As reported in our last newsletter, trustees are now obliged to compile and maintain their own, more extensive, records of their 'beneficial owners'. Additionally, trusts which are taxable in the UK are required to report the information to HMRC to be kept on a new trust register. HMRC have recently issued guidance giving their view of exactly what needs to be reported, who needs to register and when. Some of HMRC's requirements are at odds with the legislation and professional bodies are seeking further clarification on certain aspects.
Which trusts need to register?
- UK express trusts where the trustees have incurred a liability to pay any of the relevant UK taxes in relation to trust income or assets in any tax year.
- Non-UK express trusts which incur a liability to pay any relevant UK taxes in any tax year in relation to UK source income or UK assets held directly by the trust.
Relevant taxes are income tax, capital gains tax, inheritance tax, stamp duty reserve tax, stamp duty land tax and Scottish land and buildings transaction tax. The Welsh equivalent is not yet included but may be added when this comes into force next year.
Complex deceased estates, unauthorised unit trusts, collective investment schemes and trust based pension schemes may also need to register.
Which trusts do not need to register?
- Trusts which are not liable to any of the relevant UK taxes, for example:
- Trusts arising through co-ownership of land where the joint owners are both legally and beneficially entitled to the property.
- Bare trusts.
- Trusts which are not express trusts (e.g. statutory trusts, resulting trusts and implied trusts).
- where a relief is claimed which results in no liability or
- where the tax liability does not fall directly on the trustees because the trust assets are held through an underlying company or
- where the tax liability falls on the settlor or beneficiary, either under anti-avoidance provisions or where trust income is mandated to and taxed directly on a beneficiary.
- Non-UK trusts which have no UK source income or UK based assets but for some reason have incurred a UK tax liability (for instance a non-UK trust set up by a UK domiciled settlor)
Although, there is no blanket exemption for charitable trusts, they will only have to register if they become taxable and this is unlikely in view of the availability of charitable tax exemptions.
When do trustees need to register?
A trust already registered for self-assessment (SA) must register by 31 January after the end of the tax year in which the trustees incurred a UK tax liability. So trusts liable for income tax or CGT in the 2016/17 tax year need to register by 31 January 2018.
When a trust is not registered for SA and incurs either an income tax or CGT liability for the first time in a tax year they must register by 5 October after the end of that tax year. However, the deadline for this year has effectively been extended to 5 December 2017 as HMRC are allowing a period of grace for this first year during which no penalty will be imposed, providing registration is completed before that date.
Trusts which are liable for IHT, SDLT, SDRT or LBTT must register by 31 January after the end of the tax year in which the chargeable event occurred.
How to register?
This is an entirely online registration process. Responsibility for registration lies with the Trustees who can appoint a lead trustee to complete the process or ask an agent to do this on their behalf. The trustee service is now live and the agent service is expected to be launched shortly after some initial technical glitches have been resolved.
Details of the beneficiaries
The latest guidance confirms that the personal details of individual members of a class of beneficiaries need to be reported if the beneficiaries are in existence and can be identified, despite the fact that they are not named in the trust documents and even if they have not received a distribution from the trust. According to the guidance, a description of a class will simply be reported where the beneficiaries cannot be identified, for example, if no members of the class are yet in existence. This is not what the legislation suggests and it seems odd that mere objects of a discretionary power need to be disclosed as 'beneficial owners'. We await further clarification on this point.
The details of potential beneficiaries named or identified in a letter of wishes or other written document from the settlor must also be reported. This is a requirement of the legislation but the guidance confirms that there is no need to disclose potential beneficiaries referred to in a solicitor's attendance note.
Details of the assets
HMRC are not expecting formal, up-to-date valuations of the trust assets but require a good estimate of the market value of the assets when they were transferred into trust. If these have previously been reported, the register can indicate 'already notified'. The address of a UK property held in trust is only required if this is owned directly by the Trustees. Again, all of this is at odds with the legislation but the approach on this aspect is to be welcomed.
Details of the advisers
Trustees need to keep details of all of their professional advisers but only need to report the agent dealing with the trust registration (if any).
Updating the register
Trustees should report any changes (or confirm there have been no changes) for every tax year in which a relevant UK tax liability is incurred and should include information which is up-to-date as at the time of reporting. If there is no tax in a given year, there is no requirement to update the register and the data given previously will remain on the register although changes can be notified voluntarily at any time. If a change is reported, historical information about previous beneficiaries or trustees who are no longer associated with the trust will not be kept on the register. Information on trusts which are wound up will not be kept on the register either.
Penalties for non-compliance
Further details are awaited about the penalty framework that will apply to the trust registration service.