Trust Registration Service: the deadline approaches

The deadline of 1 September 2022 for registration of express, non-taxable trusts with the Trust Registration Service (TRS) is fast approaching. We look at what trustees need to do and which trusts that are commonly set up by financial advisers are likely to be affected.

The origins of the TRS

The TRS was originally set up as part of the UK’s response to the 4th Anti-Money Laundering Directive in order to meet its obligations to collate information about UK taxable trusts. Following the introduction of the 5th Anti-Money Laundering Directive in January 2020 the ambit of the TRS has been extended to cover non-taxable express trusts, unless they are out-of-scope. (Express trusts are those trusts which are deliberately created as compared to trusts which arise due to the operation of law, for example resulting and constructive trusts). In addition to creating the register, the government will be required to share data from it with a specified range of persons under certain circumstances.

Data to be provided

A broad range of information has to be provided when registering the trust, much of it centred around the identity of the trustees, beneficiaries and those people with control over the trust such as protectors and others. The time limits for registration are 1 September 2022 for trusts in existence on 6 October 2020 and ninety days from their creation for trusts set up after 1 September 2022 or within the 90 day period beforehand.

Out of scope trusts

Trusts declared by HMRC to be out-of-scope do not need to be registered. These include trusts which come into existence for minor beneficiaries under the intestacy rules, jointly owned property when the legal and beneficial owners are the same, and Will trusts where the trust property is distributed within two years of the deceased’s death.

Whilst trusts created by a parent’s Will in favour of their child aged under 18, or aged between 18 and 25, do not have to register, a trust created by a Will to hold the family home (usually with the surviving spouse having a life interest) will be required to register unless the trust comes to an end within two years of the deceased’s death.

Trusts of particular relevance to financial advisers and wealth managers

Trusts are of course frequently used in the context of financial advice, from the simple case of a life insurance policy being placed in trust to prevent the proceeds becoming subject to inheritance tax, to more complex planning such as gift and loan trusts. Advisers need to be aware of when such trusts will require registration.

A trust holding a life policy which only pays out on death, terminal or critical illness or the permanent disablement of the person assured will be excluded even if the policy has a surrender value such as a whole of life policy. By comparison if the whole of life policy is surrendered, or pays out on the death of the life assured, and the policy proceeds are retained in the trust, registration will then be required.

However, investment bonds with periodic payments in the form of surrender or part surrender are not excluded from registration. HMRC states that this is “because the withdrawals are intended from the outset”. For example, if a client takes out an investment bond which is put into trust and they withdraw 5% per annum, HMRC states that as “the withdrawals are anticipated as an integral part of the design of the policy” they constitute pay outs. As the pay outs do not occur on the occasions listed above in relation to life policies (ie death, disablement, critical illness etc) the trust will have to be registered.

Bare trusts

Bare trusts are arguably used more often since the change in the trust laws in 2006 with a parent perhaps transferring or buying investments in their name and holding them on trust for their minor child. Such trusts will have to be registered, although bank accounts held on bare trust for a minor child aged under sixteen or for an older incapable person will not. Financial products described as trusts, but not in reality trusts (for example, Child Trust Funds), perhaps self-evidently will not have to register.

Further advice

Clarke Willmott has a large trust team and will be registering many trusts. If you need any further advice on the process, or would like us to assist you, please get in touch.