Deadline looms for trustees of non-taxable trusts

Only two weeks remain before the September 1 deadline for trustees of non-taxable trusts set up before June 4 2022 to register on HM Revenue & Customs’ Trust Registration Service. Trustees must act now to be legally compliant and avoid penalties.

The Trust Registration Service (TRS), in operation since 2017, was set up to improve transparency around the beneficial ownership of assets held in express trusts with a UK tax liability.

An express trust is created by a settlor — the person or people who put assets into the trust — typically in the form of a document such as a deed or declaration of trust. Most trusts are, in fact, express trusts.

An express trust can be created by someone in their lifetime or in their will. Express trusts include discretionary trusts, interest in possession trusts, gift trusts, gift and loan trusts, discounted gift plans, shareholder protection trusts, employee ownership trusts, bare trusts and will trusts not wound up within two years of death.

As part of the regulations to combat money laundering, the scope of trust registration was extended to bring express trusts under the TRS regime — even if they do not have a UK tax liability.

This means that all UK trusts (and some non-UK trusts), apart from a few exceptions, in existence on or after October 6 2020, will now require registration on the TRS by September 1 2022, even if they are now closed.

Have I got time to think about this?

Simply put: no. Express trusts set up before June 4 2022 must be registered on the TRS before the September 1 deadline, and express trusts set up after June 4 2022 must be registered on the TRS within 90 days of the date of set-up. So trustees only have 14 days left to fulfil their legal obligations in relation to the TRS.

This may come as news to the majority of lay trustees. The Society of Trust and Estate Practitioners has previously indicated that about 2mn non-taxable trusts will require registration on the TRS before September 1 2022.

Worryingly, however, the number of registered non-taxable trusts appears to be nowhere near this figure, which indicates a huge lack of awareness, delaying or non-compliance.

Research by Canada Life found that more than 36,000 trusts were registered in May and June. This is almost double the number in the same months in 2021. But will there now be a last-minute rush by trustees to beat the deadline?

Does my type of trust require registration?

The legal requirement is that all UK express trusts must be registered on the TRS before the relevant deadline, unless they fall under a small number of exemptions. Bear in mind, though, that exempt trusts with a UK tax liability still need to be registered on the TRS.

Exempt trusts include: co-ownership trusts where the legal and beneficial owners are the same persons, commonly found where a couple jointly own their home or have a joint bank account; trusts set up before October 6 2020 that hold assets valued at less than £100; will trusts that are wound up within two years of death; pension trusts; trusts imposed by statute such as on intestacy or bankruptcy; trusts of life policies paying out on death, terminal illness or disability; UK charitable trusts; and trusts created to set up a bank account for children or vulnerable persons.

Advisers had hoped at one stage that bare trusts might fall out of the scope of the TRS regime, since any UK tax liabilities fall on the beneficiary of the bare trust, not the trustees. However, bare trusts are not exempt and must therefore be registered on the TRS. This can lead to some unexpected requirements.

Is the TRS my problem or can I leave it with the settlor?

The legal obligation for registration lies with the trustees and not the settlor. There is a responsibility on the trustees to be proactive.

In truth, it can often be unclear as to whether a trust requires registration or not, so trustees should take legal advice to establish their obligations, particularly given the fast-approaching deadline for registration.

Where there are multiple trustees, they must collectively decide and appoint a lead trustee to complete the registration process. All trustees are equally legally responsible for the trust and the nominated “lead” trustee is simply the main point of contact for HMRC.

HMRC requires a considerable amount of information about the trust, settlors, trustees and beneficiaries — information that may not be readily available. And given that the gathering of this information can take time, it is important the trustees give themselves sufficient time to obtain it. HMRC and professional advisers are likely to be very busy with the deadline looming.

What if I do not comply?

You will be committing an offence. A failure to register a trust or a failure to notify any change of information on the TRS can result in increased trustee administration and penalties issued by HMRC. Reports indicate a £100 penalty for failure to register or update the TRS details within the relevant time limits. In the event that a trust holds property only and no cash, this penalty would legally become the responsibility of the trustees.

So, what should you, your contacts and all trustees be doing now? A review of all lifetime trusts and will trusts is absolutely essential. The TRS can be a complex area to navigate, so if you are unsure if a trust falls within the scope of the TRS, get in touch with a lawyer for guidance and assistance on dealing with the TRS.

Laura Bywater is partner and head of wealth protection at Price Slater Gawne