TRS - What's all the fuss about?

For many, and especially as the requirements of the new extended system are not immediate, this has not been at the top of the list, and indeed, after recently discussing the subject with some advisers, the question at the end was: "What does TRS stand for?"

So, this month, in addition to the overview, we will cover some more detail of the new system of trust registration for non-taxable trusts.

What is the Trust Registration Service (TRS)?

The TRS is the online HMRC system for registration of trusts. It is nothing new as such as it was introduced in 2017 for two reasons: first, to replace the paper based system of notifying HMRC of a trust's existence. Until then form 41G(Trust) had to be used for this purpose, and some may even remember the ancient time before that form came into use, when the entire trust deed had to be sent to the then Inland Revenue. The second reason was to comply with the 4th EU Money Laundering Directive, transposed into UK law by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. This affected only those trusts which had certain tax liabilities during a tax year. The system involved having to register the trust and provide relevant details using HMRC's online system. It is not possible to do this using any other method.

This was followed by the 5th EU Money Laundering Directive and the consequent Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020 (SI 2020/991), which amended the 2017 Regulations, and which came into effect on 6 October 2020. Under these new rules, even if there is no tax liability, almost all trusts set up during lifetime (with some exceptions, see below), as well as certain will trusts, have to be registered. This is referred to as the TRS extension. However, there are different sets of rules for trusts which have already had to be registered under the previous rules ("taxable trusts") and for trusts without tax liabilities ("Non-taxable trusts"), which, up to now, have not had to register.

In addition, for trusts that are already registered, there is a new requirement for additional information about the beneficial owners.

The previous deadline for registration of non-taxable trusts under the new rules was 10 March 2022, but as the new IT system for the TRS was not ready in time, HMRC was obliged to postpone this - while publishing, last May, their guidance notes and a new TRS Manual to guide us through the new process.

Which trusts need to register and which do not - an outline

As indicated above, there are different rules for taxable and non-taxable trusts. Any trust that becomes liable for UK income tax, capital gains tax (CGT), inheritance tax (IHT), Stamp Duty Land Tax (SDLT) or Stamp Duty Reserve Tax (SDRT) will need to be registered on the TRS in order for the required trust tax return to be issued. This is nothing new.

What follows is an outline of the new rules on which non-taxable trusts will also need to register and which will not.

Broadly speaking, all UK resident express trusts (see last month's article on what is an express trust), other than those which are specifically excluded, see below, will have to be registered on the TRS.

Non-UK resident trusts will only have to register where the trustees (in their capacity as trustees):

• acquire an interest in UK land; or

• enter into a new business relationship with an entity in the UK that is required to carry out customer due diligence checks in relation to the trust (e.g. a bank, lawyer, estate agent, accountant) where at least one of the trustees is UK resident and the beneficial-owner information in relation to the trust is not held on a central register in another EEA country; or

• are liable to UK tax on UK source income or UK assets.

Excluded trusts (Schedule 3A excluded trusts)

The types of trust (whether UK resident or non-UK resident) which will not have to be registered on the TRS include:

• Trusts that arise as a result of statutory requirements – for example, statutory trusts arising for minor children under the UK intestacy rules.

• Trusts created by, or to satisfy, a court order – for example, on divorce or the dissolution of a civil partnership.

• Pension scheme trusts.

• UK charitable trusts.

• Trusts for a bereaved minor (TBM) and “18-to-25” trusts.

• Trusts created by a will which are wound up within two years of the deceased’s death.

• ‘Pilot’ trusts created before 6 October 2020, where the value of the property held by the trust does not exceed £100.

• Co-ownership trusts where two or more people co-own an asset legally and beneficially for themselves (i.e the trustees and beneficiaries must be the same persons) – for example, a bank account or shareholding or jointly-owned UK land.

• Trusts of life assurance policies or policies solely for the payment of retirement or death benefits - which only pay out on the death, terminal illness, or permanent disablement of the insured; or to meet healthcare costs.

• Trusts holding only benefits received on the death of a life assured from a policy described immediately above, provided the benefits are paid out to beneficiaries within two years of the death of the life assured.

• Trusts incidental to commercial transactions.

• Authorised unit trusts.

New deadlines for registration of non-taxable trusts

The new deadline for registrations for non-taxable trusts in existence on or after 6 October 2020 is 1 September 2022 (which is the promised 12 months from when the new extended system went live). Non-taxable trusts created after 1 September 2022 must register within 90 days (this is a useful extension from the 30 day limit to register a new trust in the original legislation).

The above is a quote from the HMRC's latest update, which, frankly, could be clearer. For example, if a trust is created on 30 August 2022, by what date will it have to register? Doubtless we will have some further clarifications from HMRC.

Other TRS matters                                                            

In addition to the extension of the categories of trust that need to be registered there are additional requirements in relation to the information that needs to be provided, and this also affects trusts that are already registered (i.e. taxable trusts). We will cover this, as well as more detail on what information needs to be uploaded onto the register, next month.

Impact of the new rules

It is disappointing that there is no general exclusion for bare trusts and nominee arrangements. There are thousands of these arrangements, usually for minor children, and it can hardly be said they are used for money laundering purposes. Another disappointment is that pilot trusts, (such as “by-pass trusts” created with a nominal sum to receive pension death benefits), are only exempt from registration if they were created before 6 October 2020. In probably most cases of such trusts no substantial assets will ever be added to these trusts (as the pension plan holders will take their benefits when they retire) so the purpose of having to register these is, frankly, a mystery.

For financial advisers, the biggest change resulting from the TRS extension is the requirement to register trusts holding life assurance investment bonds which up to now have been excluded from registration until a chargeable event gain taxed on the trustees (i.e. a taxable event) arose. Clients holding such investments will no doubt need some assistance with compliance with their new obligations.

Comment

Now that we have a date by which the existing trusts have to be registered, advisers and providers of "standard" trusts holding their products, such as  bonds or collectives, will no doubt be considering how to offer assistance to their clients with this new obligation.

Many people would have set up trusts of life policies, or even investment bonds, years ago and may not even remember that there is a trust (or what they thought was just "another piece of paper" signed when they applied for a policy/made the investment) or that they are trustees of some trusts. They may need some help with unscrambling their arrangements.

Whether the requirement to register non-taxable trusts will prove to be not such a big deal (it will probably take less time than the completion of a passenger locator form currently required by the UK Government from those arriving in this country) or an existential threat to trusts (as predicted by some) will only become clear in time.