New trust registration rules you need to consider

4 April 2020

Trust registration deadlines are changing and paraplanners need to know about them, says John Humphreys, inheritance tax specialist at WAY Investment Services

This article was first published in the March 2020 issue of Professional Paraplanner.

On 10 January 2020, the Fifth EU Money Laundering Directive (5MLD) came into force in the UK, with an objective to ensure that the UK’s anti-money laundering and counter terrorist financing regime is ‘up-to-date, effective and proportionate.’

As part of this, the rules and deadlines for registering trusts online with the Trust Registration Service (TRS) are set to change. Previously, Trusts only had to register with the TRS if a reportable tax event occurred. Under the new regime far more trusts will have to register, even if there is no tax to pay.

The challenge for advice teams is that the precise details of which trusts will need to register and the definitive deadlines have not yet been completely confirmed. Although 5MLD is now law, the implementation of the new rules for trusts has been delayed, and instead a new technical consultation* was opened by HMRC on 24 January. Interested parties have until 21 February to provide comment.

Initially, it seemed that a vast number of trusts would be affected by the new rules, with the Association of Taxation Technicians (ATT) estimating that the number of trusts on the TRS system could increase up to ten-fold from 200,000 to two million. The latest consultation document suggests that although trusts without a tax liability will still have to register, trusts that consist solely of pure protection policy with payment not made until death or terminal illness won’t have to – as it would be disproportionate to the risk of them being used for money laundering or terrorist financing. The same applies to charitable trusts, and registered pension schemes held in trust will also be exempt unless they aren’t registered with HMRC.

The consultation document has also suggested a completely new set of deadlines to those stated before;

  • trusts in existence on 10th March 2020 must register by 10th March 2022.
  • trusts set up after 10th March 2020 must register within the later of 30 days or 10th March 2022.
  • trusts set up on or after 10th March 2022 will have to register within 30 days.
  • Once registered, trustees will have 30 days to update any changes.
  • Until 10th March 2022, all trusts that incur a tax liability for the first time should register on TRS under the current process in place for 4MLD and tax registration purposes.

The penalties for failing to meet these deadlines are also still to be confirmed, but if deemed to be deliberate, could be ‘financial’.

Whilst the latest proposed deadlines now give trustees more time to register than suggested before, advice teams need to consider whether they have processes in place to cope with the changes. It seems fairly clear that trusts set up by families for estate planning and to pass assets inter-generationally will need to register. There is little point in delaying this for new trusts. It may also take some time to track down some older trusts, and time has a habit of flying. Perhaps this consultation could serve as a trigger for advisers to discuss and review with clients any trusts they may hold and possibly even have forgotten about.

From the point of view of Trustees, their already-extensive list of responsibilities is getting longer. As well as reading the latest consultation document, they need to ensure compliance with the Trustee Act 2000, which is very prescriptive and includes dealing with all payments to settlors and beneficiaries, trust expenses, accounts and tax returns, meeting tax reporting requirements (including exit and periodic charges) and be diligent. Included in this list of responsibilities, Trustees are also expected to conduct regular investment reviews, with a suitably qualified and certificated investment adviser.

Professional Trustees are well equipped for this, but it will be more of a challenge for some lay trustees. Existing Trustees will need to be sure they are prepared and willing to take on the new responsibility and fulfil all of their fiduciary responsibilities; this may be a trigger for them to consider employing the services of professional trustees instead. In the meantime, families setting up new trusts need to think very carefully about their choice of Trustees. Likewise, families considering appointing friends or family members as Trustees should question whether it is fair to put them in that position.

Advice teams need to keep on top of this. Trustees need to keep abreast of developments and listen out for new announcements. Professional Trustee services will be doing so already, for lay trustees it may be a little harder.

Professional Paraplanner