Changes to the trust compliance requirements

Are you an acting trustee of a trust? Are you thinking about setting up a trust?

Stephanie Chung, solicitor in the private client team at Wake Smith looks at some of the recent changes in the law regarding trusts that you need to know.

This article covers:

• Background on trusts
• Overview of changes to the law on trusts – express trusts and taxable trusts
• Your next move

Background

In the past, HMRC required completion of paper Form 41G (Trust) to register a new trust. This captured important information including the names and addresses of the trustees, details of any professional agent acting, the governing law, lifetime trust or will trust.

Previously HMRC’s stance was that “if there is no income arising, and no likelihood of income or gains in the future…you do not need to complete this [registration] form”.

This was useful where the trust fund simply comprised a non- income producing investment such as the home of a beneficiary.

New rules were introduced on 6 October 2020, as part of the UK’s implementation of the Fifth Money Laundering Directive which extend the scope of the trust register to all UK, and some non-UK, trusts currently open, whether or not the trust has to pay any tax, although some specific exclusions apply.

During the pandemic, reliance upon remote working and the general move towards digitalisation increased the speed which the new online Trust Registration Service was brought into use.

Overview of Changes

Express trusts

Express trusts are trusts that are created deliberately, usually using a written document such as a declaration of trust. They can also be created under a Will.

All UK “express” trusts, with certain limited exceptions, and some non-UK express trusts, taxable or not, that already existed or were created after 6 October 2020 must register with, and provide details, to HMRC’s Trust Registration Service (TRS).

This is a big change from previous requirements, where only trusts that had a UK tax liability were required to register details of the trust with the TRS.

Trusts that now need to be registered include most trusts created by Wills, life interest trusts, discretionary trusts, and even bare trusts.

In practice, this covers most types of trust, so check to see if your trust needs to be registered.

As suggested above, the new rules may catch out many trustees who hold non-income-producing assets, such as a house. For example, if parents hold property on trust for themselves and their children, or when a minor child inherits property and that minor child’s parents are named on the Land Registry title until that child turns 18.

It may also affect trustees who don’t even know they hold assets on trust. For example, where an elderly parent and an adult child open a joint bank account together, where the parent provides all monies so the child can help their parent manage their finances, the monies are held on trust for the parent.

There are certain limited exceptions to registration, including for trusts of jointly owned property where the owners and beneficiaries are the same people, charitable trusts, trusts imposed by a court order/legislation, and certain pilot trusts in place before 6 October 2020. Under draft legislation, a welcome new exception is a trust created to set up a bank account for a minor or vulnerable person.

Trustees must note, however, that if an excepted trust has a UK tax liability, it will still need to register with the TRS.

Non-taxable trusts

Non-taxable trusts must be registered with the TRS by the later of 1st September 2022, or 90 days from the date the trust is created.

A registerable trust that has existed at any time on or after 6th October 2020 must be registered with the TRS, even if it was closed before the service was fully opened on 1st September 2021.

If the trust is taxable, the registration deadline depends on various factors, and our specialist private client team will be able to advise you further on this.

Penalties for not registering the trust and not updating HMRC with any changes have not been decided. However, it has been indicated that financial penalties could arise and may be payable by trustees personally rather than by the trust.

If you are a trustee of an ongoing trust, you must consider whether your trust needs to be registered and should take steps well in advance of the registration deadline to register the trust.

If you want to discuss how changes in trust compliance might impact the trust, please contact a member of our team.

To summarise, trusts now needing registered fall into 3 broad categories.

1. All UK express trusts, unless they’re specifically excluded as an excluded express trusts (see later).
2. Certain non UK express trusts if they have links to the UK, such as having UK-based trustees, acquiring land in the UK, or entering into a business relationship with a UK business
3. Any trust which incur a tax liability

Your next move

For further information please contact Stephanie Chung at Wake Smith Solicitors on 0114 224 2114 or email [email protected]

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Published 07/06/22