As part of the UK government’s implementation of the 5th EU Money Laundering Directive, almost all Trusts are now required to be registered with HMRC.
Trust registration is nothing new. The Trust Registration Service (TRS) has been in operation since being introduced by the Fourth Money Laundering Directive (MLD4) in 2017, and before then certain trusts needed to be registered with HMRC. The Fifth Money Laundering Directive (MLD5) is now expanding the scope of trust registration requirements to bring more trusts under the TRS.
We have created a quick guide for Trustees of UK express Trusts that, under recent anti-money laundering legislation, now have to be registered with HMRC. It outlines the registration process, the information that will be required to be registered and the Trust registration services which can be provided to Trustees.
Previously, Trustees would only be required to register a trust if a chargeable event was triggered (a liability of tax). This was primarily:
- Capital Gains Tax (when a property/investments are sold), or
- where Income Tax is payable, or
- where Inheritance Tax is due (e.g. the ten-yearly charge on relevant property trusts, which Trustees may not always be aware has become due), or
- less commonly when Stamp Duty Land/Reserve Tax reporting was required.
What has changed?
The UK signed up to the 5th Money Laundering Directive (5MLD) and although trusts were recognised as relatively low risk in terms of money laundering abuse they were included under the new initiative.
What does this mean for Trustees?
The updated legislation requires new trusts that previously did not require registration to now be registered. The legislation impacts a much broader range of newly created trusts (including most bare trusts) as well as large numbers of existing trusts which now require registration, even if there is no reportable tax event.
- Under the new regulations, all UK express trusts* must be registered, unless they fall under a small number of exemptions. *express trusts will include most trusts, such as discretionary, life interest, investment and even bare trusts.
- There is also a greater, more demanding requirement to provide further information than previously required, including additional details on the Settlors, Trustees and Beneficiaries as well as details of beneficial interest.
- The timeframes for reporting require special attention.
- New express trusts require registration within 90 days from 1st September 2021.
- All existing express trusts that are not exempt must be registered by 31st August 2022.
- Trusts with a tax event will be required to report by 5 October each year for most Capital Gains Tax and Income Tax events and 31 January for other reporting requirements.
Although the requirement for registration is not revenue-related, it will be implemented as an extension to the existing trust reporting for tax purposes. It is likely that this process will identify a number of unexpected events that impact asset ownership and potential tax reporting/accuracy, however, it is an opportunity for lay-Trustees to put their house in order.
What is an Express Trust?
An express trust is where the legal owner(s) of property* (assets) declare that they hold said property on trust for specified Beneficiaries. The declaration will also set out ways and proportions in which the beneficial interest is to be held.
Most trusts are express trusts. This simply means one that is created knowingly and intentionally by the Settlor either in their lifetime or on their death, usually in writing, giving express instructions as to how the trust assets are to be held for the beneficiaries.
*the legal definition of property is broader than physical property
What Trusts are Exempt?
The exemptions in the regulations are relatively clear providing care is taken. They include trusts for:
- life assurance that hold only death benefits;
- “pilot trusts” set up before 6 October 2020 with less than £100 as a trust fund;
- certain co-ownership trusts set up to share an interest in property;
- most registered pension schemes;
- trusts created by Wills on death, such as life interest or Nil Rate Band trusts*;
- most UK charitable trusts;
*Both existing and new trusts created by Wills on death, such as life interest or Nil Rate Band trusts, will require registration unless they are closed down within two years of the settlors death.
Trusts for minors are also not exempt as a class, however, some may qualify for an exemption. Executors are advised to seek clarification and advice if required.
How can a trust be registered?
A trust can only be registered by using HMRC’s online Trust Registration Service (TRS). On the 1st September 2021 the TRS software was launched for the registration of non-exempt trusts under the AML5 initiative, alongside the software for the registration of trusts with a chargeable (tax) event. Trustees will have until the 31st August 2022 in which to register.
You should clarify if you have a trust which falls into the registration category, if you are unsure you can contact our team to discuss further and then decide if you as the trustee want the responsibility of self-registering or using a company like ourselves to provide the service to carry out an audit and registration if it is required.
What happens if I do not register a trust?
If you are a Trustee of a trust which requires registration and you do not comply with the legislation you may be subject to a penalty regime of fines which start from £100 and are similar to other tax reporting non-compliance penalties.
Do trustees have to update the trusts register?
Yes, updates must be made by the lead Trustee or the Trust Registration Agent. Even if there are no changes during the year, confirmation is required and penalties will be applied if this requirement is not complied with.
Trust information required
The data required for registration is now fairly established through HMRC consultation and is more detailed and wider ranging than previously required. It is helpful to review this in terms of Settlors, Trustees, Beneficiaries and Trust Assets. Registration details for taxable and money laundering reporting is as follows:
- trust name
- type of trust
- set-up details
- the date the trust was created
- unique tax reference (UTR) or apply for one
- confirmation of being an express trust
- whether the non-UK trust has a business relationship in the UK
- details about any UK land or property owned
- all Trustee personal details
- all Beneficiary personal details
You should be able to find these details in the trust deed and from any correspondence that the Trustees may have had with HMRC.
What trustees need to do next
If you are a Trustee, you should be proactive.
- If you are unsure if the trust of which you are a Trustee requires registration, review the legislation, check with trust providers or ask a Trust Registration Agent to give their opinion.
- If you are a Trustee named in a Will trust, Pension or Life Assurance Trust and the settlor is deceased, and you have not acted, contact us – do not get caught out by this new legislation.
- Start collecting the required data for your self-reporting or engage with a Trust Registration Agent at Foresight.
Help to register a Trust
Moving forward, Foresight Estate Planning will be offering a trust registration service for clients who will require trust registration before and after the 30th August 2022 deadline. This will be a fixed fee of £100 + VAT per trust to complete.
If you are unsure if you have a trust that requires registering, then please contact us directly on 01603 268080 or email email@example.com and we will be happy to clarify this with you.