Which trusts are now required to register, what are the deadlines and what are they required to disclose?
Taxable UK trusts have been required to register on the HMRC trusts register since 2018 but now the 1 September 2022 deadline for the registration of most other UK trusts is nearly upon us.
All businesses should conduct an urgent review of their holding structures to identify any trust arrangements, particularly assets held by nominees, and work to ensure these are registered as soon as possible.
Trusts which have no tax liabilities are now required to register by the later of 1 September 2022 or 90 days from the commencement of the trust (unless exempt - see below).
This includes all kinds of arrangements which you may not think of as a "trust".
Which trusts does this apply to?
The rules apply to all express UK trusts which are or were in existence on or after 6 October 2020, unless they fall within one of the categories of excluded trusts. Non-UK trusts must also register if they have:
- acquired UK land after 6 October 2020; or
- have a UK trustee and have entered into a business relationship with a regulated business (such as lawyers, accountants or a bank) in the UK after 6 October 2020.
The rules do not apply only to trusts created by deed and there is no de minimis exception. They also apply, for example, to:
- Co-owned property, wherever the legal (registered) owners are not the same as the beneficial owners of the property, including land pooling arrangements;
- Employee benefit trusts;
- A partner holding assets for a partnership under a written declaration (most Limited Partnership agreements will contain a declaration of this type);
- Most bare trusts and nominees (that is, wherever assets are held in a name other than the beneficial owner);
- Unauthorised unit trusts;
- Trusts holding investments or insurance policies; and
- New pilot trusts holding nominal sums
What are the exclusions?
Trusts that do not need to register, unless they are liable for UK tax, include:
- Trusts created in the course of a commercial transaction, where the trust is incidental to the main purpose;
- Funds held pending the performance of a contract, such as cash held between exchange and completion on a property sale;
- Trusts holding assets for registered pension schemes, and those holding death benefit payments made within two years of the date of death;
- Trusts holding life or retirement policies which pay out on death, critical illness or disablement;
- Trusts made under a court order, or imposed by the intestacy rules, and trusts for vulnerable beneficiaries;
- UK registered or exempt charities;
- Trusts created by Will and wound up within 2 years of death; and
- Trusts set up before 6 October 2020 and holding less than £100.
The full set of exceptions are listed in Schedule 3A to The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (legislation.gov.uk).
What details are needed?
The disclosure required is less than for a taxable trust. One lead trustee needs to provide their name, address, date of birth, residence and nationality. A national insurance number is needed for UK resident trustees and passport numbers for those who do not have them. Corporate trustees need only provide their name and address.
For the other trustees, the beneficiaries and the settlor(s), the details are limited to their name, date of birth, nationality and residence. Beneficiaries can be named as a class where the individual beneficiaries can't easily be identified, and are not currently benefitting from the trust, avoiding the need to collect their information.
One part of the trust legislation which has received surprisingly little attention to date is the obligation placed on trustees to keep records of the information that must be recorded on the register. This is key as it applies to all express trusts including those that fall within the exceptions and so are not required to register.
Trusts with a UK tax liability have been obliged to register since 2018 and this obligation continues. Trusts that are registered as non-taxable but later incur a tax liability need to file additional information, the most onerous being details and values of the trust's assets at the time of registration.
Who will read the register?
The register is only accessible to the "public" in two scenarios:
- Investigations. Applicants can demonstrate that they are involved in an investigation into money laundering or terrorist financing as well as reasonable grounds to suspect that the trust is being used for these activities
- Foreign companies. Applicants can obtain an entry whenever a trust holds a controlling interest in a company which is outside of both the EEA and UK.
The second is the much greater threat to privacy as it could easily apply to numerous nominee arrangements holding investments in foreign companies. It may provide much more scope for the press and private investigators to obtain information on registered trusts.
Theoretical penalties are severe but HMRC's latest update confirms that they will not issue penalties for a first failure or late registration unless the failure is shown to be due to deliberate behaviour. They will instead issue warning letters. This is in recognition of the fact that the register is "a new and unfamiliar obligation for many trustees".
In practice, the extension to the rules will certainly result in widespread non-compliance, particularly for many nominee arrangements where families and businesses alike will not appreciate that they hold trusts or be unaware of their obligations.
A further practical obstacle is that a trustee of a registrable trust will not be able to engage regulated business (for example, lawyers, accountants, banks, estate and letting agents) to advise in relation to the trust or trust assets without first downloading and providing a copy of their registry entry.