The Trust Registration Service (TRS) - Important news for advisers
The Government has just published “next steps” regarding the TRS. Before considering these, let’s briefly remind ourselves on the fundamentals.
How we got here
Just over three years ago the TRS became operational and replaced the outdated paper process where HMRC required completion of paper Form 41G (Trust) to register a new trust and capture important information about the trust.
The TRS was introduced to fulfil the requirements of the Fourth Money Laundering Directive (4MLD) and requires registration of UK ‘express’ trusts with a taxable consequence. In broad terms this means that a trust deliberately created by a settlor needs to be registered by the trustees where the trustees have incurred a UK tax liability (e.g. Income Tax, Capital Gains Tax, Inheritance Tax and so on).
There are certain trusts that currently do not need to be registered including those where
- The trustees do not need to file a tax return and have not incurred a UK tax liability.
- The settlor or a beneficiary of the trust has incurred the UK tax liability but the trustees are not liable.
- The trustees of a bare trust as no UK tax liability arises at trust level.
Regarding the first bullet, a discretionary trust holding a non-income producing investment bond springs to mind (assuming also no IHT liabilities). Remember however that UK resident trustees may become taxable if a chargeable event gain subsequently arises and the settlor cannot be taxed because he/she died in an earlier tax year or is non-UK resident. If a UK resident settlor is taxable albeit that he/she may recover the tax from the trustees, then that situation seems to fall under the second bullet point.
Has 4MLD not been replaced by 5MLD?
5MLD became effective from 10 January 2020 regarding customer due diligence aspects but it also required an expansion to the TRS. The Government decided to issued consultation to consider the knock-on changes necessary to the TRS. This comprised six questions and ran until 21 February 2020.
So, what has the Government just published?
It has published a summary of responses to the consultation together with the Government’s response and next steps. These next steps are important. Out of the six questions posed, questions one and two are related and are particularly important ion the context of mainstream financial planning.
Are there other express trusts that should be out of scope? Please provide examples and evidence of why they meet the criteria of being low risk for money laundering and terrorist financing purposes or supervised elsewhere.
The Government advises that it has taken respondents views into consideration (further details are contained in the draft legislation and forthcoming guidance). In general, the following types of trusts will be exempt from registration.
- Trusts imposed by statute, where these do not result from the clear intention of the settlor. For example, the statutory trust arising on intestacy.
- UK registered pension trusts
- Charitable trusts regulated in the UK
- Pure protection life insurance policies and those paying out on critical illness or disablement, including group policies
- Trusts used by government and other UK public authorities
- Trusts for vulnerable beneficiaries or bereaved minors
- Personal injury trusts
- Save as you earn schemes and share incentive plans
- Maintenance fund trusts
- Certain trusts incidental to commercial transactions
- Certain trusts used as part of financial markets infrastructure
- Authorised unit trusts
- Co-ownership trusts, where the trustees and beneficiaries are the same persons
- Will trusts created on death that only receive assets from the estate and trusts that only receive death benefits from a life insurance policy and are wound up within 2 years of death
- Existing trusts holding assets valued at less than £100 unless or until further assets are added
There is therefore no ‘carve out’ for Bare Trusts despite those arguing that there is no substantial difference between holding assets using a bare trust and the direct ownership of assets by an individual. Also, bare trusts are commonly used to invest for the absolute benefit of a minor or disabled beneficiary. With these factors in mind, some respondents had taken the view that such trusts present a very low risk of money laundering.
There is also no carve out for trusts (bare and non-bare) holding a non-income producing investment bond. Perhaps that’s just common sense? Although a trustee held bond doesn’t give rise to an immediate registration requirement under 4MLD, that just delays matters if the trustees later become liable to pay tax. Remember that the TRS provides the online route for trusts (and complex estates) to comply with their registration obligations and to obtain their Self-Assessment reference necessary to submit the Self-Assessment Tax Return.
The exemption for “Existing trusts holding assets valued at less than £100 unless or until further assets are added” is welcome. That reflects the views of those responding who proposed that pilot trusts should be excluded. These are often settled with a nominal sum such as £10 and are not intended to receive more substantive funds until after the settlor’s death (e.g. a bypass trust for pension death benefits).
Do the proposed definitions and descriptions give enough clarity on those trusts not required to register? What additional areas would you expect to see covered in guidance?
The Government have acknowledged that trustees, professionals and other stakeholders will need clarity on the registration requirements of the trusts they are responsible for. This will be available via legislation and guidance.
What happens next?
There is legislation to be passed.
Proposed legislation has been laid for consideration, and in the meantime, guidance will be developed.
Regarding deadlines for trustees, the position is as follows.
- Trusts in existence at 10 March 2020 must register by 10 March 2022.
- Trusts that are set up after 10 March 2020 must register within 30 days or by 10 March 2022, whichever is the later.
- Trusts that are set up on or after 10 March 2022 will have 30 days to register.
- Once registered on the updated system, trustees will have 30 days from when they are aware of any changes to update the details.
For those concerned about privacy, a 'legitimate interest' criterion for public access to the register is being adopted. Each request will be reviewed on its own merits and access given only where there is evidence of counter money laundering or terrorist financing activity.
Finally, it’s important to be aware that the Government have agreed that it would not be appropriate to require will trusts to be registered within 30 days of the date of death, and it has therefore been decided that these trusts will not be required to register on the TRS provided they only receive assets from the deceased’s estate and are wound up within two years of death.
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