Deadline looms for trustees of tax-exempt trusts

Deadline looms for trustees of tax-exempt trusts

There are only two weeks left before the September 1 deadline for trustees of non-taxable trusts created before June 4, 2022 to register with the HM Revenue & Customs Trust Registration Service. Trustees must act now to comply with the law and avoid penalties.

The Trusts Registration Service (TRS), in operation since 2017, was set up to improve transparency around the beneficial ownership of assets held in UK tax liable express trusts.

An express trust is created by a settlor, the person or persons who put assets into the trust, usually in the form of a document such as a deed or declaration of trust. Most trusts are, in fact, express trusts.

An express trust can be created by someone during their lifetime or in their will. Express trusts include discretionary trusts, possession interest trusts, gift trusts, gift and loan trusts, discount gift plans, shareholder protection trusts, employee property trusts, bare trusts, and non-living testamentary trusts. are settled within two years of death.

As part of regulations to combat money laundering, the scope of the trust registry was extended to bring express trusts under the TRS regime, even if they do not have a UK tax liability.

This means that all UK trusts (and some non-UK trusts), with a few exceptions, that are in existence on or after October 6, 2020, will now require registration with the TRS by September 1, 2022, even if they are closed now.

Do I have time to think about this?

In a nutshell: no. Express trusts created before June 4, 2022 must register with the TRS by the September 1 deadline, and express trusts created after June 4, 2022 must register with the TRS within 90 days of filing. the date of incorporation. Therefore, the trustees only have 14 days left to fulfill their legal obligations in relation to the TRS.

This may be news to most lay trustees. The Society of Trust and Estate Practitioners previously indicated that about 2 million nontaxable trusts will require registration with the TRS by September 1, 2022.

However, it is worrying that the number of nontaxable trusts registered does not appear to be close to this figure, indicating a great lack of knowledge, delay or non-compliance.

Research by Canada Life found that more than 36,000 trusts were registered in May and June. This is nearly double the number in the same months in 2021. But will there now be a last-minute rush by trustees to beat the deadline?

Does my type of trust require registration?

The legal requirement is that all UK Express Trusts must be registered with the TRS by the applicable deadline, unless they are subject to a small number of exemptions. Note, however, that exempt trusts with UK tax liabilities still need to register with the TRS.

Exempt trusts include: joint ownership trusts where the legal and beneficial owners are the same people, commonly found when a couple jointly owns their home or has a joint bank account; trusts established before 6 October 2020 that have assets valued at less than £100; trusts that are settled within two years of death; pension trusts; trusts imposed by statute, such as intestacy or bankruptcy; life insurance trusts that pay in the event of death, terminal illness or disability; UK charitable trusts; and trusts created to open a bank account for children or vulnerable people.

Advisers had at one time hoped that bare trusts might fall outside the scope of the TRS regime, as any UK tax liability falls on the beneficiary of the simple trust, not the trustees. However, bare trusts are not exempt and therefore must be registered with the TRS. This can lead to some unexpected requirements.

Is the TRS my problem or can I leave it in the hands of the trustor?

The legal registration obligation falls on the trustees and not on the settlor. Trustees have a responsibility to be proactive.

In truth, it can often be unclear whether a trust requires registration or not, so trustees should seek legal advice in establishing their obligations, particularly as the registration deadline fast approaches.

Where there are multiple trustees, they must collectively decide and appoint a lead trustee to complete the registration process. All trustees are equally legally responsible for the trust and the designated ‘principal’ trustee is simply the main point of contact for HMRC.

HMRC requires a considerable amount of information about the trust, settlors, trustees and beneficiaries, information that may not be readily available. And since gathering this information can take time, it’s important that trustees give themselves enough time to get it. HMRC and professional advisers are likely to be very busy with the deadline looming.

What happens if I don’t comply?

You will be committing a crime. Failure to register a trust or failure to notify any change of information in the TRS may result in further trustee administration and sanctions issued by HMRC. Reports indicate a £100 fine for failing to register or update TRS details within the relevant time limits. In the event that a trust has only assets and no cash, this penalty would legally become the responsibility of the trustees.

So what should you, your contacts, and all the trustees be doing now? A review of all living trusts and wills is absolutely essential. TRS can be a complex area to navigate, so if you are unsure if a trust is within the scope of TRS, contact an attorney for guidance and assistance in dealing with TRS.

Laura Bywater is a Partner and Director of Wealth Protection at Price Slater Gawne

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