirmation that no such changes have occurred.
Note that the details of trust assets are only provided once at the first point of registration and there is no requirement to update information about the trust assets on the TRS even if these change over time. All other asset information is dealt with on the SA900 tax return, just as it was before TRS was introduced.
Is the information held in the public domain?
No. The legislation specifies that information held on the TRS can only be shared by HMRC with law enforcement authorities in the UK or in another EEA member state, if requested. These include the FCA, the National Crime Agency and the Police Service.
Tony Wickenden is joint managing director of Technical Connection. You can find him Tweeting @tecconn
HMRC’s latest guidance can be accessed here: https://www.step.org/sites/default/files/Policy/TRS_Guidance_FAQ_-_22_November_2017.pdf
Regular updates on the TRS are published in HMRC’s quarterly Trusts and Estates Newsletters. The December Trusts and Estates Newsletter can be accessed here: