In 2017 the UK Trust Registration Service (TRS) came into effect as part of the UK implementing the Fourth Money Laundering Directive, the main aim of which being to improve transparency around the beneficial ownership of assets held in trusts with UK tax liabilities. The Fifth Money Laundering Directive regulations, which came into effect in October 2020, significantly extended the scope of the TRS, with limited exclusions, to cover all UK express trusts and certain non-UK trusts (whether taxable or not). Trusts brought within the new regime were originally required to register by 10 March 2022, however following a delay in the roll-out of HMRC’s upgraded TRS register, it was announced that this deadline would be extended. Details of the new time limits, as well as confirmation of further exclusions for certain low-risk trusts, were included in the Money Laundering and Terrorist Financing (Amendment) Regulations 2022 (the Regulations) which come into force on 9 March 2022.
This briefing note is a summary of the new deadline dates and categories of excluded trusts to assist trustees as they review their TRS obligations under the expanded regime.
What are the new registration deadlines?
The Regulations set out that the registration deadline for non-taxable trusts which fall within the expanded TRS regime before 4 June 2022 is now extended to 1 September 2022.
In a further welcome adjustment, where such trusts only become registrable on / after 4 June 2022, the trustees will have to register within 90 days of the trust becoming registrable (previously the window was a very short 30-day period).
HMRC has confirmed that non-taxable trusts set up on / after 6 October 2020 but wound-up before 1 September 2021 will still need to register on the TRS (and then close the trust record) however it will take a proportionate approach in relation to any such trusts which do not meet the registration deadline.
Taxable trusts set up prior to 6 April 2021:
- Trusts liable for income tax / capital gains tax (CGT) for the first time – must be registered by 5 October after the tax year in which the trustees first become liable for income tax / CGT.
- Other trusts liable for UK taxes – must be registered by 31 January after the tax year in which the trustees have such tax liability
Taxable trusts set up on / after 6 April 2021:
- These must be registered by 1 September 2022 where the trustees become liable to pay UK tax before 4 June 2022, and in all other cases within 90 days of the trustees becoming liable to pay UK tax.
Updating the register where there are changes to the information held
- The Regulations have also extended the period trustees have to update the register in relation to any changes in trust information. Trustees must now update the register within 90 (rather than 30) days of becoming aware of any changes to the information held on the TRS. Such changes may be the retirement or appointment of new trustees and a change to the class of beneficiaries. As part of the filing of the annual UK Tax Return, trustees need to declare that the trust’s information is up to date on the TRS.
How have the categories of excluded trusts changed?
A trust that qualifies as an excluded trust will fall outside the TRS regime (although there is an exception for trusts that are liable to pay UK tax which will still need to register). Most of the categories of excluded trusts remain the same as before the Regulations were made. Examples of these are:
- Trusts imposed by statute such as on intestacy or bankruptcy.
- Co-ownership trusts where the legal and beneficial owners are the same persons commonly found where a couple jointly own their home or have a joint bank account.
- Trusts set up before 6 October 2020 holding assets valued at less than £100.
- Will trusts which are wound up within two years of death.
- Trusts of life policies paying out on death, terminal illness or disability.
- UK charitable trusts.
- Maintenance Fund Trusts (trusts approved by HMRC for the maintenance of specific historic buildings or land).
However, in a welcome move, the Regulations have added a few low-risk categories of trusts to the list of excluded trusts. These include trusts created to set up a bank account for children or vulnerable persons, trusts holding insurance policies covering temporary disablement cover and trusts holding healthcare policies.
Earlier commentators hoped that bare trusts might fall out of the scope of the TRS regime. This was based on the rationale that the relevant UK tax liability that triggers registration falls on the beneficiary of a bare trust not the trustee. However bare trusts have not been designated as excluded trusts and therefore will be required to register (bar very limited exceptions, for example, for some commercial arrangements).
What should trustees do now?
Trustees have a legal duty to comply with HMRC reporting requirements. Trustees therefore need to understand their obligations under the TRS and register any trust which falls within the reporting criteria. Usually, it is clear if a trust should be registered, but this is not always the case. Trustees should take specific legal advice based on their trust’s circumstances to establish their obligations in a timely manner given the approaching deadlines for registration.
If required to register, the gathering of information from beneficiaries can take time and it is important that trustees give themselves sufficient time to obtain such information in order that they can meet their registration obligations. A failure to register a trust or a failure to notify any change of information by the due date can result in penalties being chargeable on the trust.
If you require further information about anything covered in this briefing, please contact Carole Howe, Amy Greenberg, or your usual contact at the firm on +44 (0)20 3375 7000.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, March 2022