What is the UK Trust Registration Service (TRS)?
The UK Trust Registration Service (TRS) was introduced in 2017 under the Fourth Money Laundering Directive with the aim of improving transparency surrounding the beneficial ownership of assets held in trusts with UK tax liabilities.
The Fifth Money Laundering Directive (5MLD) regulations, which came into effect in October 2020, significantly extended the scope of the TRS and since 1 September 2022 most UK trusts have been required to register. Whilst there are exemptions available for certain trusts, it is worth noting that all trustees are under an obligation to maintain accurate and up-to-date records.
In this briefing our team outline the most notable updates to the TRS regime since 1 September 2022 which practitioners need to be aware of.
Registering the trust and updating the TRS
By way of reminder, non-taxable registrable trusts created after 1 September 2022 must register within 90 days of creation, whilst taxable registrable trusts created on or after 6 April 2021 must register within 90 days of the trustees becoming liable to pay tax.
Trustees of taxable and non-taxable registrable trusts are also obliged to update the register to reflect any changes to the circumstances or details of the trust within 90 days of the change. This could occur, for example, where a new trustee or protector is appointed or where a life tenant dies resulting in a change to beneficial ownership.
It has been clarified that trusts that were in existence on 6 October 2020 but have since closed, are also obliged to register with the TRS before deregistering.
Following 5MLD, trustees are now required to provide additional information about each individual associated with the trust such as the settlor, trustees and beneficiaries. HMRC have recently clarified that this list includes potential beneficiaries who may be referred to in trust documents or letters of wishes.
The additional information which must be disclosed covers details such as the country of residence, nationality, and the mental capacity at the time of registration of each person. Helpfully, the TRS form allows trustees to submit that they do not know whether the individual in question has mental capacity. Whilst this means that trustees are not required to undertake a formal assessment (unless they are on notice that the individual lacks capacity) it is best practice to keep the mental capacity of the other trustees, beneficiaries in receipt of regular distributions and those who hold any trust powers under regular review.
Practical considerations: choosing a Lead Trustee
As part of the registration of the trust on the TRS, the trustees must identify a “Lead Trustee”. They will be the main point of contact with HMRC unless the trustees appoint professional advisers as their “agent” to manage the TRS.
An important point to consider is that the Lead Trustee will need to navigate the HMRC Government Gateway portal, initially, to “claim the trust” and, if they wish, to appoint an “agent” to manage the TRS on their behalf. This online process is known as the “digital handshake”. The mechanics of the HMRC “digital handshake” are not always user-friendly and do require a degree of digital literacy. This should be taken into account when nominating the Lead Trustee as it is important that they are able to navigate the portal effectively. If a professional adviser has been appointed as a Lead Trustee, they will occasionally be required to “talk through” the process of the digital handshake with the trustees. Please note that, where the Lead Trustee is resident overseas, there may be delays in HMRC sending the “code” to log in to start the “claiming the trust” process.
Practical considerations: Will trusts
A trust arising under a Will (Will trust) does not need to be registered for a period of two years from the death of the testator. If the Will trust continues beyond the two-year period, it will be required to register. This occurs frequently where the administration of the estate takes longer. For example, due to its complexity or the current delays in obtaining a grant of probate from the Probate Registry.
It is worth noting that the requirement to register a Will trust can often be triggered before the two-year period where:
- assets are appropriated to the Will Trust from the Estate; and / or
- it accepts an addition of property from outside the estate. Such circumstances automatically trigger the 90-day registration requirement.
HMRC’s manual TRSM23020 is a helpful reminder of the registration details for estate and trusts created on death.
Additional reporting requirements
Professional firms that work with registrable trusts are now obliged to check continually for discrepancies between the TRS record of the trust and its actual business activities or persons. These firms must report any “material discrepancies” to HMRC.
Trusts that are now registrable will be subject to expanded customer due-diligence checks at the point of engagement. Professional firms entering a new business relationship with a trust will need to check that the TRS is up to date. This can be done by requesting proof of registration (see TRSM70040).
It is also important to recognise that discrepancy reporting is an ongoing obligation that applies for the duration of the business relationship.
Extension of rules to include unauthorised unit trusts
HMRC updated its guidance on 31 January 2023 to clarify that unauthorised unit trusts (UUTs) are required to register with the TRS. A UUT is any unit trust which has not been authorised under s.243 of the Financial Services and Markets Act 2000 which means that its fund managers are generally not subject to limitations on their investment powers.
UK UUTs are now required to register by default whilst the registration of overseas UUTs will only be required where an interest in UK land is acquired after 6 October 2020 or a UK tax liability is incurred (such as SDLT). This change may pose a particular concern for Jersey and Guernsey property unit trusts. If these trusts are not yet registered but have acquired UK property after 6 October 2020, it is advisable for the trustees to carry out registration without delay.
In contrast to UUTs, authorised unit trusts (AUTs) have an authorised fund manager who is responsible for managing the invested funds. AUTs therefore are not currently required to register with the TRS because an exemption applies to trusts created for professional services.
Under the new HMRC guidance, trustees who fail to comply with their TRS obligations may face a fixed penalty of £5,000 where failure is due to deliberate behaviour on the part of the trustees.
For a first offence, HMRC will usually send a warning letter which allows trustees 30 days to provide the relevant information. If the trustees meet this deadline, the penalty is waived.
The guidance also sets out routes for challenging HMRC’s decision to impose a penalty. Trustees can request that HMRC review the decision by sending a letter within 30 days of receiving the penalty notice setting out why the decision is disputed. Where trustees do not agree with the outcome of a review, they can appeal to the independent tax tribunal by online form.
TRS obligations are now an onerous and costly part of trust administration. Trustees should therefore familiarise themselves with the updated HMRC guidance and legislation and consider their compliance obligations carefully.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, January 2024