Trustees should be aware that the deadline for registering certain express non-taxable trusts on HMRC’s Trust Registration Service (“TRS”) is now round the corner. The obligation to register has a significant look-back period – in some cases, non-taxable trusts which were in existence on 6 October 2020 must be registered – so it may not be immediately obvious to trustees that they need to engage with the TRS.
Particularly of note will be that the deadline for registering:
- in-scope non-taxable UK trusts which were in existence on 6 October 2020, or which were established before 4 June 2022; and
- in-scope non-taxable offshore trusts which acquired UK land between 6 October 2020 and 4 June 2022
is 1 September 2022.
In-scope trusts established on or after 4 June 2022, or registrable due to acquiring UK land on or after 4 June 2022, will have a rolling 90-day deadline for registration.
Non-taxable trusts – rising compliance
It has been the case for several years that certain trusts which are subject to UK tax are registrable on the TRS. Given that a UK tax liability goes hand-in-hand with dealing with HMRC and related compliance burdens, trustees of taxable trusts are generally well-equipped to deal with the registration requirement.
However, the requirement to register on the TRS has now, under the Money Laundering Regulations 2017, been extended to a wide range of non-taxable express trusts, meaning that many trustees will have to deal with HMRC compliance for the first time. Further, without the more obvious ‘flag’ of a UK tax liability, going forward trustees will need to carefully monitor whether they have triggered – or will trigger – an obligation to register.
Under the regulations, the starting point is that all express trusts must be registered, where:
the trustees are all UK resident;
one trustee is UK-resident and the settlor is UK resident or domiciled;
the trustees are offshore (or a mix of offshore and UK resident), but have acquired UK land since 6 October 2020; or
one trustee is UK resident and the trustees have established a business relationship with a relevant person in the UK (this will include, for example, seeking accountancy, tax, or legal advice from a UK professional services firm).
Where a trust is registrable, the trustees must make sure the details stored on the TRS are kept up-to-date. Changes to the trust details or beneficial ownership information must be amended on the register within 90 days of the date that the trustees become aware of these changes. Trustees should also be mindful that they must notify HMRC should the relevant trust become taxable.
When can a trustee be comfortable that they have no obligation to register?
While the legislation does not define the term “express trust”, HMRC’s guidance sets out that they view the term as meaning a trust which is ‘created deliberately by the settlor’, and that they would normally expect to see a written deed or declaration of trust. Therefore, where a trust arises by operation of law, that trust will automatically be out of scope of the obligation to register. This would include implied or constructive trusts. Further, in welcome news for certain UK real estate investors, HMRC have confirmed that offshore and UK unit trusts are not considered express trusts, and therefore will not be required to register under the expanded scope of the TRS.
Even if a trust is an express trust, the trustees may fall outside of the registration obligation by virtue of a list of specific exemptions which are contained within the regulations. This includes certain employee share scheme trusts, trusts holding the assets of a UK registered pension scheme, and trusts arising as part of certain financial and capital markets infrastructure. Bare trusts are a notable omission from this list, meaning that many nominee arrangements may be required to register, unless they fall within a specific exclusion.
Possibly of wider application is the exemption for trusts arising for commercial transactions. However, HMRC’s guidance states that they consider trusts will only qualify for this exclusion where the trust enables or facilitates a specific transaction and is incidental to the principal purpose of the transaction. This suggests that they will, in general, interpret the exemption narrowly. Should trustees wish to rely on the commercial exemption to fall outside of the obligation to register, detailed consideration would need to be given as to whether use of this exemption could be properly supported in the circumstances.
Importantly, if a trust is express, and only falls outside of the obligation to register by coming under one of the named statutory exemptions, the trustees will continue to have other compliance obligations under the MLR 2017. This primarily involves keeping internal records of the beneficial owners.
HMRC have announced that, in recognition of the fact that the registration requirement will be an unfamiliar obligation to many trustees of non-taxable trusts, there will be no penalty for a first offence of failure to register or late registration unless it can be shown that the failure is due to the deliberate behaviour of the trustees.
Under this initial ‘lighter touch’ regime, trustees who have failed to register will likely receive a warning letter prompting them to register. However, should a failure to register be found to be deliberate, a £5,000 penalty may be charged per offence.
Who can access the information on the register?
The information stored on the TRS not available for public searches and can in general only be viewed by HMRC. There are limited circumstances in which third parties can request to view the register. This includes where law enforcement organisations are investigating money laundering or terrorist financing. Individuals and organisations may also apply for information on the register about a trust which holds a controlling interest in a non-EEA company or other legal entity.
Given the upcoming deadline for registration for many types of non-taxable express trusts, trustees must consider whether they have a requirement to register on the TRS – and, if a specific statutory exemption applies, whether the internal record keeping obligations will apply.
Please contact your normal CMS contact or our listed Key Contacts, who will be pleased to advise on the expanded registration requirement.