Update on the new online Trusts Register Service
9 November 2017
In both May 2017 and July 2017 editions of Oracle Technical, I wrote about the new Trusts Register Service (TRS).
Very briefly, seven key points arose from these articles.
1. Paper form 41G used to register a trust was withdrawn in April 2017 and instead an online register became operational on 13 July (albeit with limited functionality).
2. In the past, Form 41G was not required where there was no income arising, and no likelihood of income or gains in the future (a useful exclusion in situations where the trust fund simply comprised a non-income producing investment bond).
3. The register will need to be updated each year that the trust generates a UK tax consequence. This includes those trusts that have already registered using Form 41G.
4. Trusts with UK liabilities will be required to register whether UK or non-UK resident.
5. A UK tax liability comprises income tax, capital gains tax, inheritance tax, stamp duty land tax, stamp duty reserve tax and (in Scotland) land and buildings transaction tax.
6. Bare trusts are excluded from reporting.
7. The first reporting deadline was set at 5 October 2017, but now postponed to 5 December. The postponement applies only to this year – the 5 October deadline will apply for all future years, for trusts that have not previously been registered. The deadline for updating information on trusts that have previously been registered is 31 January in the following tax year – the same as for self-assessment income tax returns.
HMRC has now published guidance for users of the new online service which is accessed through GOV.UK.
The legal responsibility for registration lies with the trustees. Where there are multiple trustees, it is a matter for the trustees to decide and appoint a lead trustee to complete the registration process. The trustees can appoint an agent to complete the registration process if they so wish.
With regard to professional advisers, the TRS requires the details of the agent (if one exists) that is registering on behalf of the trustees. No further information on other advisers is required. In saying that, trustees should keep their own written records of any advisers being paid to provide legal, financial or tax advice in relation to the trust.
When a trust is registered on the TRS for the first time, that is a new registration process. In later years the trustees will either just update the details of the existing registration or confirm that the details remain up to date and accurate.
Note that the data on the Register is not available to the public. It can only be shared by HMRC with law enforcement authorities in the UK or in another EEA member state if requested.
The guidance is very detailed and therefore the following simply reflects some of the ‘highlights’ that may be particularly relevant for advisers.
The legal requirement for a TRS originated in the EU Fourth European Money Laundering Directive, which came into effect in June 2017. In addition, however, it complements HMRC’s digital strategy and provides greater tax transparency going forward.
Registration will provide a single online route for trusts (and complex estates) to comply with their registration obligations and to obtain their Self-Assessment (SA) Unique Taxpayer Reference (UTR).
An estate is considered complex if
• the value of the estate exceeds £2.5 million
• tax due for the whole of the administration period exceeds £10,000
• value of assets sold in any tax year for date of deaths up to April 2016 exceeds £250,000 or £500,000 for date of deaths after April 2016
Which UK trusts need to use the TRS?
An ‘express trust’ where the trustees have incurred a liability, in a given tax year, to pay any of the UK taxes listed in point 5. above. The term ‘express trust’ means a trust that was deliberately created by a settlor expressly transferring property to a trustee for a valid purpose, as opposed to a statutory, resulting or constructive trust.
Which UK trusts do not need to use the TRS?
Those falling under these circumstances
• if the trustees do not need to file a tax return and have not incurred a UK tax liability as identified above.
• the settlor or a beneficiary of the trust has incurred the UK tax liability but the trustees are not liable.
• the trustees of a bare trust where no UK tax liability arises at trust level.
• the trustees of a charitable trust will not have to register until they incur a UK tax liability.
With regard to the first bullet, a discretionary trust holding a non-income producing investment bond springs to mind (assuming also no IHT liabilities). Remember, however, that UK resident trustees may become taxable if a chargeable event gain subsequently arises and the settlor cannot be taxed because he/she is deceased or non-UK resident. For example, if the bond is held in a discretionary will trust then the trustees will need to register if a chargeable event gain occurs. If a UK resident settlor is still alive then that person will be taxable albeit that he/she may recover the tax from the trustees. That situation seems to fall under the second bullet point.
When do trustees need to complete and submit the registration?
This depends on whether the trust is already registered for Self-Assessment (SA) for income tax or capital gains tax (CGT).
Trust already registered for SA
o Where the trustees incur a UK tax liability in a given tax year, then registration must be completed by no later than 31 January after the end of that tax year.
Trust not registered for SA
o Where the trustees incur an income tax or a CGT liability for the first time in a given tax year, then registration must be completed by no later than 5 October after the end of that tax year.
Trust not registered for SA
o Where the trustees incur either an inheritance tax, stamp duty land tax, stamp duty reserve tax, or a land and buildings transaction tax (Scotland) liability in that tax year, then registration must be completed by no later than 31 January after the end of that tax year.
In this first year of the TRS, there will be no penalty where registration is completed after 5 October but before 5 December 2017. This only applies to a trust that is not already registered under SA and has incurred either an income tax or a CGT liability for the first time.
What information is required by the TRS?
Details of the trust assets, including addresses of UK properties, and a market valuation of assets held at the date that the assets were settled.
In addition, the identity of the settlor, trustees, any person exercising effective control over the trust and the beneficiaries or class of beneficiaries (where individual beneficiaries have yet to be determined or identified).
The information required will include
• Date of birth
• NI number (NINO) if UK resident, unless under 16 years old, or a UTR, if any
• An address and passport or ID number for non-UK residents, if no NINO
The guidance notes contain examples relating to the disclosure of beneficiaries.
If there are any changes to the trust when does the TRS need to be updated?
Updates to the TRS are required by 31 January after the end of the tax year in which the change occurred if the trustees incurred a UK tax liability in the previous tax year. However, in practice HMRC will expect trustees to ensure that details of their trust are accurate and up to date at any point in time they make changes on the Register. Where no relevant changes have taken place since the end of the previous tax year, the update can be limited to confirmation that no such changes have occurred.
If the trustees have no UK tax liability (in respect of any given tax year) there is no requirement to update the Register. An update will then need provided by 31 January after the end of tax year in which the trustees have a UK tax liability. However, changes can be made on a voluntary basis, even if the trustees had no UK tax liability.
Changes can be made to the trust’s correspondence address, the lead trustee can be changed, and it is possible to add or remove the details of the people who are associated with the trust at any time. For example, it is possible to add a new beneficiary or remove from the Register altogether a trustee or even an existing beneficiary if they are no longer deemed to be either an actual or potential beneficiary. It is also possible to close a trust or estate if it ceases to exist. These changes can be made at any time, and it is possible to update the information held on the Trust Register (in relation to any individual trust) on multiple occasions in the course of any given tax year.
The details of trust assets are only provided once at the first point of registration and if this changes over time there is no need to update information about the trust assets on the Register.
Although registration is not required for bare trusts, the legislation still requires that trustees hold accurate and up-to-date written records of all the actual and potential beneficial owners of the trust.
Interest in possession trusts where the income has been mandated to the income beneficiary
If the income is not received by the trustees, because it is paid directly to the beneficiary, then HMRC have no statutory basis to charge the trustees to income tax. Therefore, the trustees have not incurred an income tax liability. No registration is required unless the trustees have incurred an income tax liability on other income, or they have incurred another tax liability, for example CGT.
For more information on this type of trust and mandating income then please see the September edition of Oracle Technical
Discretionary trusts and IHT
If a trust incurs IHT charges in 2016/17 but had no further UK tax charges until the 10th anniversary in 2026-27 then what is the position?
The trigger point for registration is when the trustees have incurred a UK tax liability. So, if the trustees incur a UK tax liability in 2016/17, then registration is required by 31 January 2018.
If no further relevant UK tax is paid until 2026/27, the next deadline is 31 January 2028 by which point the registered information must be updated or, where it remains up to date and accurate, a declaration that no changes have occurred. However, it is possible to voluntarily update the registered information before 31 January 2028.
Where the trust is registrable because there is an IHT liability, the registration deadline is determined by reference to the event and not the payment deadline (which is 6 months later). For example, consider an event which arises on 16 January 2017 with a payment deadline of 16 July 2017. In that case, the trust needs registered by 31 January 2018 i.e. 31 January after the end of 2016/17.
Do trustees of all UK ‘express’ trusts regardless of incurring a tax liability in a given tax year need to maintain accurate and up to date written records?
Yes. HMRC expect the trustees to maintain accurate and up to date written records of all the actual and potential beneficial owners of the trust as set out under regulation 44(1) of the legislation.
Written information to be maintained:
o Full name of the trust
o The date on which the trust was created
o The country where the trust is considered to be resident for tax purposes
o The place where the trust is administered
o A contact address for the trustees
o Full name of advisers who are being paid to provide legal, financial or tax advice to the trustees in relation to the trust
o Details of the settlors and beneficiaries
This information should be held because under the legislation any law enforcement authority can request information about the beneficial owners of the trust including from a trust which does not incur a liability to any of the relevant UK taxes.
Penalties for non-compliance
HMRC will set out in the near future the penalty framework.
To read the full technical Oracle please visit Pruadviser.