In line with the current transparency agenda in the financial sector, and in compliance with EU regulations, HMRC has introduced a trusts register which will record all UK and non-UK trusts that have a UK tax liability. The register will capture information on all relevant parties to a trust, including the settlor and beneficiaries (whether actual or potential) as well as certain advisers to the trust. The register will not be public.
What trusts are caught by the new rules?
A trust only needs to be registered if both of the following conditions are met:
- The trust is either (i) a UK express trust; or (ii) a non-UK express trust with either UK source income or UK assets; and
- The trustees have incurred a tax liability in relation to income tax, capital gains tax, inheritance tax, stamp duty land tax, stamp duty reserve tax or land and buildings transaction tax (Scotland).
An express trust is one which was knowingly and intentionally set up by a settlor expressly transferring property to a trustee. This includes both lifetime trusts and those created in a will.
As the tax liability needs to be incurred at trust level, any tax liabilities falling directly on the settlor or beneficiaries or on any underlying companies will not bring the trust itself into scope for registration.
Do the rules apply to occupational pension trusts, employee ownership trusts and charitable trusts?
Yes. Trustees will need to review the conditions for registration and register where necessary.
What information needs to be registered?
- Details and the market value of the trust assets at the date of settlement (but not assets added after that date). For example, if the initial trust fund is £10 but then £1m is added a number of days (or weeks, months etc later) only the value of the initial trust fund of £10 needs to be registered.
- Identity details of the following:
- The settlor
- The trustees
- Any person exercising effective control (such as a protector)
- The beneficiaries where they have been determined and identified (including potential beneficiaries), whether expressly referred to in the trust deed or referred to only in a letter of wishes. Where reference is to a class of beneficiaries, such as "all my grandchildren", but the grandchildren cannot be identified as they are unborn, the class definition should be registered and any existing living grandchildren would be identified.
- Any adviser who is authorised by the trustee as an agent in respect of the trust registration.
- Identity details include the full name, date of birth and national insurance number (NINO) or Unique Tax Reference (UTR) or, if there is no NINO / UTR available, the address and passport number (or ID card number for non-residents).
Do the trustees have to update?
Trustees need to keep the register up to date.
The trustees need to update the register only if the trustees incur a liability to pay any of the relevant UK taxes in the previous tax year. For example, if the trustees register in tax year 2018/19, appoint an additional trustee but have no tax liability in 2019/20 and then have an inheritance tax charge in 2020/2021, the trustees must update the register with the details of the new trustee appointed by 31 January 2022.
If the trustees wish to do so they can update the register in a year when there is no tax liability.
Where there have been no changes to the trustees but tax is payable, the trustees will need to confirm that there have been no changes.
What are the deadlines?
For trusts with a UK tax liability in the last tax year (2016/17), the deadline will 31 January 2018.
Timings depend on whether or not the trust is already registered for self-assessment with HMRC for income tax or capital gains tax:
- If the trust is already registered for self-assessment, registration must occur by 31 January after the end of the tax year in which the trustees have an income or capital gains tax liability. For example, if there was tax due in 2016/17 trustees will need to register by 31 January 2018. If there was no tax liability in 2016/17 it will need to register by 31 January following the year in which the trustee's next have a tax liability.
- If the trust is not already registered for self-assessment, registration must occur by 5 October (extended to 5 January for 2016/17 only) after the end of the tax year in which the trustees first have an income tax or capital gains tax liability.
- If the trust is not already registered for self-assessment, registration must occur by 31 January after the end of the tax year in which the trustees first have an inheritance tax, stamp duty land tax, stamp duty reserve tax or land and buildings transaction tax (Scotland) liability.
Trustees will need to review the position each year to determine whether or not they have a duty to register or, if already registered, update the register.
What steps should trustees take now?
Trustees should make sure that they have all of the relevant information and ensure that it is up to date. Trustees will need to register by the relevant date to avoid penalties applying.
Even if a trust does not have to register by 5 January 2018 or 31 January 2018, because there is no tax liability at trust level in the tax year 2016/17, the trustees are obliged to maintain accurate and up to date records.
Trustees should consider whether they will inform the relevant parties to the trust that their information is going to be registered on the trusts register. Failure to register will result in a penalty and therefore, if there any party to the trust objects to registration the trustees will need to carefully review their position. Trustees will also need to avoid registering incorrect or out of date information.
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.
