In simple terms, a Trustee is someone holding assets in their own name on behalf of someone else (the beneficiary). This arrangement is called a trust.
Trustees have numerous legal obligations, one of which is considering whether the trust must be registered on the HMRC Trust Registration Service (TRS). The criteria for registration have recently evolved and it is important to understand what has changed.
In 2017, HMRC launched the TRS to enable the government to meet their obligations under the 4th Money Laundering Directive (4MLD). It also provided a platform for Trustees to comply with the requirements for provision of information.
The only trusts required to register under 4MLD were ‘taxable trusts’; that is to say, those with one or more of the following tax liabilities arising after 6 April 2016:
- income tax
- capital gains tax
- inheritance tax
- stamp duty land tax
Since the TRS was launched, registration is the only way to obtain a Unique Taxpayer Reference, which is required to submit a self-assessment tax return. If a trust would have a tax liability but for the availability of reliefs, the trust must be registered and relief claimed through self-assessment.
In the main, Trustees of taxable trusts are aware of the existence of the trust and it is likely they will have engaged a tax adviser to assist them with their obligations.
However, the 5th Money Laundering Directive (5MLD) issued in early 2020 extended the scope of registration significantly to encompass all ‘express trusts’ in existence on 6 October 2020, although HMRC have confirmed that there will be various exemptions.
An express trust is any arrangement created intentionally by the settlor under which legal and beneficial ownership are different.
As a result of the 5MLD changes, individuals must now:
- identify all arrangements of which they are Trustees
- identify if the trust is a taxable trust or a non-taxable trust
- consider if any non-taxable trust is subject to an exemption
- register all taxable and non-exempt, non-taxable trusts
The legislation detailing the exemptions is currently in draft form and should come into force on 9 March 2022. Subject to any final amendment, the types of non-taxable trusts that need to be registered will include, but is not limited to, the following:
- trusts set up by deed in the settlor’s lifetime to protect property from care home fees
- trusts created under the will of the first spouse allowing the survivor to occupy the family home during their lifetime
- trusts set up either by deed during the settlor’s lifetime and, under certain circumstances, in their will
- life interest trusts where all income is paid directly to the life tenant
- investments held on behalf of others (although HMRC have indicated that this will not apply to bank or building society accounts held for minors or adults lacking mental capacity)
- non-taxable, non-exempt trusts in existence on 6 October 2020 but which have subsequently been closed
As HMRC did not update the TRS for 5MLD until 1st September this year, they have confirmed that the deadline for registration of trusts falling within the extended scope is 1 September 2022. This means that there is plenty of time for Trustees to ensure that they have fulfilled all TRS obligations.
Once the legislation is formally enacted, we will provide you with further information including confirmation of the exemptions and instructions on what action must be taken.
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