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New year - new Trust Registration Service

View profile for Carolyn Byrne
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Trustees need to be aware of changes to HM Revenue & Customs’ existing Trust Registration Service (TRS) that are due to come into force early next year and which may have a wide-reaching impact upon trust compliance requirements. 

Background

In July 2017, in order to implement the requirements of the EU Fourth Anti-Money Laundering Directive, HM Revenue & Customs (HMRC) introduced their TRS.  This imposed a requirement upon trustees to register with HMRC any express trust that had incurred a “relevant” tax liability.  Trusts that were already registered with HMRC for self-assessment also needed to be reported under the TRS.

The relevant taxes are:

  • Income tax
  • Capital Gains tax
  • Inheritance tax
  • Stamp Duty Land tax
  • Stamp Duty Reserve tax or Stamp Duty
  • Land and Buildings Transaction tax (Scotland)

Pension schemes are not required to be registered under the TRS if they have already been registered online with HMRC under the Manage and Register Pension Schemes or Pension Schemes Online Services.

The deadlines for registration are 5 October following the end of the tax year in which a new income tax or capital gains tax liability arises.  For all other taxes and ongoing liabilities, the registration deadline is 31 January following the end of the tax year.  HMRC will impose penalties for late registrations.  

For any year in which a tax liability arises, the trustees must also update the registration for any relevant details such as changes to trustees or beneficiaries.  If no changes have taken place, it is necessary only to confirm that position to HMRC – this is usually done via the completion of a box on the annual trust tax return.

As part of the TRS registration, the details of the trust assets are disclosed to HMRC, however, there is no requirement for subsequent changes in the assets to be notified.

Changes from January 2020

In June 2018 the Fifth Anti-Money Laundering Directive (5MLD) came into law at EU level and will come into force in the UK effective from 10 January 2020 – this will be implemented regardless of whether Brexit has been finalised. 

The effect of 5MLD will be to extend the TRS to all UK express trusts - not just those with a tax liability – and non-EU trusts that own UK real estate or have a business relationship with an “obliged entity”. 

The category of obliged entities already includes lawyers, accountants, estate agents, banks and other financial institutions but will be expanded to include tax advisors, letting agents and art intermediaries such as auction houses, dealers and galleries.

The new directive will also require HMRC to share the trust data with obliged entities and anyone with a “legitimate interest” – the latter term is not defined in 5MLD will but be fully defined in due course by the Government.  However, it is expected that disclosure of information will be restricted to those with active involvement in anti-money laundering or counter-terrorist financing.

What do trustees need to be aware of?

The outcome of HMRC’s consultation on the implementation of 5MLD has yet to be published.  However, as above, the initial proposals indicate that all express trusts may be required to be registered with the TRS.  This will include trusts that receive no income, such as pilot trusts, or trusts holding residential property occupied rent-free by a beneficiary.  Therefore, trustees who previously have had no compliance obligations with HMRC will need to undertake new responsibilities from next January.

There will be specific deadlines by which trustees will need to submit TRS registrations under the new rules.  The consultation suggests 31 March 2021 for any trusts in existence as at 10 March 2020 that will be affected by the new rules; and for new trusts, the proposal is that registration must take place within 30 days of the creation of the trust. 

Once a trust has been registered with the TRS, it is proposed that any alteration to that trust is notified to HMRC within 30 days. 

Trustees therefore need to be mindful of these time limits as the consultation indicates that penalties will be levied if the registration deadlines are missed.  For trusts holding assets that do not produce an income, this will then raise the question of how the trustees can raise funds to pay any penalties that may be incurred.   

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