EXPLAINED: The New Tax Rules Affecting Family Trusts
Before you register a Family Trust, there are new rules to consider regarding Tax and Trusts. Tilly Bailey & Irvine Solicitors in Teesside explain the process.
In accordance with Money Laundering regulations, which came into force in 2017, trustees are required to register certain trusts with HMRC via the Trust Registration Service (TRS). The TRS is an online service which provides a single route for trustees (and personal representatives of complex estates) to comply with their registration obligations and to obtain a Self-Assessment Unique Taxpayer Reference (UTR). It records important information about the family trust, the settlor, the trustees, the beneficiaries and any other person with control of the trust i.e. protectors.
Under the regulations, it was necessary to register a trust with the TRS only if it was liable to UK tax.
However, on 6th October 2020, the government introduced new rules regarding family trust registration. The new rules, introduced in line with the Fifth Money Laundering Directive, extend the scope of the trust register to all UK trusts and some non-UK trusts – irrespective of whether they pay tax.
The TRS is now open for non-taxable trust registrations. For non-taxable trusts in existence on or after 6 October 2020, there is a deadline of 1 September 2022 to register the trust. Any non-taxable trusts created after September 2022 must be registered within 90 days.
Trusts that need to be registered
The following trusts must be registered with the TRS, regardless of their tax liabilities:-
- All UK express trusts (unless they are specifically excluded – see below)
- Non-UK express trusts which:-
- acquires land or property in the UK; or
- has at least one trustee resident in the UK and the trustees enter into a ‘business relationship’ with the UK (i.e. financial institutions, accountants, tax advisors, legal professionals etc.)
- Non express trusts and specifically excluded express trusts which have a tax liability
An “express trust” is a trust which is created intentionally by a settler (as opposed to trusts created by operation of law such as statutory, resulting or constructive trusts).
Trusts that do not need to be registered
The following trusts are excluded from the requirement to register, unless they become subject to tax:-
- Pension scheme trusts
- Trusts used to hold life or retirement policies providing that the policy pays out on death or on becoming terminally ill, critically ill or permanently disabled
- Trusts used to hold insurance policy benefits on the death of the assured providing that the benefits are paid out of the trust within 2 years of the death
- Charitable trusts
- Pilot trusts set up before 6 October 2020 and which hold no more than £100
- Co-ownership trusts used to hold shares of property for tenants in common
- Will trusts created by a person’s Will providing that they only hold estate assets for up to 2 years after death
- Trusts for bereaved children under 18 and 18-25 trusts set up following their parent’s death or under the Criminal Injuries Compensation Scheme
- Trusts used to hold client money or other assets which are created in the course of professional services or business transactions
- Personal injury trusts
- Trusts of jointly held property where the legal and beneficial owners are the same
- Statutory trusts arising on intestacy
What do I need to do now?
The legal responsibility to register a trust lies with the trustees. If you are a trustee of a trust, which is now registrable under the new rules, then you must ensure it is registered with the TRS by 1 September 2022.
In addition, from 2022 onwards, the trustees must notify HMRC of any changes to registered information within 90 days.
At present, the rules regarding the registration of taxable trusts remain unchanged. If the trust has become liable to tax for the first time, the trustees must register the trust with the TRS by 5 October after the end of the tax year in which the liability arose. If the trust has been liable to tax before, the trust must be registered by 31 January following the end of the tax year in which the liability arose.