Trust Registration Service opens for non-taxable trusts

Trust Registration Service opens for non-taxable trusts

Helen Thornley, technical officer at the Association of Taxation Technicians outlines the forthcoming changes

On September 1, the Trust Registration Service (TRS) finally opened for the registration of non-taxable trusts. The regulations which brought these trusts into the scope of the Trust Register actually came into force last October, but it’s taken some time for HMRC to upgrade the existing TRS to take account of all the new changes.

These regulations are therefore due to be amended shortly to give trustees and agents until September 1, 2022 to identify any non-taxable trusts which were in existence at October 6, 2020 – or which are created by June 2, 2022 – and get them added to the Trust Register via the TRS. After that, any non-taxable trusts created after June 2, 2022 must be added to the register within 90 days of their creation.

Background

As a brief recap, the TRS came into existence in 2017, following the EU’s fourth Money Laundering Directive (4MLD). Since that date, any UK express trust which pays income tax, CGT, IHT, SDLT/LBTT/LTT or stamp duty reserve tax has been required to register details of their beneficial owners (i.e. their settlor(s), trustees and beneficiaries) together with some basic background information about the trust via the TRS. An express trust is a trust which is deliberately created by a settlor.

Some non-UK trusts with UK income sources or UK assets that pay UK tax are also required to register, although this article mainly focuses on UK trusts.

What’s changing?

Following the UK’s adoption of the EU’s fifth Money Laundering Directive (5MLD), the biggest and most significant change is that all UK express trusts must now be registered, even if they don’t pay UK tax, unless they are specifically excluded – either because they fall within one of the list of excluded express trusts or because they are registered elsewhere in the EEA.

The exclusion list is long and complex and includes trusts where the risk of money laundering is low, for example, trusts that arise through operation of law (which includes trusts that arise on intestacy or those imposed by the courts) and special trusts such as Bereaved Minor Trusts and 18-25 Trusts. For practical reasons, the regulations also allow a period of at least two years to elapse from the date of death before Will trusts need to register.

The biggest challenge for non-taxable trusts is going to be identifying those trusts now in scope – particularly where the trustees are laypersons who haven’t had to seek any advice for a while so their trust isn’t on any professional adviser’s radar.

Non-UK, non-taxable trusts will also need to be added to the register if they have at least one UK trustee and enter into a business relationship with a UK adviser. Any non-UK trust acquiring land and property in the UK must also register, regardless of whether or not it has any UK trustees.

HMRC is currently developing a manual to support the introduction of the new rules and the first iteration is now available, with further updates expected over the coming weeks and months.

Taxable trusts

At the same time as non-taxable trusts must register for the first time, the registration requirements for existing, taxable trusts are also being extended. Non-taxable trusts are being asked to supply details of the residency and nationality of their beneficial owners and also details of any controlling interests in non-UK, non-EEA companies, and so taxable trusts must now do the same. (This information was not previously requested for taxable trusts.)

The register was upgraded back in May 2021 to accept this extra information and taxable trusts already on the register will also have until September 1, 2022 to upgrade their data.

Access to the register

The final big change following 5MLD concerns rights of access to information on the register. In respect of the ‘old’ register, only law enforcement agencies could request access to the data. From September 1, 2022, the extended register of non-taxable trusts will be open to ‘legitimate interest’ requests where, if the person or organisation who wants access can demonstrate they have reason to suspect the trust is being used for money laundering or terrorist finance purposes, HMRC will release to them some details about the trust’s beneficial owners.

In addition to legitimate interest requests, there will also be a broader right of access applying to both taxable and non-taxable trusts which have a controlling interest in a non-UK, non-EEA entity. In these cases, the requesting person/organisation will not have to demonstrate a legitimate interest and will be able to access details of the beneficial owners on payment of an administration fee.

Deadlines

HMRC will be updating the existing regulations in due course to confirm the September 1, 2022 deadline for registering existing non-taxable trusts and upgrading the information already held on taxable trusts. After June 2, 2022, new trusts will need to be registered within 90 days of creation and any that become taxable after that point must update their registration within 90 days of incurring a tax liability and provide the additional background information required of taxable trusts. (The 90-day period is a welcome extension to the 30-day period set out in the current regulations.)

Trustees and agents also need to be aware that once the new information required under 5MLD has been supplied, they have an ongoing obligation to update it within 90 days of becoming aware of any changes. This requirement takes effect as soon as information is supplied, i.e. before the September 1, 2022 deadline.

Agents now have a substantial amount of work to do in the next 12 months, starting with identifying all the trusts that will need to be added to the register and then developing systems (and training trustees) to help keep that information up to date. As HMRC’s guidance will be updated during that time, agents should keep an eye on the manual throughout the process and watch for any changes, especially around the types of trusts which HMRC considers to be excluded.

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