UK: Comprehensive guidance for new online register of express trusts
The legal requirement for a trust registration service originated in the EU Fourth Anti-Money Laundering Directive, which came into effect in June 2017 in the form of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI No.2017/692). From that date, trustees of an express trust that incurs 'relevant' tax liabilities must register their trust, or update existing trust data on the Trust Register Service (TRS). These relevant taxes are income tax, capital gains tax, inheritance tax, stamp duty land tax, stamp duty reserve tax, and (in Scotland) land and buildings transaction tax.
The service began operating on 13 July, albeit with limited functionality – for example, it has not so far been available to the trustee's tax agents, although HMRC says this is about to change.
Originally the first reporting deadline was set at 5 October 2017, but this has since been postponed to 5 December, presumably because of the volume of data that will have to be submitted. The postponement applies only to this year: the 5 October deadline will apply for all future years, for trusts that have not previously been registered with the TRS. The deadline for updating information on trusts that have previously been registered is 31 January of the following year – the same as for self-assessment income tax returns.
In practice, HMRC expects trustees to ensure that details of their trust are accurate and up to date at any point in time that they make changes on the TRS. Where no relevant changes have taken place since the end of the previous tax year, the update can be limited to confirmation that no such changes have occurred. If the trustees are not liable to pay any of the relevant UK taxes in respect of the tax year, they are not required to update the register.
A trust is also exempt from registration if it is deemed to be a non-UK express trust and has no UK-source income or UK-based assets, but for some other reason the trustees have incurred a liability to pay any of the relevant UK taxes. Other exemptions occur when the settlor, or a beneficiary, of the trust has incurred a liability to pay any of the relevant UK taxes in a tax year, but the trustees are not liable to pay any of the relevant UK taxes; or where the trust is a bare trust, as no liability arises at trust level, since any tax liability is being incurred by the beneficiary.
Penalties for late or non-registration have not yet been set. 'We will set out our penalty framework in the near future, but the legislation requires that any civil penalty imposed must be proportionate to the offence committed', says HMRC.
Important points in the new guidance include the following:
- Trustees who have already reported their trust on the now-discontinued paper form 41G must still register online. Apparently, form 41G did not collect sufficient information to meet the requirements of the new legislation.
- The TRS asks for details of the trust assets, including addresses of UK properties, and a market valuation of assets held at the date that the assets were settled; and the identity of the settlor, trustees, any person exercising effective control over the trust and the beneficiaries or class of beneficiaries. 'Identity' means name, date of birth, and National Insurance number (where applicable); or, otherwise, a unique tax reference number or address, and passport or ID number for non-UK residents.
- Estates do not, in general, need to register on the TRS. However, 'complex' estates do, i.e. estates that do not meet the conditions for using the informal payment procedures in the Trust and Estate Settlement Manual (TSEM7410). In estates where there are underlying trusts, which receive the residue of the estate, the trustees will be required to register only at the end of the period of administration.
- Registration is limited to deliberately created express trusts, as opposed to statutory, resulting or constructive trusts.
- Declarations of trust over land are considered to be express trust, although in most circumstances this will be a bare trust and thus exempt, because no tax consequences are created. Trusts involving co-owners of land who own the land legally and beneficially for themselves do not need to register if the UK tax incurred is in fact a liability of the beneficiary.
- Employee Ownership Trusts are deemed to be relevant trusts as defined by the legislation, and need to be reported, but the trustees would be required to register only if they incur UK tax liability in the relevant year.
- Unit trusts do not need to register.
- A maximum of five trustees can be registered on the TRS.
- The reported trust data will not become public, and can be shared by HMRC only with law enforcement authorities in the UK or in another EEA member state, if requested.
The guidance also covers many more complex situations. It is available via STEP's website (see first link below).
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