The implementation of the EU Fifth Money Laundering Directive (5MLD) in October 2020 triggered a significant expansion of the types of trust now required to register with HMRC's Trust Registration Service (TRS). Before this, only trusts incurring a UK tax liability needed to register. The new regulations mean that most UK express trusts must now register unless specifically excluded. There is no definition of an express trust, but the regulations are wider than you may think and you could, unwittingly, be caught by them.

After a long period of waiting, the rules have now been clarified and the expanded TRS system is up and running. Affected trustees have until 1 September 2022 to complete the initial registration.

Who is affected by the new rules?

Anyone already acting as a trustee of a trust that hasn’t yet registered must consider whether the trust is now registrable. Similarly, anyone seeking to set up a trust should consider the rules, as registration and maintenance of the TRS will be a further administrative task for the trustees in the future.

There are special rules which are apply to non-UK trusts which aren’t covered by this article.

Which trusts must be registered? 

All UK express trusts must register unless specifically excluded. A trust set up by grandparents to benefit their grandchildren is clearly an express trust. What you may not realise is that the rules also cover the following:

Bare trusts 

A bare trust is one in which the beneficiary has the absolute right to the both the capital and income of the trust fund. Two examples showing different applications of the rules are as follows:

• Person A agrees with person B that person B will hold an asset as a nominee for person A. That is a bare trust and will need to be registered because the rules apply wherever the legal owner(s) and the beneficial owner(s) are different people. It is advisable for this sort of relationship to be recorded in a Declaration of Trust or Nominee Agreement, but in practice that does not always happen
• A parent sets up a bank account for their young child. The bank account is in the parent's name but the money belongs to the child who can insist that the money in the account is transferred to them when they reach age 18. The good news is that this is not caught by the new rules. HMRC guidance says that although there is no general exclusion from registration for bare trusts, trusts created in the course of opening a bank account for a minor child or a person lacking mental capacity are excluded from registration as express trusts. However, this exclusion only extends to trusts created when opening cash deposit accounts. If a parent buys investments (for example stocks and shares) and holds them for the benefit of a minor child this will not qualify for this exclusion and so will need to be registered.

Trusts set up under a will

If a deceased person gave assets in their will to a beneficiary who is only entitled to them if they reach a particular age, for example 25, that qualifies as an express trust unless the trust is brought to an end within two years of the death.

Exclusions from registration

Trusts which don’t have to register include:

• Most UK pension trusts
• Trusts of life policies while the life assured is still alive. In order to qualify for this exclusion the policy must only pay out on death, terminal or critical illness or permanent disability of the life assured or to meet the cost of healthcare services provided to that person. The exclusion applies to policies which have or can acquire a surrender value, but this does not extend to policies such as insurance bonds, (sometimes known as investment bonds) which principally have an investment motive. These sorts of trusts must be registered
• Most charitable trusts
• Bare trusts where the same people are both trustees and beneficiaries.
• Trusts established with a nominal sum only (less than £100) before 6 October 2020 – often known as 'pilot trusts'. However such a pilot trust created after 6 October 2020 does have to register
• Trusts set up under a will which come to an end within two years of the death unless assets are added to the trust after death.

Registering a trust

All registrable trusts have to register online. For both taxable and non-taxable trusts the information to be registered online includes information about the settlor, trustees, protectors (if any) and beneficiaries. Additional information is required for taxable trusts including the type of assets settled and the value at the date of the creation of the trust.

Deadlines for registration

Trustees should note that there are different deadlines depending on whether the trust is taxable or not and its creation date.

• For non-taxable trusts which already exist, registration must be completed by 1 September 2022
• Non-taxable trusts created after 1 September 2022 must register within 90 days.

For taxable trusts the deadlines are more complicated and depend on the type of tax liability and the trust's tax and registration history. Trustees' tax advisors are already very familiar with the applicable rules.

Ongoing maintenance

Once a trust is registered the story doesn't end. If the trust is liable to tax for any tax year, it is necessary to declare on the trust register that the details of the persons associated with the trust are accurate and up to date. This must be done by 31 January after the end of the tax year in which the trustees are liable to pay any of the relevant UK taxes, whether or not any changes have been made.

Changes in information regarding the settlor, trustees and beneficiaries must, however, be registered within 90 days of the change.

Trustees of non-taxable trusts must also update the TRS with details of any changes (e.g. on a change of trustees, birth of a new beneficiary or change of address of any party) within 90 days.

Penalties

There are two administrative offences:

• Failure to register by the applicable deadline; and
• Failure to maintain an up-to-date record of the trust.

As at the date of this article, HMRC have published a consultation which suggests that there will not be a financial penalty for either of these offences in the first instance, however subsequent offences may incur financial penalties.

Confidentiality of the TRS

Trustees and others may understandably be concerned about who might have access to the information they provide via the TRS. They should be reassured by the knowledge that the TRS is not a publicly-accessible database and the information is only accessible for limited purposes, largely connected with anti-money laundering investigations.

Moreover, information held on the Trust Registration Service regarding beneficial owners cannot be shared with third parties if that beneficial owner lacks mental capacity. There is no obligation to record mental capacity status on TRS. However, HMRC will assume that an individual does have mental capacity for data sharing purposes unless a lack of mental capacity has been recorded on TRS.

Conclusion

The new rules mark a significant change which all trustees and professional advisers need to consider carefully. All trustees must now consider the registration position of existing trusts and bear it in mind for the creation of new trusts going forward. They should also be aware of the requirements to keep the register up to date and the penalties they may incur if they don’t comply with the rules. Our team of specialist lawyers and tax advisers are happy to help with registration and ongoing maintenance and any TRS related queries.

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This article is provided for general information only and reflects the law at the date of publication. It does not constitute legal, financial, or other professional advice so should not be relied on for any purposes. You should consult a suitably qualified lawyer or other relevant professional on a specific problem or matter. Please see our terms and conditions for further details.