HMRC first introduced the TRS in 2017 when it was necessary for Trusts with a tax liability to be registered. However, in accordance with the Fifth Money Laundering Directive (MLD5) regulations which were brought into force in October 2020, it is now necessary for all express Trusts to be registered, unless they are excluded. Although HMRC have now updated the TRS to enable us to do this, further changes to the TRS regulations are due to come into effect on 9 March 2022. Below is a summary of what we know so far:-
What is the TRS?
The TRS is an online portal which allows Trustees or their Agent to register Trusts (and complex estates). Once registered, updates to any of the Trust’s details can then be made.
It was designed by HMRC to form a database of all UK operating Trusts in an attempt to prevent money laundering and terrorist financing. It is also the method for obtaining a Unique Tax Reference (UTR) number, which any Trust will need when it is required to submit an annual Self-Assessment tax return for the first time.
What Trusts need to be registered?
In broad terms, any UK ‘Express Trust’ is required to register with the TRS (unless excluded). An ‘Express Trust’ is any Trust that is deliberately and knowingly created by the settlor, usually in the form of a document like a written Deed, Declaration of Trust or a Will. Most Trusts are ‘Express Trusts’.
This includes Bare Trusts, which also must now be registered. For example, if you are a parent holding a property on Trust for the benefit of your child, then unfortunately, this is a registerable ’Trust’ (unless excluded). Despite the fact that a beneficiary will have absolute entitlement to the assets, because a Bare Trust arrangement continues to see the legal owners differing from the beneficial owners, it is caught under these rules.
Below is a brief, and by no means exhaustive, list of other types of Trusts that need to be registered:
- Discretionary Trusts
- Interest in Possession Trusts
- Will Trusts (two years after date of death)
- Employee Benefit Trusts
What types of Trust are excluded?
There are certain Trusts that are not required to register with the TRS, which include:
- Charitable Trusts that are registered in the UK
- Statutory Trusts i.e., Trusts set up under a court order
- Child Trust Funds
- Disabled Person(s) Trusts
- Bereaved Minor or 18-to-25 Trusts (these are certain trusts created on the death of a parent)
- Pilot Trusts – set up before 6 October 2020 and hold no more than £100. Pilot Trusts set up after 6 October 2020 need to be registered.
- Non-UK resident Trusts – except those which acquire UK land, or have a UK tax reporting requirement, or who have a UK trustee and enter into a UK business relationship (in which case then they must be registered).
If the Trust was in existence on 6th October 2020: Must be registered by 1st September 2022, even if the Trust has ended since 6thOctober 2020.
Any Trusts created after 6th October 2020: Must be registered within 90 of being created or by 1st September 2022 (whichever is later).
If the Trust is registered for Self-Assessment and incurs an income tax or capital gains tax liability in a given year: Must be registered by 31st January after the end of that tax year.
If the Trust is not registered for Self-Assessment and incurs an income tax or capital gains tax liability for the first time: Must be registered by 5th October after the end of the tax year in which the tax liability occurred.
If the Trust incurs any other form of tax liability (e.g. inheritance tax): Must be registered by 31st January after the end of the tax year in which the tax liability occurred.
Consequently, 1st September 2022 is a very key date in relation to non-taxable Trusts, but less so in relation to taxable Trusts because most taxable Trusts should already be registered. Where a non-taxable Trust incurs a tax liability (and hence becomes a taxable Trust) prior to 1st September 2022, it will still need to be registered by 1st September 2022.
HMRC have confirmed that they will be issuing penalties for failure to register Trusts within the deadlines given, and although the value of these penalties are yet to be published, we know they are likely to be as follows:
- 1-3 months late – £100 penalty
- 3-6 months late – £200 penalty
- 6+ months late – 5% of the tax liability OR £300, whichever is greater.
- Penalties for Non-taxable Trusts are to be confirmed.
How do you register with the TRS?
Trustees are responsible for the registration process or they can appoint an agent to deal with this on their behalf. Very simply put, the process involves:
- Creating an Organisation Government Gateway user ID for the Trust. If you do not already have one, you can create one (any trustee can create one – and it will essentially belong to all trustees of that Trust).
- Providing substantial information about the Trust, its settlor(s), trustees, beneficiaries and Trust assets.
- Updating the TRS regarding any changes to the information recorded about the Trust within 90 days of the change.
- For taxable Trusts only: Confirming on an annual basis that there have been no changes in the past 12 months (or that, if there have been changes, that those changes have been updated for accordingly).
Trustees may wish to take specific advice relating to the circumstances of their Trust and refer to the TRS manual published by HMRC. It is worth mentioning that the TRS regulations have changed again in January and an updated TRS manual is expected in early 2022.
How Moore Barlow can help
Do you think you may have a Trust that needs registering with the TRS? Do you have any queries regarding these changes in the law?
If you would like further advice or assistance relating to the TRS, please contact us and we will be happy to help. Please contact our experienced wills, trusts and estates team at Moore Barlow.
*the details of this article were correct at the time it was published but may be subject to change