Trusts can be a valuable tool for financial planning. Whether you’re managing your estate or want to grow a nest egg for a child or grandchild, they can be hugely useful.
Back in 2017, HMRC set up the Trust Registration Service (TRS) to help stop criminals from using trusts for money laundering purposes. As part of this, they have implemented new rules that require trustees to register their trusts by 1 September.
If you fail to do so before the deadline, you could face a sizeable penalty charge, which is why it’s important to act quickly. With that in mind, read on to find out who this change will apply to and what you need to do about it.
The Trust Registration Service aims to crack down on money laundering
As part of the EU’s 4th Money Laundering Directive (5MLD) to crack down on criminals, in 2017 HMRC created the TRS to ensure that UK trusts were in line with European laws. Even now that we have now left the EU, the change remains in place.
In 2020, further rules were implemented as part of the 5th Money Laundering Directive. These changes expanded the scope of the TRS, meaning that a much wider range of trusts now have to register. In particular, this includes:
- All UK express trusts, regardless of whether they have UK tax liabilities
- Non-UK trusts that contain UK assets and have UK tax liabilities
- Non-UK trusts which have at least one UK resident trustee
- Non-UK trusts which hold UK land after 6 October 2020.
Of course, there are some exceptions to this, which we’ll explore later, but if you hold such a trust then you’ll have to register with the TRS before 1 September 2022. If you don’t, you could have to pay a penalty charge, which is why it can be prudent to act sooner rather than later.
Not all trusts have to register with HMRC as there are some exceptions
While these new changes require most types of trusts to be registered with the TRS, there are some exceptions to this. These include:
- Any trusts used to hold money or assets of a UK-registered pension scheme
- Trusts used to hold life or retirement policies that only pay out on death, critical illness, or permanent disablement, or to meet the healthcare costs of the person assured
- A charitable trust that is registered as a charity in the UK
- A trust that holds insurance policy benefits received after the death of the person assured, providing they are paid out within two years of their passing
- “Pilot” trusts that were set up before 6 October 2020 and hold no more than £100
- Co-ownership trusts setup to hold shares of a property or other assets that are jointly owned by two or more people
- Will trusts that come into effect on the person’s death, providing they hold the estate’s assets for up to two years after their passing
- Trusts for bereaved children under 18 years old, or adults aged 18–25 set up under the will of a deceased parent
- Financial or commercial trusts created for business transactions, which hold client’s money or other assets.
Furthermore, some types of bare trusts are also exempt from this change. For example, such trusts set up in the context of a business transaction may not have to register. Alternatively, Junior ISAs and bank accounts opened by a parent on behalf of a minor are also excluded.
You will need to provide information about the trust to HMRC during registration
Thankfully, even if you have to register your trusts before the deadline, the process isn’t too difficult. For a full breakdown of the process, read the useful guide on HMRC’s website to let you know what you’ll need to do.
Of course, you will need to provide them with some information, so it’s important to have all of your documents in order.
The new regulations require trustees to keep up-to-date written records of the actual and potential owners of the trust. That’s why, when registering one, you’ll need the following information:
- Full name of the trust
- Country where the trust is considered resident for tax purposes
- Place where the trust is administered
- Contact addresses of the trustees
- Full name of the advisers who are being paid to provide advice for the trust
- Details of the settlors and beneficiaries.
Under the new legislation, law enforcement authorities can request information about the owners of a trust, which is why it’s so important to keep accurate records.
Get in touch
If you have trusts and may need to register them before the September deadline, we can help. Email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note:
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
