Historically, you only needed to register a trust if it became liable to UK tax, for example, if the trust had made a gain or received income. This regime had been in place for many years, however, this changed in October 2020.
Now, most existing and newly established trusts must register on HM Revenue & Custom’s online Trust Registration Service, whether there is a tax liability or not.
The deadline for registering a trust is 1 September 2022, which means these changes could catch out a significant number of trustees, particularly where such arrangements were created many years ago and then left to run without frequent maintenance or oversight.
The new rules are designed to tackle money laundering internationally and, consequently, many trusts that have not previously had to register or report annually will need to do so.
What might surprise some is the depth of information required under the new rules.
What will change?
From this September, almost all trusts (including bare trusts) will need to be registered, unless they fall into a small category of trusts that are specifically considered exempt. There will also be an annual requirement to update the register and notify HMRC of any changes to registered information.
What do trustees need to do?
The priority will be to appoint a lead trustee for each trust, so if there are multiple trustees, one must take responsibility for registering and updating the register in future. That person will then become the primary contact for HMRC.
You can register and manage your trust’s details here
What if trustees do not register?
Penalties (ranging from £100-300 depending on the period of delay) may apply to trustees who fail to register a trust.
Whilst HMRC has indicated that they are unlikely to send out fines after the deadline, they will start to look very dimly on trustees who they consider may be “asleep at the wheel”. This in turn could lead to investigations by HMRC into both the trustees, settlors and beneficiaries of unregistered trusts.
The immediate effect of not registering will be that if trustees wish to obtain advice from a solicitor, accountant, tax adviser or wealth manager, they can only do so if the trust in question is registered. Proof of registration will be required in order to receive professional advice from 1 September 2022.
Which trusts are exempt?
There are a number of types of trusts that will be exempt from the requirement to register, and these include:
- UK pension funds
- trusts used to hold life or retirement policies that only pay out on death, terminal/critical illness or permanent disablement, or meet the healthcare costs of the person assured
- trusts holding insurance policy benefits received after the death of the person assured — if the benefits are paid out from the trust within two years of the death
- will trusts created by a person’s will and come into effect on their death providing they only hold the estate assets for up to two years after the person’s death
Exempt trusts, however, will need to be registered if the trust has UK tax liabilities.
Final points
Bare trusts now need to be registered.
Whilst trusts holding only unit-linked life assurance policies will be excluded from the need to register, this does not extend to unit-linked life policies held for investment purposes. So, there is no exemption for investment bonds.
If you are unsure whether your trust needs to be registered, you should seek legal advice or speak to a tax professional.
If you would like to discuss the information covered in this Wealth Insight, our Wealth Planning team are here to help.
Please contact us at [email protected] or email your investment manager to learn more.