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1mn UK trusts must register on government list

As many as 1mn trusts in the UK could be caught by a new requirement to register on a government list, with the risk of fines and difficulties accessing professional advice for those failing to sign up, tax experts have warned.

New rules due to come in on September 1 will require most new and existing trusts to register on HM Revenue & Customs’ online Trust Registration Service. The list will be accessible to people with a “legitimate interest”, including journalists, leading some to worry about an erosion of privacy.

Currently only trusts that have a tax liability must report information to the register. But under the incoming rules, all trusts — apart from those explicitly exempt — will need to sign up to the register by the deadline or within 90 days of the trust’s creation. All trustees will be jointly liable for fulfilling the obligation.

The reform, designed to tackle money laundering, was one of the last EU directives the UK incorporated into law — in October 2020 — before it left the bloc.

Rachel Smith, senior technical specialist at Mattioli Woods, a wealth manager, said between 500,000 and 1mn trusts were likely to be affected, though no one was sure about the exact number.

“An awful lot of these trusts have been bumbling along in the background and HM Revenue & Customs has no idea how many,” she said.

HMRC acknowledged there were “significant inherent uncertainties” estimating the number of trusts in the UK. It said one of the benefits of the new rules would be greater clarity about the number of trusts.

Nevertheless tax experts warned there could be many trustees unaware of the changes who could face difficulties as a result, including potentially being locked out of professional advice, if they do not register in time.

This is because the rule change requires professionals regulated by money laundering regulations, such as accountants, solicitors and tax advisers, to check a trust is registered on the list before working with it.

HMRC said professionals would have to advise new clients to register their trust on the list before the business relationship could continue.

“There is a real worry that people will be at sea,” Smith said. “You could be entirely paralysed because nobody would work with you.”

Trustees can complete the form on their own. But they would need to be unfazed by the “complicated rules” and terminology, added Helen Thornley, technical officer at the Association of Taxation Technicians, a professional body.

Thornley said there could be some potentially “nightmare” circumstances for people faced with complying with the rules. For example, trusts that were in existence on October 6 2020, when the rules became law, but which have since been wound up, would still be required to register for the service. After registering, trustees would immediately need to deregister the trust.

Up to 1mn trusts would be affected by the new requirement, Thornley said. Some trustees may struggle if they faced adviser fees or fines for not complying with the rules despite the trust having no funds, she added.

HMRC has said it will not penalise people who fail to register by the deadline. Instead it will write to them to remind them of their obligations. It will penalise people for deliberate or subsequent failures, it added, although it has yet to give details of penalties.

Smith said the practical process of completing the registration could be time-consuming, with each trust taking several hours to register. She estimated trustees would complete around 75-100 separate online pages for the registration of each trust.

Trustees will need to ensure they have information to hand to complete the process, including details about the trustees, beneficiaries and settlors — such as national insurance numbers, passport details and addresses.

Some trusts will be exempt from the process, including life insurance trusts that pay out only on death, serious illness or disabled trusts and bank accounts held on behalf of minors or adults who have lost capacity.

Emily Deane, technical counsel at the Society of Trust and Estate Practitioners, a professional body for advisers to wealthy families, added it was unclear who would count as having a “legitimate interest” entitling them to view information on trusts.

She said: “We believe that it is important that measures to combat money laundering respect families’ basic rights to legitimate confidentiality in their financial and personal affairs and ensure that sensitive financial information is not vulnerable to abuse.”

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