There is much confusion about who the new requirements to register trusts apply to. Much has been written about the fact that lay trustees such as parents and grandparents are at risk of missing or falling foul of the new requirements.
Whilst HMRC are saying that penalties won’t apply for those who fail to register in time, it has said that they will penalise deliberate or subsequent failures. The number of trusts registered to date is considerably lower than the anticipated total number implying that many lay trustees are unaware or have yet to register. Given many of these trusts have been set up by grandparents with a view to paying for school fees, or as part of estate planning it is not unreasonable for them to believe that they need have no more involvement in the administration of the trust.
Trust Registration Service: What has changed?
Under the Fifth Money Laundering Directive (5MLD), the requirement for trusts to be registered under the Trust Registration Service (TRS) has been expanded and this came into force on 6 October 2020. Previously, the position was that only trusts which had a tax liability were required to register under the TRS. The scope for this has now been extended to include all UK trusts – even those without UK tax liability as well some non-UK trusts. This is because the reforms are aimed at tackling money laundering.
Which trusts are required to register?
- Registerable express trusts
- All UK express trust (for example trusts that have been intentionally created, usually in the form of written document such as a will or trust deed).
- Non-UK express trusts
- If the trust acquires UK land.
- If you have at least one UK resident trustee and they enter into a business relationship with a UK relevant person after 6 October 2020.
What is a business relationship with a relevant person?
A business/professional/commercial relationship with a UK relevant person which has an element of duration, i.e., an on-going relationship that is expected to last for more than 12 months and not a one-off transaction.
UK relevant person includes but is not limited to financial advisor/solicitor/accountant/estate agent.
- Registerable taxable trusts
- If the trust has a UK tax liability in relation to UK assets or UK source income. This applies to UK express trusts and non-UK express trusts (unless excluded from registration).
- Income tax
- Capital gains tax
- Inheritance tax
- Stamp duty land tax
- Land and buildings transaction tax (Scotland)
- Land transaction tax (Wales)
- Stamp duty reserve tax
Are any trusts excluded from registration?
Certain trusts are specifically excluded from registering the trust under the TRS as they are considered to be lower risk for money laundering or terrorist financing due to other registration and regulatory requirements. A full list of exclusions is outlined in HMRC’s TRS manual TRSM23000.
It is important to note that an express trust could be excluded from registration but may be registerable as a taxable trust if it has a UK tax liability.
Do bare trusts need to register?
This seems to be an area of confusion as children’s bank accounts held under a bare trust arrangement are excluded. However, any bare trusts that hold stocks and shares are now required to be registered.
What are key deadline dates?
Registerable express trusts
Express trusts which came into existence before 3 June 2022 will need to register by 1 September 2022.
Express trusts created on or after 3 June 2022 will need to register within 90 days of their creation.
Any express trust which existed as of 6 October 2020 but has or will cease before 1 September 2022 will also need to be registered and then closed on the TRS.
Registerable taxable trusts
For taxable trusts, the deadline dates are as follows:
5 October following the end of the tax year in which the trust incurs an income tax or capital gains tax liability.
31 January following the end of the tax year in which the trust had a liability to UK taxation not mentioned above.
Any taxable trusts which ceased before 28 August 2020 are not required to register under the TRS, the trustees can advise HMRC by letter or via the self-assessment return.
Any changes or updates required to an existing registered trust (taxable or express) must be undertaken within 90 days from the date the trustees became aware of the change.
What are the penalties for not registering trusts?
HMRC has confirmed that penalties may become payable for failing to register as per the deadline dates outlined above as follows:
|Failure to register||Penalty amount|
|Within three months after the deadline date||£100|
|Within six months after the deadline date||£200|
|More than six months late after the deadline date||£300/5% of the tax liability (whichever is greater)|
HMRC press office confirmed in April 2022 that penalties would only be charged if the failure to register was deliberate. If anyone receives a penalty notice due to lack of awareness, they should consider appealing the penalty on this basis.
Who is at risk of getting penalised by the changes to the TRS requirements?
- Lay trustees responsible for bare trusts which were previously not registerable under the Fourth Money Laundering Directive may now require registration under 5MLD.
- Taxable trusts which have closed since 6 October 2020 are tasked with the administrative burden of having to register and close the trust. Those which do not have professional advisers may not know about this and could end up with a penalty.
- Some third parties or relevant persons may request proof of registration as part of their anti-money laundering requirements before taking them on as clients.
Trustees should be aware that some express trusts could be listed as excluded from registration but could be registerable as a taxable trust (i.e., if there is a UK tax liability).
The information in this article was correct at the date it was first published.
However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.
If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.