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Mum and dad trustees at risk of new rules, tax experts warn

Amateur trustees risk falling foul of new rules on trusts due to come in on September 1, which require most trusts to register with HM Revenue and Customs, experts warn.

HMRC’s online Trust Registration Service has existed since 2017 but until now only trusts that have had a tax liability have had to register on it.

From September, that obligation is due to be extended to all trusts — apart from those explicitly exempt. Under the changes, affected trustees will need to sign up their trust by the deadline or within 90 days of the trust’s creation.

All trustees will be jointly liable for fulfilling the obligation and making sure records for the trust remain up to date. The reform is designed to tackle money laundering.

HMRC has said it will not penalise people who fail to register in time and will, instead, send out reminders. It will penalise people for deliberate or subsequent failures, although it has yet to give details.

Some 150,000 trusts have registered so far, according to official information obtained by Canada Life, the financial services group. But experts estimate the total number of trusts at 1mn — or perhaps more, as the true numbers are unknown. So tens of thousands more might need to register.

Tax experts say the changes could catch out non-professional trustees such as parents and grandparents holding stocks and shares on behalf of minor children and grandchildren.

They are calling on HMRC to publicise the reforms more effectively. “The Revenue is not great at communication,” said Stacey Love, tax and estate planning specialist at Canada Life. “A lot of these trusts are not going to be run by professional trustees. It’s mums and dads and grandparents. They are often just Mr and Mrs Normal, they’re not expecting to be aware of what are quite technical changes.”

Trusts are often used for estate planning and inheritance planning — frequently in combination with life assurance policies. People also use them to help pay school fees, provide financially for children or vulnerable adults or protect family assets from divorce or bankruptcy.

Some trusts will be excluded from reporting on the new register but working out whether exclusions apply might require trustees delve into the detail, Love warned.

There’s a range of exclusions including for pension and non-taxable charitable trusts, as well as life insurance trusts that pay out only on death, serious illness or disabled trusts and bank accounts held on behalf of minors.

However, this exclusion does not extend to people holding investments on behalf of minors outside building societies or banks — unless these are held in a junior Isa or child trust fund, which are not considered trusts.

Love said another area that might catch amateur trustees out is if a trust has been set up in a will. Under the new rules, will trusts that distribute their assets up to two years after a person’s death are excluded from listing on the register. However, if assets are not distributed after two years, because for example, the trust has been set up to pay out only on the death of both parents and has no taxable income in the meantime — then it would need to be reported on the register.

“That trust will just pootle along but after two years, who’s going to tell the trustees [they need to register it] if there’s no solicitor or tax adviser involved?” Love asked.

Guy Sterling, a tax partner at Moore Kingston Smith, an accountancy firm said the new requirements would mean “a large amount of red tape” for lay trustees.

“There hasn’t been an awful lot of advertising by HMRC,” he added. “I think there is more that can be done to bring this to the attention of people outside professional world.:

HMRC said it was working hard “to communicate the new rules and ensure we reach as many people as possible”.

This article has been republished to include a comment from HMRC

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