Have you registered your trust with the Trust Registration Service?
The scope of trust arrangements which need to register with HMRC with the Trust Registration Service is far wider than you might expect.
The deadline for registration is 1 September 2022 (or 90 days after it has been created, if later). HMRC has stated that:
“In recognition of the fact that the registration requirement is a new and unfamiliar obligation for many trustees, there will be no penalty for a first offence of failure to register or late registration of a trust unless that failure is shown to be due to deliberate behaviour on the part of the trustees”.
Therefore no penalties will be charged if you if you do meet the deadline and we expect this to be the case for some time to come. Nevertheless, you should seek to register your trust as soon as you are able. You may find that from now on, if you wish to deal in trust property, third parties such as banks and lawyers etc will require a copy of your TRS reference.
How to register
Please see our latest reminder on the registration of trusts, which includes some examples of the sorts of trust arrangements which need to be registered.
Which trusts have a registration requirement?
The TRS is relevant to:
- all UK express trusts, unless they are specifically excluded.
- all non-UK express trusts, that:
- acquire land or property in the UK on or after 6 October 2020; and/or
- have at least one trustee resident in the UK and enter into a “business relationship” with a UK service provider.
If the trust is not resident in the UK, you must register the trust if it becomes liable for tax on income coming from the UK or on UK assets.
Non-UK trusts will not have to register if all of the trustees are non-UK residents. There’s no UK tax liability and the trust does not hold land or property in the UK directly.
If you’re a UK resident trustee of a non-UK trust, you should be aware that the trustees entering into a “business relationship” in the UK, could mean the trust has a registration requirement.
What trustees should look out for
If you’re a trustee of a UK trust, the trust could have registration requirements, even if there is no liability to tax.
Some examples where you might get caught out include where you are a trustee of the following:
- Trusts where an individual holds an asset, as trustee for another person, that are documented in a Declaration of Trust.
- Nominee arrangements where an individual holds an asset, as a nominee for another person, that are documented in a Nominee Agreement.
- Where a parent holds assets in a bare trust (such as real estate, investments or premium bonds) on behalf of their minor children (noting that a cash only investment is usually exempt).
- Insurance policies with a surrender value that are written in trust will need to be registered, including trusts with investment bonds.
Trusts that are exempt from registering
There are a number of categories of trusts which are specifically exempt from registering on the trust register, as long as there is no UK tax liability, including but not limited to the following:
- Trusts holding life or retirement policies providing that the policy only pays out on death, terminal or critical illness, temporary or permanent disablement, or to meet the healthcare costs of the person assured.
- Will trusts created upon death during the first two years after death, provided the assets added to the trust are only from the estate. This includes trusts that only receive death benefits from life insurance policies.
- Pension trusts that are already registered with HMRC as a pension scheme.
- Charitable trusts that are UK regulated.
- Co-ownership trusts where the trustees and beneficiaries are the same person, for example, to hold a share of property as tenants in common, joint bank accounts or to hold other assets jointly.
- Trusts established prior to 6 October 2020 where the value of the assets are under £100 provided no further assets are added.
- A financial or commercial trust created in the course of professional services or business transactions for holding client money or other assets.
Examples where you will need a TRS registration
Mr C is the owner of shares in a company, but the beneficial owner is Mrs C.
Answer: Mr C needs to register the trust.
The grandfather of Mrs C has gifted £50,000 to each of the two minor daughters of Mrs C. Mrs C has, on their behalf, invested the funds in a portfolio of shares.
Answer: The investment is not “only a sum of money” (it is shares), therefore Mrs C needs to register each trust.
John is in partnership with his wife, son and daughter. John is the legal registered owner of the farm. They have a partnership agreement confirming John holds the farm on trust for the partnership.
Answer: As the partnership consists of John and others the partnership beneficial owner is different to the legal owner so a TRS registration is required.
Martha and Mary set up a trust in order to buy a property to rent, with family members as the beneficiaries of the income of the trust. One family member manages the day-to-day running of the property and is the trustee of the trust.
Answer: As the beneficiaries and trustees of the trust are not the same, the exclusion from registration at Sch3A(9) does not apply and so a TRS registration is required.
Mr Jones takes out an investment bond which he places in trust. Under the terms of the policy, Mr Jones is able to withdraw up to 5% of the funds invested per year in the form of a part-surrender of the policy.
Answer: As these withdrawals are anticipated as an integral part of the design of the policy, they constitute pay outs from that policy. As these pay outs are on occasions other than those listed at Sch3A(4), the exclusion from registration on TRS does not apply. The trust would need to be registered on the TRS whether or not any withdrawals are made.
Rodney took out an endowment life assurance policy for a 25-year term. Rodney made a declaration of trust so that the policy is being held on trust for the benefit of his children and grandchildren.
Answer: The conditions at Sch3A(4) would not be met so the exclusion from registration on TRS does not apply. The trust would need to be registered on the TRS.
Examples where you will not need a TRS registration
Alice and Bob wish to purchase a property together. They elect to hold the property as tenants in common, allowing them to declare that Alice owns 70% of the property and Bob owns 30%. To achieve this, they create a trust for ownership as tenants in common.
Answer: As Alice and Bob are both the only trustees and the only beneficiaries of the trust, the trust is not required to register on TRS.
Five members of the Smith family purchase a property in England together as joint tenants. Due to restrictions on the number of persons able to hold the legal title to land, only four of the family members are listed as the legal owners of the land on Land Registry. These four individuals are treated as holding the property on trust for the benefit of all five individuals.
Answer: As a trust imposed by the Law of Property Act 1925, the trust is not required to register on TRS.
Mr Smith takes out a 40-year term life insurance policy, which is written into trust at commencement. The policy will only pay out on the event of Mr Smith’s death or critical illness within the 40-year term, and the policy is not able to be surrendered during that term.
Answer: As the policy will only pay out on the death or critical illness of the person assured, the trust is not required to register on TRS. This falls with the exclusion set out at Sch3A(4).
Mrs Smith takes out a whole of life insurance policy, which is written into trust at commencement. The policy will only pay out on the event of Mrs Smith’s death, but the policy is able to be surrendered for a cash sum during their lifetime.
Answer: This is similar to example 7 in that the trust is not required to register on TRS as it meets the exclusion set out at Sch3A(4). However, if the policy is surrendered and the cash sum is retained in the trust, the trust would be required to register from that point.