There are many reasons why some of your money might be in a trust structure, including protecting money for a young person; ensuring that you do not pay too much inheritance tax; and shielding wealth in complex family situations.
However, a new rule from the government means that even those with relatively simple financial affairs will have to register the trusts that they use with the HMRC or face a fine.
Here is what you need to know.
What is changing?
At present, only some trusts need to be registered with the taxman, mostly if they are liable to tax. From September 1, however, almost all UK registered trusts must register on the digital Trust Registration Service. Any new trusts created after that have 90 days to do the same, whether or not they will be liable for tax.
The trusts that are affected are called ‘express’ trusts, which means they are created deliberately, usually in written form. This refers to most trusts that are used by UK financial advisers.
Previously, registration was only necessary if a trust was liable to tax, but this is no longer the case.
The change is due to new money laundering rules that were written in the EU but are now in force in the UK too.
Which trusts are included?
The trusts that must register include the following:
- UK trusts including non-taxable ones. This means trusts where at least one trustee is UK resident, and the person who set it up lived in the UK when they did so.
- Non-UK trusts if they have a tax liability on UK income or UK assets
- Non-UK trusts that acquire an interest in UK land, if that interest is or was acquired after October 5, 2020.
- Non-UK trusts that have a business relationship with professionals such as tax advisers or bankers in the UK
Which trusts are not included?
- Most insurance policies that are held in trust1, with some exemptions
How are the trusts registered?
Trusts must be registered online on the Trust Registration Service (TRS) which works in a similar way to an ordinary taxpayer account with HMRC.
The first step is to register with the Government Gateway as an organisation, which will allow you to gain a user ID and password,
The next step is to sign into the service and create a new Unique Taxpayer Reference for the trust.
The lead trustee (the one who deals with the day-to-day affairs of the trust), must then give details of the ‘settlor’ of the trust – usually the person who set it up and made the gift into it and then give details of the other trustees.
They then need to add details of the beneficiaries of the trust, including their mental capacity, and whether there are any company or controlling interests.
If this information cannot all be added immediately, progress can be saved for 28 days.
Once the information is submitted, trustees will receive a Unique Reference Number for the Trust.
Do trustees have to do this themselves?
Trustees can register themselves or can ask an agent to do it for them. An agent must be working as an accountancy firm and be a member of certain accountancy bodies, so in most cases a financial adviser does not count.
However, a lead trustee can give written permission for a financial adviser to do this on their behalf.
What happens if trusts aren’t registered in time?
There are penalties. If registration is three months late there is a £100 penalty, rising to £200 for being three to six months later. If registration is more than six months late the fee is either five per cent of the tax liability of the trust or £300, whichever is the greater.
What should I do next?
If you think any of your financial products are held in a trust and might be affected, contact your financial adviser, who will confirm whether they need to be registered and whether they can help with the process.
Take a look at the government’s website for registering a trust.
https://www.gov.uk/guidance/manage-your-trusts-registration-service.
1 https://www.gov.uk/hmrc-internal-manuals/trust-registration-service-manual/trsm23030