The new Trust Registration Service, which sees the end to Form 41G, has further extended its first reporting deadline to 5 March this year. HMRC have confirmed that they will not impose a penalty on Trustees as long as they have registered no later than this date. So if your clients have not yet registered luckily they still have time.
As you will be aware the legal requirement for a TRS originated in the EU Fourth European Money Laundering Directive, which came into effect in June 2017. It also complements HMRC’s digital strategy and provides greater tax transparency going forward.
Registration provides a single online route for trusts to comply with their registration obligations and to obtain their Self-Assessment (SA) Unique Taxpayer Reference (UTR).
Which UK trusts need to use the TRS?
An ‘express trust’ where the trustees have incurred a liability, in a given tax year, to pay any UK tax. The term ‘express trust’ means a trust that was deliberately created by a settlor expressly transferring property to a trustee for a valid purpose, as opposed to a statutory, resulting or constructive trust.
Which UK trusts do not need to use the TRS?
- if the trustees do not need to file a tax return and have not incurred a UK tax liability
- the settlor or a beneficiary of the trust has incurred the UK tax liability but the trustees are not liable
- the trustees of a bare trust where no UK tax liability arises at trust level
- the trustees of a charitable trust will not have to register until they incur a UK tax liability
With regard to the first bullet, a discretionary trust holding a non-income producing investment bond springs to mind (assuming also no IHT liabilities). Remember, however, that UK resident trustees may become taxable if a chargeable event gain subsequently arises and the settlor cannot be taxed because he/she is deceased or non-UK resident.
What information is required by the TRS?
Details of the trust assets, including addresses of UK properties, and a market valuation of assets held at the date that the assets were settled.
In addition, the identity of the settlor, trustees, any person exercising effective control over the trust and the beneficiaries or class of beneficiaries (where individual beneficiaries have yet to be determined or identified).
The information required will include:
- Date of birth
- NI number (NINO) if UK resident, unless under 16 years old, or a UTR, if any
- An address and passport or ID number for non-UK residents, if no NINO
Where a beneficiary is un-named, being only part of a class of persons, HMRC have confirmed that a trustee will only need to disclose the identity of the beneficiary when they receive a financial or non-financial benefit from the trust.
The details of trust assets are only provided once at the first point of registration and if this changes over time there is no need to update information about the trust assets on the Register.
If the trustees have no UK tax liability (in respect of any given tax year) there is no requirement to update the Register. An update will then need to be provided by 31 January after the end of tax year in which the trustees have a UK tax liability. However, changes can be made on a voluntary basis, even if the trustees had no UK tax liability.
Although registration is not required for bare trusts, the legislation still requires that trustees hold accurate and up-to-date written records of all the actual and potential beneficial owners of the trust.
Interest in possession trusts where the income has been mandated to the income beneficiary
If the income is not received by the trustees, because it is paid directly to the beneficiary, then HMRC have no statutory basis to charge the trustees to income tax. Therefore, the trustees have not incurred an income tax liability. No registration is required unless the trustees have incurred an income tax liability on other income, or they have incurred another tax liability, for example CGT.
Discretionary trusts and IHT
If a trust incurs IHT charges in 2016/17 but had no further UK tax charges until the 10th anniversary in 2026-27 then what is the position?
The trigger point for registration is when the trustees have incurred a UK tax liability. So, if the trustees incur a UK tax liability in 2016/17, then registration is required by 31 January 2018. (Now 5 March 2018)
If no further relevant UK tax is paid until 2026/27, the next deadline is 31 January 2028 by which point the registered information must be updated or, where it remains up to date and accurate, a declaration that no changes have occurred. However, it is possible to voluntarily update the registered information before 31 January 2028.
Where the trust is registrable because there is an IHT liability, the registration deadline is determined by reference to the event and not the payment deadline (which is 6 months later). For example, consider an event which arises on 16 January 2017 with a payment deadline of 16 July 2017. In that case, the trust needs registered by 31 January 2018 i.e. 31 January after the end of 2016/17.
Do trustees of all UK ‘express’ trusts regardless of incurring a tax liability in a given tax year need to maintain accurate and up to date written records?
Yes. HMRC expect the trustees to maintain accurate and up to date written records of all the actual and potential beneficial owners of the trust as set out under regulation 44(1) of the legislation.
Written information to be maintained:
- Full name of the trust
- The date on which the trust was created
- The country where the trust is considered to be resident for tax purposes
- The place where the trust is administered
- A contact address for the trustees
- Full name of advisers who are being paid to provide legal, financial or tax advice to the trustees in relation to the trust
- Details of the settlors and beneficiaries
This information should be held because under the legislation any law enforcement authority can request information about the beneficial owners of the trust including from a trust which does not incur a liability to any of the relevant UK taxes.
Trusts & Estates receiving small amounts of savings income
Finally back in 2016, following the introduction of the Personal Savings Allowance (PSA) and interest being paid gross, HMRC recognised that some trustees or personal representatives who did not then complete a tax return or make informal payments to HMRC could incur new reporting burdens. Interim arrangements were put in place so that in 2016/17 HMRC do not require notification from trustees or personal representatives where the only source of income is savings interest and the tax liability is below £100. These arrangements have been extended to 2017/18 and 2018/19.