This note explains changes to the Trust Registration Service (TRS) relating to the extension of the registration requirement to include non-taxable express trusts (including bare trusts).
It also sets out the forthcoming deadlines for first registration of such trusts.
What has changed?
An obligation introduced in 2017 for UK and non-UK taxable trusts to register on HMRC's Trust Registration Service (TRS) has been extended to include all UK express trusts, unless specifically excepted, and certain non-UK express trusts.
Among other changes, the registration requirement now applies to many types of bare trusts, also known as nominee relationships. Bare trusts were not required to register under the original rules for taxable trusts, as any tax liability arising belonged to the underlying beneficial owner rather than the trustee.
What is the deadline to register a non-taxable express trust?
The new rules came into effect on 6 October 2020 and the deadline to register express trusts established on or before 3 June 2022, or any that have ceased to exist since 6 October 2020, is 1 September 2022.
Trusts that come into existence on or after 4 June 2022 should be registered within 90 days of creation.
In 2017, following the implementation in the UK of the EU's 4th Anti-Money Laundering Directive, an obligation was introduced for trustees with a liability to one or more specified UK taxes (taxable relevant trusts) to register their trust on HMRC's Trust Registration Service. This obligation continues and the relevant taxes are as follows:
In 2020, the UK implemented the EU's 5th Anti-Money Laundering Directive, which extended the scope of the Trust Register.
Which trusts are now subject to the requirement to register?
In addition to UK or non-UK taxable relevant trusts, the requirement to register on the TRS will apply to the following classes of trust:
Type A trusts: UK resident express trusts that are not registered in the EEA, unless expressly excluded;
Type B trusts: non-UK resident express trusts that have at least one UK resident trustee, and the trustees of which on or after 6 October 2020:
enter into a business relationship with a UK relevant person that has an element of duration (for example, lasts or is likely to last for at least 12 months), or
acquire an interest in UK land;
Type C trusts: non-UK resident express trusts that acquire an interest in UK land on or after 6 October 2020, that do not have a UK resident trustee.
What is an express trust?
The meaning of "express trust" is not defined in the new rules. However, in guidance, HMRC have indicated that an express trust is one created deliberately by a settlor, usually in the form of a document such as a written deed or declaration of trust.
Such a trust can be created either to take effect during the settlor’s lifetime, or by will, to take effect on death.
Examples of trusts and arrangements that may be registrable under the new rules
Some (non-exhaustive) examples of non-taxable express trusts that may be caught under the extended rules include the following:
- A trust of non-income producing assets, such as a house that is not rented out, a painting or other artwork.
- A bare trust for minor children or grandchildren, with the exception of cash savings accounts opened with an authorised financial institution, such as a UK bank or building society, which are expressly excluded. Bare trusts over investments such as stocks and shares held on trust for a minor child will be registrable.
- Land that is held by one or more individuals either for themselves and others or for others only. It is not uncommon for one or two of a larger group of beneficial owners of property to be registered by the Land Registry as legal owners on the title, for example where parents hold property for themselves and adult children.
Exceptions to the requirement for co-owners of property to register on the TRS would include registered owners, e.g. parents, who hold land for themselves and minor children, who cannot be registered as legal owners on the title.
Another exception would apply where more than four people own a property. Land Registry rules provide that a maximum of four people may be registered on the title as legal owners. For the purposes of the Land Register, the four legal owners hold the property beneficially for themselves and any additional owners. As this situation arises due to the operation of law rather than the intention of the property owners, there is no obligation to register this arrangement on the TRS.
- An acquisition of UK property on or after 6 October 2020 by trustees of a non-UK trust. The requirement to register on the TRS applies only where the trustees have acquired property directly, and not where property is held through an underlying corporate vehicle. (It is worth noting that recent legislation is due to come into force shortly that will impose registration requirements on overseas entities that own property in the UK.)
Which trusts are excluded from the requirement to register?
Certain trusts do not need to register on the TRS unless they are liable to pay UK tax. Broadly, these include:
- trusts used to hold money or assets of a UK-registered pension scheme, such as an occupational pension scheme.
- trusts used to hold 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.
- trusts holding insurance policy benefits received after the death of the person assured, providing the benefits are paid out from the trust within 2 years of the death.
- charitable trusts which are registered as a charity in the UK or which are not required to register as a charity.
- ‘pilot’ trusts which were set up before 6 October 2020 and which hold no more than £100 – pilot trusts set up after 6 October 2020 will need to register.
- co-ownership trusts set up to hold shares of property or other assets which are jointly owned by 2 or more people for themselves as ‘tenants in common’.
- will trusts which are created by a person’s will and come into effect on their death providing they only hold the estate assets for up to 2 years after the person’s death.
- trusts for bereaved children under 18 or adults aged 18 to 25 set up under the will (or intestacy) of a deceased parent or the Criminal Injuries Compensation Scheme.
- ‘financial’ or ‘commercial’ trusts created in the course of professional services or business transactions for holding client money or other assets.
Trusts which are not set up deliberately by a settlor but are imposed by Courts or created by legislation, are not ‘express trusts’ and therefore do not have to register unless they are liable to tax. Examples of such trusts include a trust:
- set up under the intestacy laws when a person dies without a valid will and the assets in the estate are held by a trust before passing to relative
- set up under a Court Order to hold compensation payments
- to hold jointly owned assets, such as a home jointly owned with a spouse, partner or relative as ‘joint tenants’, or a joint bank account.
Some financial products and arrangements with ‘Trust’ in their description, such as the Child Trust Fund or Venture Capital Trusts, are not really trusts and so do not have to be registered.
Are trustees obliged to update the TRS?
Trustees are obliged to keep the trust register up to date. The deadlines for doing so are as follows:
- Information on the TRS must be updated within 90 days of the date that trustees become aware of changes to the trust details or beneficial ownership.
- If a trust is taxable, the trustees must declare the trust is up to date on an annual basis by 31 January.
Third country entities - additional requirements for certain trusts
Trustees of Type A and Type B trusts are required to tell HMRC when they hold a controlling interest in a third country entity.
Broadly, trustees are regarded as having a controlling interest in an entity if they hold directly or indirectly more than 50% of the shares or voting rights in the entity, or a right to appoint or remove a majority of the directors, or they have the right to exercise, or actually exercise, significant influence or control over the entity.
A third country entity is a body corporate (such as a company), partnership or other entity that is governed by the law of a country or territory outside the UK and the EEA (EU, Norway, Iceland or Liechtenstein, and that is a legal person under that law.
Trustees of Type C trusts are not required to provide information on controlling interests in third country entities.
Is information held on the TRS publicly accessible?
Law enforcement agencies can already obtain information on the register about a trust and its beneficial owners to help counter money laundering and terrorist financing. In the future, individuals and organisations may be able to request specified information about the beneficial owners of trusts, other than Type C trusts, in certain, limited circumstances.
HMRC will not give information about beneficial owners if they are minors, lack mental capacity or are at risk of, for example, blackmail, extortion, violence or intimidation as a result of releasing that information.
Next steps for a settlor or trustee that may be registrable on the TRS
This note provides a brief outline only of the expanded TRS rules. If you are the settlor or trustee either of an existing trust or one that ceased to exist on or after 6 October 2020, that is not already registered on the TRS, please get in touch with a member of our Private Client team or with your usual Howard Kennedy contact.
We will be able to review with you whether your trust is registrable and determine how best to ensure that this is achieved by the relevant deadline.
Record keeping obligations for trustees of non-registrable trusts
Even if a trust is excluded from the requirement to register on the TRS as it falls within one of the specific exclusions, there may still be a requirement for the trustees to maintain written records of the beneficial owners of the trust. If you have any questions about possible record keeping requirements that may apply to a trust of which you are settlor or trustee, please also get in touch with a member of the team.