The online Trusts Registration Service (TRS) has now superseded the old paper based system for registering trusts that generate tax consequences and imposes additional obligations on those trusts that are required to register. Here, we take a look at which trusts need to register on the TRS and what all trustees need to be aware of to ensure that they comply with their reporting obligations.
The Trusts Registration Service (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 2017. The TRS replaces the paper 41G (Trust) form and the ad hoc process for trustees to notify HMRC of changes in their circumstances. Trusts that are 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 will need to register.
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 that is 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 other UK tax liability other than a tax liability of less than £100 on bank or building society interest income are also exempted 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 that trustees of any other trust type must do.
What is the position for trusts invested wholly in non-income producing assets such as life insurance investment bonds or capital redemption policies?
Trusts that are 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 fall to be assessed on the settlor rather than the trustees and the trust will not therefore be required to register at that time.
Note that 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 (i.e. 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, then 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 is mandated 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 (SA) for income tax or capital gains tax:
• If the trust is already registered for income tax or capital gains tax and the trustees of the trust have incurred a relevant UK tax liability in a given tax year, then registration must be completed by no later than 31 January after the end of that tax year;
• If the trust is not registered under SA but has incurred either an income tax or a capital gains tax liability for the first time in a given tax year then 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 SA or does not need to register for SA but has incurred either an inheritance tax, stamp duty land tax, 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 have extended the TRS registration deadline for new trusts and complex estates, that have incurred a liability to income tax or capital gains tax for the first time in the tax year 2016 to 2017, from 5 October 2017 to 5 January 2018; and have 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 trust registration responsibilities for institutions who provide draft trusts or for advisers who use the draft trusts for their clients?
No. Providers of trust documents and financial advisers have no TRS obligations in relation to the trusts that they provide/advise on. However, advisers will need to ensure that they understand their clients’ reporting obligations under the new regulations and should make their clients aware of those obligations as part of the advice process when recommending trust-based solutions.
What steps must be followed to register a trust on the TRS?
Trustees who are 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 (UTR). 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 that the assets were settled; and
• identity details (i.e. name, address, date of birth and NI (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?
Under the TRS the trustees will need to disclose to HMRC the identities/names of all beneficiaries who are either actual or potential beneficiaries. Where the beneficiaries of a trust are not named, but there is simply a class of beneficiary, then a description of the class of beneficiaries should be recorded on the TRS. Trustees will however 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 post-first registration?
The trigger point for either first registration or updating details on the register is when the trustees incur a liability to pay any of the relevant UK taxes. So, in tax years where no tax liability arises then the trustees are not required to register or update in that tax year (although if changes have occurred, updates can be made on a voluntary basis if desired). If, however, the trustees have incurred a tax liability in a given year, the trust register will need to be updated to reflect any changes – for example, to trustee, settlor or beneficiary details - by 31 January after the end of the tax year in which the change occurred. 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 on the Trust Register 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 Financial Conduct Authority, the National Crime Agency and the Police Service.
HMRC has produced some guidance on the TRS in the form of a series of Frequently Asked Questions. The latest version of the guidance is currently available in draft form only and can be accessed here. Regular updates on the TRS are published in HMRCs quarterly Trusts and Estates Newsletters. The December Trusts and Estates Newsletter can be accessed here.