Countdown to Trust Registration deadline
With the introduction of the Fifth Money Laundering Directive (5MLD), the scope of HMRC’s Trust Registration Service (TRS) was broadened to include all express trusts (subject to some exceptions) and all express trusts must be registered with HMRC on the TRS by 1 September 2022. Since 2017 it has been possible to register trusts on the TRS, but until recently only trusts with some kind of tax liability (income tax, capital gains tax, stamp duty land tax, inheritance tax) needed to be registered.
For existing trusts now falling within the scope of registration on the TRS, the trustees will have until 1 September 2022 to register their trust, so time is now running short for trustees. They will need to have full information regarding the trust, the settlor(s), the trustees and the beneficiaries of the trust. The obligation is on the trustees’ to gather the information and register their trusts. The process of registration is fairly complex and requires a detailed understanding of the type of trust and how it operates. Once registered, the trustees must also update the TRS as and when changes to the trust take place, such as the appointment of new trustees.
Trusts within the scope of the TRS
All types of trusts are caught within the scope of registration including bare trusts, interests in possession and discretionary trusts whether they were created by will or during lifetime. All trusts in existence at 6 October 2020 (even if they have been closed subsequent to that date and before the requirement to register started on 1 September 2021 and before the deadline for registration on 1 September 2022 will need to be registered on the TRS. This also includes estates where more than two years has elapsed since date of death and the administration is continuing.
New trusts will need to be registered within 90 days of creation, including pilot trusts sets up after 6 October 2020 even if they hold less than £100. It was acknowledged by the government during the consultation period that it was impractical for trustees to be required to register a Will Trust within 90 days of death, while the estate is likely to still be within the course of administration, but there are some traps to be aware of and trustees should take care. Will Trusts will need registering provided they remain after two years of the date of death of the testator and care should be taken in relation to complex estates where administration lasts for more than two years, as the assets of the estate will be held in bare trust for the beneficiaries and will need registering on the TRS.
Bare trusts are a new addition to the TRS. For tax purposes, bare trusts are transparent and taxable in the hands of the beneficiary so they have fallen out of the scope of the TRS under the previous regime. However, as a result of 5MLD, they are now registerable on the TRS. This is likely to impact a number of people, in particular property owners. Some illustrative examples are set out below to help explain the circumstances in which registration is required.
Examples of trusts requiring registration
- 1. Mr A has a number of investment properties. He wants to gift them to his children but they are still minors. He creates a bare trust for each of his children, with himself and his brother as trustees and transfers a property into each trust and the legal title into the names of himself and his brother as trustees. The capital and income of the trust is held for each minor child absolutely. These trusts must be registered on the TRS as the legal title is in the names of the trustees but they are not the beneficial owners of each property, Mr A’s children are.
- 2. Mr S purchased a property ten years ago. He since met and married Mrs S and had two children. Mr and Mrs S decided that Mrs S would not return to work and would stay home to care for their children, but she received a large inheritance from her grandmother and Mr and Mrs S used this to pay off a portion of the outstanding mortgage. Mr and Mrs S wanted to record the contribution from Mrs S, but as Mrs S was not working at the time it was difficult to transfer the property into their joint names due to the mortgage. Instead, they put in place a declaration of trust saying that Mr S, who continued to hold the legal title to the property in his sole name, held the property on trust for Mr and Mrs S and recorded the contributions from both of them. This would now be considered a registerable trust and must be registered by 1 September 2022.
- 3. The estate of the late Mrs G leaves two trusts within her Will. The executors are the trustees of both trusts. One is a nil rate band discretionary trust and the class of beneficiaries includes the spouse and children of the deceased. The other is a life interest trust for the spouse over the residue of the estate, with the remainder passing to the children of the deceased. These are two separate trusts, albeit they may have the same trustees and beneficiaries, and both must be registered on the TRS, provided both the trusts continue for more than two years following the death of Mrs G.
- 4. The estate of Mr P left a life interest for his cohabitee in their jointly owned property and the remainder to his son on his death ten years ago. The only asset in the trust is the half share in the property. There is no cash and the co-habitee resides in the property. The property has not been sold and no income or gains are received. This trust must now be registered.
Exceptions
- Charitable trusts
- Pension scheme trusts where regulated by the FCA or Pensions Regulator
- Life policy trusts where the policies pay out on death and/or critical illness and where the policy pays out on death, the proceeds are paid out within two years of death
- Pilot trusts set up before 6 October 2020 owning no more than £100 (but not new pilot trusts)
- Will trusts which are appointed out within two years of death.
- Trusts created by court order, e.g. bankruptcy, personal injury trusts, statutory trusts created as a result of intestacy
- Bereaved minor trusts and 18-25 trusts and disabled persons/vulnerable beneficiary trusts
- Commercial/financial trusts
- Trusts registered in another EU member state
Examples of trusts not requiring registration
- 1. Mr P and Miss L purchased a property in their joint names and have a declaration of trust setting out their unequal contributions. Where the title to the property (or other asset e.g. a bank account) is held by two or more people on trust for themselves as tenants in common, there is no need to register the trust.
- 2. The trustees of Mrs G’s nil rate band trust decide, within two years of her death, to appoint out the whole trust to the surviving spouse, bringing the trust to an end. At the two year mark, the nil rate band trust no longer exists, so does not need to be registered on the TRS. But, as the life interest trust is ongoing this will need to be registered within HMRC by the trustees within 90 days of the end of the two year period following the death of the testator, even if the estate is still in the course of administration and the trust has not yet been constituted with assets.
- 3. Twenty years ago Mr F set up a pilot trust. The only asset is £10. His will previously directed a portion of his estate into the trust, he has since changed his will but has retained the trust in case it comes in useful in the future. As the pilot trust was set up before 6 October 2020 and only contains £10 this does not need registering until further assets are added. NB. If he had not changed his Will, the moment the trust became entitled to assets from the estate it would have become registerable within 90 days.
If you are a trustee of an express trust, or are unsure and need advice and guidance as to whether or not you need to do anything, Laura Richards is an Associate in our trust team and will be pleased to assist.
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