Anti-money laundering rules require trust registration by 1 September

Around a million trusts have not yet been registered with HMRC ahead of the 1 September 2022 deadline, according to official figures. The Trustee Registration Service began registering trusts in 2017, but has only registered just over 200,000 despite over 61,000 being added in the first six months of this year.

The ubiquity of trusts for tax and estate planning means many people may not realise they have a trust, or that they are required to register it with the TRS. Initially, registration was only required if the trust was liable to pay UK tax, such as income tax, capital gains tax or inheritance tax.

Since the fifth money laundering directive, trustees of any UK express trust must register key information about the trust, including personal details and named beneficiaries. The rules also cover trusts that use an offshore bond.

New trusts must be registered within 90 days of creation.

Which trusts do not need to be registered with the TRS?

Only a limited number of trusts do not need to be registered. These trusts which do not require registration include:

• trusts holding money or assets of a UK registered pension scheme
• trusts holding life or retirement policies providing they only pay out on death, terminal or critical illness or permanent disablement, or to meet healthcare costs
• trusts holding insurance policy benefits received after death (as long as the benefits are paid out from the trust within 2 years of the death)
• pilot trusts set up before 6th October 2020 holding no more than £100
• co-ownership trusts set up to hold jointly owned assets for two or more people (provided the legal and beneficial owners are the same people), for example where a property is held in more than one name
• will trusts (provided they only hold the estate assets for up to two years after the person’s death, from which point they will require registration)
• charitable trusts

What are the registration deadlines for trusts?

Non-taxable trusts that were created on or before 6th October 2020 must be registered by 1st September 2022.

Non-taxable trusts that were created after 6th October 2020 must be registered within 90 days of creation or becoming liable for tax, or on or before 1st September 2022, whichever is later.

Trusts that are liable for Income Tax or Capital Gains Tax (CGT) for the first time must be registered on or before 5th October in the tax year after the one in which the trust starts to receive any income or has capital gains, and becomes liable for Income Tax or CGT.

Trusts that have been liable for Income Tax or CGT before must be registered by 31st January in the tax year after the one in which the trust becomes liable for Income Tax / CGT.

Trusts that are liable for other taxes such as Stamp Duty Land Tax or Stamp Duty Reserve Tax must be registered by 31st January in the tax year after the one in which the trust has any other tax liability, such as Inheritance Tax.

If a trust is liable for more than one tax and both deadlines could apply, it must be registered by the earlier of the deadlines.

Trustees must also ensure an accurate record of information on the TRS. Any changes should be notified within 90 days of the change. Changes could include details of the beneficial owners, or changes to the trust itself such as starting to incur a UK tax liability or the purchase of UK land or property.

Trust registration and changes can be done online via the TRS system. The TRS is now the only route for trustees to obtain a UTR (unique taxpayer reference) so that a self-assessment SA900 Trust and Estate tax return can be submitted to HMRC.

What are the penalties for failing to comply?

Given that registration is relatively new for many trustees, there is no penalty for a first offence or failure to register or late registration. That is unless the failure to register is due to deliberate failure on the party of the trustees. If failure to register is due to deliberate behaviour, then a £500 penalty can be charged per offence.

This means that should HMRC be aware of a trust that has not been registered by the deadline, they can issue a warning letter to the trustee or agent. At that point, the trust should be registered. Failure to do so, or failure to register the trust within the stated time, could lead to a penalty.

After a nudge letter from HMRC, if the trust is still not registered, the lead trustee could face a fine of up to £5,000. They will be personally liable for this fine, it will not be able to be taken from the trust’s assets. 

What changes to trusts mean for regulated entities

From 1 September 2022, relevant persons under money laundering regulations, such as banks, insurance companies and advisers, will not be able to establish new business relationships with trustees unless the trustees have demonstrated they have registered the trust on the TRS. 

Regulated entities should also require trustees with whom they have existing relationships to provide proof of the trust’s registration before processing any transactions after 1 September. Regulated entities may be required to report any discrepancies in trust information to HMRC.