Following the introduction of the EU's Fifth Anti-Money Laundering Directive, the UK government is committed to compiling a complete list of express trusts in the country.
Wills & Tax Partner Lee Young provides everything you need to know about HMRC's Trust Registration System in this article guide.
What is the Trust Registration Service?
Inevitably, as with any online system, there have been teething issues, but the system has now largely calmed down and works reasonably well.
The TRS, has been with us now for a number of years, but up to September 2021 only trusts with a tax liability had been required to be registered.
Since September 2021, with the extension of the system functionality completed, virtually all trusts, and not just those with a tax liability, are now required to be registered.
Registration must be done by 1 September 2022: if that deadline is not met the penalties referred to below will apply.
What is the time limit for registering a trust with HMRC?
If a trust is created (by will or during someone’s lifetime) then under the current rules the trust (if taxable) must be registered on the TRS within 90 days.
This will prompt, in most cases, the creation of a self-assessment record for the trustees, who will then be required to complete annual self-assessment returns on behalf of the trust.
Which trusts need to be registered with HMRC?
The scope of the rules has now been broadened out so that all UK express trusts, with or without any tax liabilities, will need to be registered, as will various non-UK trusts (beyond the scope of this article).
Exclusions do apply, but they are limited. The most relevant of those exclusions, for trusts with no current tax liability, for our clients are:
- A trust created by the intestacy rules.
- A trust created by a court or tribunal order.
- A trust of a life policy or pension policy that pays out on death, terminal or critical illness or to meet healthcare costs.
- Pilot trusts created before 6 October 2020 with less than £100 held in them.
- A will trust within its first two years.
- A trust of jointly held property, but only where the trustees and the beneficiaries are the same people.
- A trust that qualifies as a bereaved minor trust or an Age 18-25 trust.
- Personal injury trusts.
- Cash balances held on trust for minor children.
Do bare trusts need to be registered?
Perhaps the most significant omission from the above list is the humble “bare trust”, a trust where for example A and B as trustees hold assets for C, perhaps done for anonymity purposes or to protect C from himself or others.
What about declarations of trust?
Another problem area will be those arrangements that have been set up where there is a declaration of trust protecting a third party’s interest in property or land. The so-called “bank of mum and dad” arrangements in the past will certainly have included declarations of trust where the trustees and the beneficiaries are not the same people.
Our advice
As solicitors we will have set up a number of bare trusts or property declarations of trust which will soon need to be registered but, like most solicitors, we will not have a separate list of them as we do for our express trusts.
If you are reading this and think you might have such a declaration of trust then our advice is to review it now, in case it will soon have to be registered on the TRS.
What are the penalties for failing to comply with TRS registration?
As ever, failure to comply with the rules will result in penalties being payable by the trustees.
- £100 if registration is late by up to three months;
- £200 if registration is late by between three and six months; and
- £300 (or 5% of the tax liability if higher) if registration is more than six months late.
These penalties are, we would suggest, a personal expense of the trustees, rather than something that could be funded from the trust funds, as it is unlikely to be the fault of the beneficiaries that the trust is not registered on the TRS.
Trustees should therefore not delay in gathering together all the information they will need to be able to complete the registration.
How we can help
Frettens can assist in the completion of a trust’s TRS registration, whether or not we are among the trustees. Our fee for this is £250 plus VAT. We can also advise on all trust administration and tax compliance issues that relate to UK trusts, as well as their creation and termination.
With the increased compliance formalities that apply to trusts, if you are a trustee and you haven’t taken advice in the last few years, then now is the time to do so.
If you have any questions relating to trusts or their taxation, please get in touch below.
Wills & Tax specialist solicitors
At Frettens, we offer a free initial appointment for all new clients. This usually takes place over a coffee with one of our bright lawyers at our modern, conveniently located offices, but can also be over the phone or video call.
If you’d like to speak with one of our bright, friendly team, you can fill in the form on this page or give us a call on 01202 499255.
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