Trust the process?

07 June 2022

Many people understand the concept of a trust, where a trustee legally owns assets held for the benefit of somebody else. Trusts have had an image problem in recent times, with the perception being that they are used by the wealthy to purposefully hide the true owner of assets and any associated obligations. In order to improve transparency, HMRC set up a register for trusts and complex estates in 2017 to record the true ownership of assets.

This register was previously only for taxable trusts (ie trusts that submit tax returns and have a UK tax liability), but the scope of HMRC’s trust registration service (TRS) was extended on 6 October 2020. From that date all UK express trusts (ie trusts created intentionally by a settlor, usually but not always by a written deed or declaration, including bare trusts, nominee arrangements and trusts without a trust deed), and some non-UK trusts now also need to register. The deadline for registration of non-taxable express trusts in existence on or after 6 October 2020 is 1 September 2022. Trusts set up, or otherwise becoming registerable in the 90 days immediately prior to 1 September 2022, and trusts created after that date must register within 90 days of creation. An initial penalty of £100 and additional penalties for ongoing delays will be levied for late registration, and HMRC may even pursue criminal proceedings where a money laundering offence has occurred.

Whilst the concept of understanding true ownership to counter abuse of the tax system and money laundering is difficult to argue with, the broad definitions of registerable trusts could potentially catch a wide range of everyday arrangements. Parents holding bank accounts on bare trust for their minor children are exempted from reporting, but many similar arrangements that amount to trusts, potentially including pension trusts and death in service benefits, holding investments on behalf of children and ownership of property will need to be considered on their own merits and a conclusion reached on whether they need to be registered or whether they fall into one of the exempt categories.

In addition, far from being a problem just for the wealthy, there is no de minimis value for a trust needing to register under the new rules. Any trust set up since 6 October 2020 will potentially be within the remit to report and there is no mitigation of the late filing penalties, which could easily exceed the value of the trust fund. With the deadline for registration fast approaching, all individuals should review their personal arrangements – including protection policies, investments or property holdings and ensure that registerable trusts are registered in advance of the relevant deadline.