The deadline is approaching for trustees of non-taxable trusts
There are just two weeks left before the September 1 deadline for trustees of non-taxable trusts created before June 4, 2022 to register with HM Revenue & Customs’ Trust Registration Service. Trustees must act now to comply with the law and avoid penalties.
The Trust Registration Service (TRS), operational since 2017, was set up to improve transparency around the beneficial ownership of assets held in express trusts with UK tax liability.
An express trust is created by a settlor – the person or persons who place assets in the trust – usually in the form of a document such as a deed or declaration of trust. Most trusts are, in effect, express trusts.
An express trust can be created by a person during their lifetime or in their will. Express trusts include discretionary trusts, ownership interest trusts, gift trusts, gift and loan trusts, discounted gift plans, shareholder protection trusts, employees, bare trusts and testamentary trusts not liquidated within two years of death.
As part of anti-money laundering regulations, the scope of registration of trusts has been extended to place express trusts under TRS – even though they do not have an obligation tax in the UK.
This means that all UK trusts (and some non-UK trusts), with a few exceptions, existing on or after October 6, 2020, will now have to be registered on the TRS by September 1, 2022, even if they are now closed.
Do I have time to think about it?
Simply put: no. Express trusts created before June 4, 2022 must be registered with the TRS by the September 1 deadline, and express trusts created after June 4, 2022 must be registered with the TRS within 90 days of the incorporation date. The trustees therefore only have 14 days left to fulfill their legal obligations vis-à-vis the TRS.
This may be news to the majority of lay administrators. The Society of Trust and Estate Practitioners has previously advised that approximately 2 million non-taxable trusts will need to be registered on the TRS by September 1, 2022.
However, worryingly, the number of non-taxable trusts registered appears to fall far short of this figure, indicating a huge lack of awareness, delays or non-compliance.
A study by Canada Life found that more than 36,000 trusts were registered in May and June. That’s almost double the number of the same months in 2021. But will there now be a last-minute rush from administrators to meet the deadline?
Does my type of trust require registration?
The legal requirement is that all UK express trusts must be registered on the TRS by the relevant deadline, unless they fall under a small number of exemptions. Bear in mind, however, that exempt trusts with UK tax liability still need to be registered on the TRS.
Exempt trusts include: joint ownership trusts where the legal owners and beneficial owners are the same people, commonly found when a couple co-owns their home or has a joint bank account; trusts created before 6 October 2020 which hold assets worth less than £100; testamentary trusts that are liquidated within two years of death; pension trusts; trusts imposed by law, such as in the event of intestate or bankruptcy; trusts of life insurance policies paying out in the event of death, terminal illness or disability; UK charitable trusts; and trusts created to open a bank account for children or vulnerable people.
Advisers had at one point hoped that bare trusts might fall outside the scope of the TRS regime, since any UK tax liability lies with the beneficiary of the bare trust, not the trustees. However, bare trusts are not exempt and therefore must be registered with the TRS. This can lead to unexpected requirements.
Is the TRS my problem or can I entrust it to the settlor?
The legal obligation to register rests with the trustees and not with the settlor. Trustees have a responsibility to be proactive.
In truth, it is often difficult to know whether a trust should be registered or not. Trustees should therefore seek legal counsel to establish their obligations, especially given the fast approaching registration deadline.
Where there are multiple trustees, they must collectively decide and appoint a lead trustee to carry out the registration process. All trustees are also legally responsible for the trust and the appointed ‘lead’ trustee is simply the main point of contact for HMRC.
HMRC requires a considerable amount of information about the trust, settlors, trustees and beneficiaries – information which may not be readily available. And since collecting this information can take time, it is important that trustees give themselves enough time to obtain it. HMRC and professional advisers are likely to be very busy with the approaching deadline.
What if I don’t comply?
You are going to commit an offence. Failure to register a trust or failure to notify any change of information on the TRS may result in increased administration of the trustee and penalties issued by HMRC. Reports indicate a penalty of £100 for failing to register or update TRS details within the time limit. In the event that a trust only holds property and no money, this penalty would legally become the responsibility of the trustees.
So what should you, your contacts and all administrators do now? A review of all life trusts and testamentary trusts is absolutely essential. The TRS can be a complex area to navigate, so if you’re unsure whether a trust falls within the scope of the TRS, contact an attorney for advice and assistance with managing the TRS.
Laura Bywater is Partner and Head of Wealth Protection at Price Slater Gawne