Risk to trustees from extended trust registration requirement

10 September 2019

As trustees and agents alike get to grips with the HMRC trust registration service (TRS), a change to EU law extends the net and the risk of trustees failing to meet registration obligations.

What is the beneficial ownership register for trusts?

The HMRC trust register resulted from the EU fourth anti-money laundering directive (4MLD) and records details about the trustees, beneficiaries, settlors and funds held in all trusts with a UK tax liability. Trustees were originally required to register relevant details of any trust with a liability to certain taxes for 2016/17 with a deadline of 5 March 2018. The relevant taxes include income tax, capital gains tax (CGT) (including non-resident capital gains tax), stamp or land tax, stamp duty reserve tax (SDRT), stamp duty land tax (SDLT), land and buildings transaction tax (LBTT) or land transaction tax (LTT) or inheritance tax (IHT).

This meant family trusts holding non-dividend paying shares in a family company, trusts holding residential property occupied by the life tenant, and life interest trusts where the income is directly mandated to the life tenant did not need to register. 

What does this mean for new trusts?

Trusts incurring a UK tax liability for the first time, whether new or old, are required to register in order to be issued with a unique taxpayer reference (UTR).  The TRS has effectively replaced the old, easily completed, form 41G, which was previously used to notify HMRC of new trusts and request a UTR.  Newly registerable trusts are required to register with the TRS by 5 October following the end of the tax year in which the relevant tax liability arises. 

Under the 4MLD rules, new trusts set up as ownership vehicles that do not receive income or realise gains  do not need to register with the TRS unless the trustees incur an IHT or stamp or land tax liability. 

Many trustees of new trusts have found themselves needing to register them with the TRS regardless, as a UTR will not be issued without registering and a UTR is required by many investment houses and banks in order to open accounts for  trustees. 

What's changing?

The EU fifth anti-money laundering directive (5MLD) was adopted in July 2018 and extends the application of the TRS to all UK resident trusts and non-UK resident trusts that own UK real estate or have a relationship with a UK entity subject to anti-money laundering rules. 

The requirement to register is extended to also include trusts solely comprised of life policies, and discounted gift trusts. The Association of Taxation Technicians has estimated the number of trusts required to register could increase from 200,000 under 4MLD to as many as two million under 5MLD.

Impact on trustees and agents

Trustees and agents will need to recognise the requirement and complete compliance responsibilities for many trust clients that historically haven’t required any annual filing. A consultation on the steps required to implement 5MLD closed on 10 June 2019 and the Government intends that the new provisions will come into force by 10 January 2020. Trustees who fail to register risk both civil and criminal sanctions as well as penalties for late registration, so not keeping abreast of the changes could be costly.

I'm a trustee, what do I do?

If your trust hasn’t already registered with the TRS, you should take the opportunity to discuss the 5MLD changes with your tax agent. RSM provides dedicated trust and legal services, utilising specialists with significant experience in advising UK and non-UK resident trusts on both the TRS and wider trust issues. 

If you have any queries regarding the TRS or any other trust related enquiries, please get in touch with Elizabeth Goshtai.