Regulations designed to stop people from laundering money in the UK or funding terrorism mean that all trusts (with limited exceptions) will now have to be registered with HM Revenue & Customs before 1 September 2022.
Trustees who fail to comply with the new rules could face fines and penalties from HMRC and will also have issues when trying to invest or withdraw their trust assets. Graham Fuller, a Partner in FBC Manby Bowdler’s Wills, Probate and Lifetime Planning Team takes a look at the regulations in more detail.
So, what has changed and why?
The Trust Registration Service (TRS) was set up in 2017 to record information about trustees and beneficiaries of all trusts which are required to pay tax.
Recently, the scope of the TRS has been extended to include all UK express trusts (unless specifically excluded) which includes non-tax-paying trusts, as part of the Money Laundering and Terrorist Financing (Amendment) Regulations 2022 which came into force on 9 March 2022.
An express trust is one which is deliberately created and will therefore include trusts within wills after the maker of the will has died and other lifetime estate planning trusts.
While most trusts are used for legitimate reasons as part of routine estate planning, the TRS registration process now applies to almost all trusts to ensure that anyone using trusts to launder the proceeds of criminal activities or to fund terrorism can be more easily identified and prosecuted.
How will you be affected?
If you have created a trust within your will, the obligation to register the trust is the responsibility of the named Trustees of your will, after your death.
The new rules are far reaching and may well catch people out if they are not alert to the extent of the changes.
The following are examples of what is considered standard estate planning, which are caught by the rules:
- where the person named as the legal owner of the asset is different to the beneficial owner – i.e. where property or land is held in the name of one person, but somebody else receives the income and/or is entitled to the proceeds of sale
- where a person has transferred assets into trust during their lifetime – this was quite common historically for the benefit of children or grandchildren
- where money is left to a minor beneficiary under a will or trusts were incorporated for tax or asset protection planning purposes.
Furthermore, certain estates require registration regardless of whether or not they incorporate a trust, if:
- the value of estate is worth more than £2.5 million
- the Executors of the estate sell more than £500,000 worth of assets
- income tax or capital gains tax liabilities exceed £10,000
As well as the financial penalties incurred by HMRC, there are other concerns for executors, if the registration of a trust is delayed. Third party agents, including solicitors, financial or property professionals and investment platforms may require formal confirmation of registration before they can accept instructions to act for a trust. So, investing or withdrawing from the trust’s assets may become very difficult indeed.
Deadlines for registration
For non-taxable trusts in existence on or before 6 October 2020, the deadline for registration is 1 September 2022. For those which came into existence after 6 October 2020, the deadline is 1 September 2022 or 90 days from its creation – whichever is later.
Where the trust is taxable, the dates will vary depending on the tax liability.
Are there any trusts which are exempt?
Some trusts will not be subject to the new TRS rules including (though not exhaustively) those that:
- hold money or assets of a UK-registered pension scheme
- holding life or retirement policies providing that the policy only pays out on death, terminal or critical illness or permanent disablement, or to meet the healthcare costs of the person assured
- hold insurance policy benefits received after the death of the person assured – subject to a requirement that the proceeds are paid out within 2 years of death
- operate for charitable purposes – provided they are registered as a charity in the UK or which satisfy the requirements for non-registration.
- were created on a ‘pilot’ trust basis before 6th October 2020 and which hold no more than £100. Pilot trusts set up after 6 October 2020 will need to register
- hold shares of property or other assets which are jointly owned by 2 or more people for themselves as ‘tenants in common’ -i.e the legal and beneficial owners are the same
- were created under a will providing they only hold the estate assets for up to 2 years after the person’s death
- are created under a will and satisfy the provisions of a “Bereaved Minor’s Trust” or and “18-25 Trust” as set down by HM Revenue and Customs, or are created under the rules of intestacy – where somebody dies without a will
- exist for the benefit of a disabled beneficiary.
However, to ensure you stay on the right side of the latest trust regulations it is worth taking legal advice on your current estate plans and following the latest advice on registration so you or your loved ones aren’t penalised under laws designed to catch out criminals.
If you need to speak to Graham Fuller about these new trust rules and how they might affect you, email email@example.com or call 01743 284149.