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What is the Trust Registration Service (TRS)?
The Trusts Registration Service (TRS) is a new online service that provides a single route for trustees and personal representatives of complex estates to comply with their registration obligations of the Fifth Money Laundering Directive (5MLD) which came into force on 6 October 2020.
The TRS replaces the paper 41G (Trust) form and the ad hoc process for trustees to notify HMRC of changes in their circumstances.
Trusts affected by the new requirements must register with TRS by 1 September 2022.
Which trusts need to be registered?
1. All UK ‘express’ trusts are now required to register under TRS unless specifically excluded (see below), irrespective of their tax liabilities. An express trust is a trust that has been deliberately created by the settlor rather than, for example, by statute or court order.
A UK resident trust is a trust:
- where all of the trustees are UK residents; or
- where there is a mix of UK resident and non-resident trustees and the settlor of the trust was either UK resident or domiciled when the trust was created or further funds added, or there is a UK resident corporate trustee.
2. Non-UK express trusts:
- acquire UK land or property on or after 6 October 2020; or
- have at least one UK resident trustee and enter into a business relationship with an ‘obliged entity’. An obliged entity could include a financial institution, an accountant, tax adviser, legal professional or estate agent etc.
- which have a UK tax liability to any other of the following:
i. Income Tax
ii. Capital Gains Tax
iii. Inheritance Tax
iv. Stamp Duty Land Tax
v. Stamp Duty Reserve Tax (England)/Land and Buildings Transaction Tax (Scotland)/ Land Transaction Tax (Wales)
As the 41G form did not collect sufficient information to meet the requirements of the new legislation, those trusts which registered with HMRC before the launch of the TRS will also need to use the service to provide all the information that is now required.
If the trust has been registered under 5MLD in an EU Member State already, it is generally not required to register again under the TRS. However, trustees should note that if the trust is a taxable relevant trust it will still need to register on the TRS.
Which trusts are excluded?
Certain trusts are excluded and are not required to register unless they are liable to pay UK tax. These include but are not limited to:
- Trusts imposed by statute, such as intestacy trusts;
- Trusts created by a court or tribunal order;
- UK Registered Pension Trusts;
- Pure protection life insurance policies and those paying out on critical illness or disablement;
- Charitable trusts regulated in the UK;
- Trusts for vulnerable beneficiaries or bereaved minors;
- 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 two years of death;
- Co-ownership trusts where the trustees and beneficiaries are the same persons (for example, the joint ownership of a bank account);
- Existing trusts holding assets valued at less than £100 unless or until further assets are added;
- Personal injury trusts.
- Cash balances on accounts held in trust for minor children.
What is a bare trust?
Also known as simple trusts or naked trusts, bare trusts are widely used by parents and grandparents to transfer assets to their children or grandchildren.
A bare trust is established using a deed of settlement or a declaration of trust. In the simplest form of a bare trust, the assets bequeathed by the individual who set up the bare trust are owned by the trustee and beneficiary. But the trustee, in a bare trust, has no responsibilities or powers. They act per the beneficiary's instructions.
Bare trusts are commonly used either for anonymity purposes or to pass assets to a minor for which trustees look after them until the beneficiary is old enough.
Do bare trusts need to be registered?
The list of exemptions does not however include bare trusts and so, they are required to be registered under TRS.
There is an exception. Where individuals (often parents or guardians) open bank or building society accounts for the benefit of a child under the age of 16, this typically creates a bare trust with the individual holding the bank account on trust for the benefit of the minor child. This does not have to be registered under TRS.
What are the deadlines for registration?
|Trusts in existence on or after 6 October 2020 (non-taxable trust and post 5 April 2021 taxable trusts)||1 September 2022 or 90 days from the date the requirement to register is triggered, whichever is later|
|Changes to the information held on the register||Must be notified within 90 days of the change|
What are the penalties for failing to comply with TRS registration?
On 5 March 2018, HMRC informed the various professional bodies of the details of the penalty regime for late registration with the TRS. The fixed penalties for an administrative offense are:
- Registration made up to three months after the due date: £100 penalty
- Registration made three to six months after the due date: £200 penalty
- Registration is more than six months late: either 5% of the total tax liability or a £300 penalty, whichever is the greater sum.
HMRC have said that they will not be issuing penalties automatically for late TRS returns in this first year but ‘will take a pragmatic and risk based approach to charge penalties’ and that ‘a penalty will not be payable if we are satisfied you took reasonable steps to comply with the regulations’. However, we would expect this approach to harden, and so, trustees should ensure that steps are taken to meet the deadlines.
Top five reasons to register under TRS
- You hold the legal title of the shares/property or land in trust for your minor children
- Shares or property held by a spouse under a declaration of trust where the trustees and the beneficiaries are not the same person
- A Nominee arrangement whereby a declaration in trust is in place protecting a third party’s interest in property or land where the trustees and the beneficiaries are not the same person
- An overseas trust holding UK land or property
- Financial products held in a Trust (discounted gift trust)
What should you do?
Given the significant changes and recent extension to the scope of the TRS, it is imperative that trustees review their position to assess their registration obligations in relation to both registering and updating the Trust Register, to avoid penalties.
How can we help?
The Gerald Edelman team has experience in assisting Trustees with reviewing their reporting obligations and can help to navigate the registration process taking the stress away. Please contact our team today for advice.