The requirement to register a UK resident trust or a non UK resident trust that owns UK assets or has UK source income has been in place since January 2018. With penalties of a fine and up to two years in prison, it is important to know when the requirement to register is triggered.
When is registration required for trusts that have not paid UK tax before?
The requirement for a UK resident trust to register occurs if the trust incurs a UK liability for income tax, capital gains tax, inheritance tax (IHT), stamp duty land tax (SDLT) or stamp duty reserve tax (SDRT). So for some trusts, particularly non-UK resident trusts, the requirement to register may not have existed when the legislation implementing the register came into force in 2017 but may arise going forwards. Any of the events listed below could trigger a requirement to register a trust that has had no UK tax liability before. If so, registration must take place by the registration deadline shown.
Event: UK income tax arises eg UK shares produce dividend for first time; or disposal of UK real estate triggering chargeable gains (whether residential or commercial) – registration deadline: 5 October following end of tax year in which tax charge occurs.
Event: IHT chargeable event eg 10 year anniversary or exit charge. Stamp duty land tax (SDLT) charge eg on purchase of UK real estate. Stamp duty reserve tax charge eg on purchase of shares in a UK company (or a non-UK company with a UK share register) – registration deadline: 31 January after the end of the end tax year in which the chargeable event occurs.
New UK resident trusts with UK tax consequences must be reported on the trust register by 31 January after the end of the tax year in which the trust was established. If no UK tax liability arises until a later tax year then the deadline is the 31 January after the end of that later tax year.
When registration is not required?
- The trigger point for registration is a UK tax liability arising in the hands of the trustees. Trustees of a non UK resident trust which does not hold any UK assets or have any UK source income therefore do not need to register even if the settlor and/or the life interest beneficiary is UK resident and pays tax on the income and gains (and, even if the settlor can reclaim the tax from the trustees).
- The trustees of a non UK resident trust which holds UK assets through a wholly owned non UK resident company do not need to register because non resident trusts are only "relevant" trusts if the trust fund includes assets in the UK or UK source income is generated in respect of which the trustees are liable to pay UK tax. If the non-UK resident company is simply holding the assets as nominee for the trustees, then the requirement to register would apply if a relevant UK tax liability arose. The guidance issued by HMRC in October 2017 had suggested that there would be no requirement to register in this situation but HMRC corrected this in its November 2017 guidance.
- The trustees of a non UK resident trust which does not hold any UK assets or have any UK source income do not need to register even if the settlor was UK domiciled or UK deemed domiciled when the trust was settled. Even though the trust is a relevant property trust and is liable to IHT periodic and exit charges, there is no requirement for the trust to register as the trust is non resident and the trustees do not have assets in the UK or UK source income. On the other hand if the trust owns UK assets that do not produce income, the 10 year charge or exit charge would trigger the requirement to register in relation to a year in which that IHT charge arises. The requirement (or not) to register is separate from the long-standing requirement for any professional adviser (other than a barrister) who has been involved in setting up a non-UK resident trust where the settlor is UK domiciled or deemed domiciled to send a s218 Inheritance Tax Act 1984 notice to HMRC (unless the trust has been created by a Will or an IHT 100 account has been delivered to HMRC). Penalties apply if this notice is not sent to HMRC within three months of the creation of the trust.
- Trustees of bare trusts do not need to register, as the tax liability falls on the beneficiary. Trustees of bare trusts are however required to maintain accurate and up-to-date records.
What information must be provided on the register?
The lead trustee (the trustees each have the responsibility to file and pay any tax due but, if there are multiple trustees, one trustee should be nominated as the 'lead' trustee to be the main point of contact that HMRC will use) or their agent needs to provide the following information:
The name, date of birth, national insurance number or unique taxpayer reference number (or, if none, residential address) and, if non UK resident, passport or ID number, country of issue and expiry date, for the following individuals/entities:
1. settlor(s) even if dead,
4. all other natural or legal persons exercising effective control over the trust (for example, a protector who can appoint trustees or add or remove beneficiaries) and the nature of their control; and
5. all other persons identified as potential beneficiaries in a document or instrument relating to the trust, including a letter or memorandum of wishes from the settlor.
If the trust instrument has a class of beneficiaries not all of whom have been determined, it is sufficient to provide a description of the class of persons who are the beneficiaries or potential beneficiaries under the trust (even if someone from the class can be identified by name). Furthermore, HMRC now say that they interpret 'determined' to mean being in receipt of a financial or non financial benefit from the trust. So where a potential beneficiary is not named in the trust or in the settlor's letter of wishes, his identity need only be disclosed when he receives a financial or non financial benefit from the trust. If a beneficiary is named either in the trust deed or in the letter of wishes, HMRC consider that the trustees must provide information about him, even if he is not in receipt of a financial or non financial benefit from the trust. Where a trust lists named individuals who only become beneficiaries contingently upon another event occurring (for example, on the death of a named beneficiary), the individuals do not need to be individually identified until such time as the contingent event occurs.
Trustees also are required to provide information regarding the nature of the trust, namely:
1. the name of the trust;
2. the date on which it was established;
3. a statement describing the assets (including the addresses of any UK properties) and the market value of the assets as at the date they were settled into trust;
4. the country in which the trust is tax resident;
5. the place where it is administered;
6. a contact address; and
7. the full name of any agent who is acting on behalf of the trustee in relation to the trustees' registration affairs.
What happens to the information?
Immediately upon registration a unique taxpayer reference number is issued and sent to the lead trustee so that Self Assessment tax returns can be prepared and filed. If the trust was registered because tax other than income tax or capital gains tax was payable, then it would be prudent to contact HMRC to stop Self Assessment forms being issued.
According to the UK government 'the information will be used to give law enforcement and compliance officers the tools they need to combat the misuse of trusts'. HMRC will also be able to compare the national insurance numbers or unique taxpayer reference numbers of the parties to a trust and factor these into its wider understanding of those persons' tax liabilities.
The information retained on the UK Trust Register is not currently publicly accessible. The register may be inspected by any law enforcement authority in the UK and the other EU member states, such as HMRC, the Financial Conduct Authority and various UK police services. However, the EU's Fifth Anti Money Laundering Directive (the 'Fifth AMLD') provides that beneficial ownership information for trusts will need to be made available to persons who can demonstrate a 'legitimate interest' in access to that information and to persons who have reason to access information about trusts with a controlling interest in a non-EEA company. The Fifth AMLD was approved by the EU Council in May 2018. The UK government is still considering how to implement it but it has confirmed that it will expand the Trust Registration Service to include non-EEA trusts which acquire real estate in the EU, all UK express trusts whether or not they incur a tax consequence and non-EEA trusts that conduct a business relationship with regulated entities based in the UK. The details should become clearer soon, since even if the UK leaves the EU, it has stated that it still intends to implement the directive by the deadline of 10 January 2020.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.