New rules – does your trust need to be registered?
New rules came into force recently which means that almost all trusts set up in your lifetime must be registered.
Until now, only trusts that suffered certain tax liabilities had to be registered.
But these new rules mean that thousands of trustees will be required to register details of trusts on the new Trust Registration Service by 10th March 2022.
What is the Trusts Registration Service and when does it come into play?
In the past, HMRC required the paper Form 41G (Trust) to be completed to register a new trust. This captured important information such as the names and addresses of the trustees, details of any professional agent acting, the governing law, lifetime trust or will trust, and so on.
HMRC did state however “if there is no income arising, and no likelihood of income or gains in the future, you do not need to complete this form”.
This meant that many trusts didn’t need to be registered with HMRC at all.
Under the new rules, even if there is no tax liability, almost all trusts already set up during lifetime will have to be registered not later than the 10th March 2022.
All new trusts created after 8th February 2022 will have to be registered within 30 days.
HMRC has embraced the digital world and done away with paper form 41G and replaced it with a new online service called the Trusts Registration Service. The Trusts Registration Service (or TRS for short) provides a single route for trustees and personal representatives of complex estates to comply with their registration obligations.
For trusts that are already registered, additional information about the beneﬁciaries must be provided.
Which trusts will need to register and which will not?
The rules are complex, but in summary, the type of trusts that MUST be registered are:
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.
Let me explain some of the terminology.
The term ‘express trust’ covers all trusts that have been deliberately created by a settlor, as opposed to a trust imposed by law, which includes statutory, resulting or constructive trusts.
And the term ‘UK tax liability’ for these purposes includes a liability to income tax, capital gains tax, inheritance tax and/or stamp duty land tax.
It’s important to 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. 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 exempt from the requirement to register.
Registration will also not be required if the trust is a bare trust, although trustees of bare trusts are still 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. Bare trusts are widely used by parents and grandparents to transfer assets to their children or grandchildren.
What about trusts invested wholly in non-income producing assets such as life insurance investment bonds or capital redemption policies?
These trusts 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.
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.
So, for example, if the property is occupied by a beneficiary – and so it doesn’t produce an income – it doesn’t need to register 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.
How to register a trust
To register a trust on the TRS you will need an ‘organisational’ government gateway account to obtain a Unique Taxpayer Reference (UTR) – the same place you go to complete a self-assessment tax return. A separate account is required for each trust even if the settlor and trustees are the same.
The trustees are responsible for making sure a trust is registered – it’s part of their ongoing obligations – but you can appoint an agent such as an accountant to do so on your behalf.
As always with new legislation like this, the devil is in the detail. So, if you are unsure whether a trust needs to be registered, check out the government website at https://www.gov.uk/guidance/register-a-trust-as-a-trustee .
And remember that for trusts that are already registered, from 22nd March 2022, the trustees will have to provide additional information about the beneﬁcial owners and potential beneﬁciaries.
Also be aware that the Trusts Registration Service won’t be up and running until later this year
This is certainly something to start thinking about if you’re a trustee or know someone who is and reviewing trusts will continue to be part of our Regular Review Process for those we work with.