The Trust Registration Service – To register or not to register, that is the question

The Trust Registration Service (TRS) is a register of the beneficial ownership of trusts. An online service, providing a single route for trustees and personal representatives of complex estates to comply with their registration obligations under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI No. 2017/692), “MLR17” (while combatting money laundering, serious crime, and terrorist financing). 

Coming into force on 26 June 2017, trustees were initially required to register with the TRS if the trust was liable to pay any of the following taxes: income tax, capital gains tax, inheritance tax, stamp duty land tax (land and buildings transaction tax in Scotland) or stamp duty reserve tax – these “4MLD” rules replaced the paper 41G (Trust).

Since its infancy, the TRS has evolved a great deal; from data- and information-requirements and technical glitches, to the way in which changes to the trust are reported (changes in trustees, beneficiaries, assets or even the trust’s cessation), with the advent of the Annual Declaration (managing the trust) and Box 20.1- requirement of the Trust and Estate Self Assessment (SA) Tax Return. This required those registered trusts with an annual tax liability from 2019/20 to confirm changes to the trust, even where there were none, within a timeframe mirroring that of SA.

Possibly the biggest development came less than a year after the 4MLD was transposed into national laws of the EU members. On May 14, 2018, the Council of the European Union adopted the EU’s Fifth Money Laundering Directive (“5MLD”), with a transposition deadline of around December 2019, and an implementation deadline by February 2020, introducing even newer rules yet for the TRS. 

The 5MLD was in part a response to the terrorist attacks of 2015 and 2016 in Paris and Brussels, and in part a response to the Panama Papers leaks. It aims to bring more transparency to improve the fight against money laundering and terrorist financing by enhancing the powers of EU financial intelligence units (FIUs) to identify who really owns companies and trusts through beneficial ownership registers. Each EU member state has a similar register, and the UK agreed to maintain the TRS as part of the Brexit Withdrawal Agreement.

In response, HM Treasury revised MLR17 to take account of the changes required by the 5MLD – The Money Laundering and Terrorist Financing (Amendment) Regulations 2019. This new legislation was implemented on 10 January 2020.

The Devil is in the Details

The new rules were introduced on 6 October 2020, significantly widening the scope of the TRS. Now, all express UK trusts (including those with no tax consequences) apart from a few exceptions (see TRSM23000), and some non-UK trusts in existence on or after 6 October 2020, must register with HMRC by 1 September 2022, including trusts that have closed since that date (TRSM40010).

A critical point to understand is that the scope of these new rules also includes the co-ownership of property, except where specifically excluded. Co-ownership trusts are excluded from registration as registrable express trusts when they are either, (i) trusts of jointly held property where the trustees and beneficiaries are the same persons; or (ii) where a statutory trust has arisen.

Otherwise, there is a requirement whether taxable or not to register on the TRS under the expanded scope. Where the trustees and beneficiaries are not the same persons, exclusion from regulation does not apply. Examples include: joint ownership arrangements made, say, by way of declaration of trust; or trusts for partnerships – where land, or another asset is held on trust for a partnership. The latter is most commonly seen to arise in land-based businesses e.g. (but not limited to) farming partnerships. 

Property held as ‘joint tenants’ are considered to be ‘non express’ trusts which means they do not need to be registered unless they have a tax liability. At that time, they must be registered on the TRS for SA purposes, but the full scope of the Regulations will not apply.

Further exclusions apply to: healthcare policies held in trust; child bank accounts (cash only, not investments and not premium bonds); and JISAs/Child Trust Funds  (HMRC do not consider these to be trusts).

In addition, a noticeable inclusion to the requirement to register is the bare trust. Commonly used to invest for the absolute benefit of a minor or disabled beneficiary, there is no exclusion from registration for these trusts. 

The registration rules are complex, and a dynamic area of change. They should be read carefully and addressed on a case-by-case basis. Schedule 3Aof the 2017 Regulations was amended by SI 2022/137 which came into force on 9 March 2022. Further changes can be expected. As a result, the TRS manual should always be checked for updates.*

The new rules also sought to establish that the data on the TRS is only available to those with a ‘legitimate interest’, such as law enforcement agencies investigating money laundering and the financing of terrorist activities. HMRC can refuse access where there is a disproportionate risk of exposing the beneficial owner for example to fraud, blackmail, or intimidation. Worth noting:

‘…information held on the Trust Registration Service (TRS) regarding beneficial owners cannot be shared with third parties if that beneficial owner lacks mental capacity. To enable HMRC to determine whether this is the case, trustees (or agents acting on behalf of the trustees) are asked to record on TRS whether a beneficial owner does or does not have mental capacity. This information is used to consider whether an exemption should apply if a third-party requests access to the data held in relation to that trust. Information on mental capacity is not used for any other purpose and does not form part of the information that may be shared with third parties. There is no obligation to record mental capacity status on TRS, however HMRC will assume that an individual does have mental capacity for data sharing purposes unless a lack of mental capacity has been recorded on TRS.’ (TRSM32100).

In Summary: The Ever-Changing Landscape

• UK express taxable trust, and non-UK express trusts with UK tax liabilities established before 6 April 2021 must be registered on the TRS by 31 January following tax year in which a UK tax liability arises (IHT SDLT etc.) (or by 5 October if the liability is IT/ CGT for the first time);
• Provision of additional information for the above under the 5MLD in respect of country of residence, nationality, whether the person has mental capacity at the time of registration, the nature and extent of an individual’s beneficial interest, any controlling interests that the trust has in any third country entity should be added to the TRS during the period 4 May 2021 to 31 August 2022;
• UK taxable express trusts and non-UK express trusts with UK tax liabilities created on or after 6 April 2021 must register within 90 days of the trust becoming liable for tax or by 1 September 2022 if later;
• Any changes to trust details (lead trustees, other trustees, beneficiaries, settlor, protectors or other individuals)  must be completed on the TRS within 90 days – rule in effect from 4 June 2022; Note: There is currently no requirement to update the TRS with changes to the assets in the trust or their values at registration.
• UK non-taxable express trusts in existence on or after 6 October 2020 (unless exempt) must register on the TRS by *1 September 2022 or 90 days after the trust is set up or a duty to register arises, if later;
• Non-UK express trusts (with no UK tax liabilities) in existence on or after 6 October 2020 that acquire an interest in land in the UK; or have at least one trustee resident in UK and enter into a business relationship with an “obliged entity” (an organisation supervised under anti-money laundering legislation) must also follow this registration deadline*;
• UK registerable express trusts per the 5MLD (where not exempt) and/or those that acquire an interest in land in the UK; and/or have at least one trustee resident in UK and enter into a business relationship with an “obliged entity” established from 4 June 2022 must register within 90 days;
• UK non-express trusts and exempt trusts with a tax liability – the registration deadline is as per UK taxable trusts for SA; but these trusts are not within the wider 5MLD scope.

Note: an ‘express trust’ is a trust created deliberately by a settlor, usually but not always, in the form of a document such as a written deed or declaration of trust (see TSEM9510).*

HMRC’s opening gambit with the TRS was a confirmed soft approach. Indeed, HMRC has indicated that it will not automatically charge penalties if a trust is not registered by 1 September and will take a pragmatic and risk-based approach to charging penalties. However, it has not set out quite how this approach will work. As with all good things, HMRC’s soft approach will inevitably come to an end. Before HMRC’s concession wanes and toughness resumes: take care, talk to your clients, check the rules, and register where needed!

ADDENDUM August 2022

Since writing, HMRC’s approach to penalties has now gone live – see TRSM8000. This confirms that HMRC’s focus will be on penalising those who deliberately fail to register their trusts – with some significant penalties possible in those cases.

In recognition of the fact that the registration requirement is a new and unfamiliar obligation for many trustees, there will be no penalty for a first offence of failure to register or late registration of a trust unless that failure is shown to be due to deliberate behaviour on the part of the trustees.

Where failures to register are due to deliberate behaviour on the part of the trustees, a £5000 penalty may be charged per offence.

In practice this means that should HMRC become aware of a trust which has not been registered by the relevant deadline – either because that trust has been registered late or because HMRC have identified that trust’s existence by other means – HMRC may issue a warning letter to the trustee or agent. If the trust is not yet registered, the trustee or agent should register it at that point. If the trustee or agent then fails to register the trust within the time period stated within the warning letter, or fails to explain why their trust is not liable to registration, a penalty may be issued to the lead trustee.

Penalties for deliberate non-compliance will be applied on a case-by-case basis. Examples of the circumstances in which such a penalty might apply include: continued failure to register a trust following repeated warnings; or providing details on a given trust that are deliberately inaccurate accompanied by continued failure to amend those details.

For help and advice on related matters, please call us today.