Trusts can be a fantastic tool to help mitigate inheritance tax (IHT) and plan your estate for your loved ones. Yet they also come with complex rules and reporting obligations, some of which are changing. New rules mean that, subject to some limited exceptions, all existing UK trusts and some non-UK trusts, irrespective of whether the trust has a UK tax liability, will be required to register with HMRC by 1 September 2022, if they have not already done so.
The Trust Registration Service (TRS)
A trust is a way of managing money and other assets e.g. property and shares. You can place assets in a trust to exert greater control over them when you die e.g. stipulating who gets what, how and when. There are many types of trust and they each involve different rules and tax treatment. Regardless, most trusts need to be registered with HM Revenue and Customs (HMRC) when they are set up.
The TRS was set up by the government in 2017 to try to make this process easier. It was also intended to bring greater transparency so that trusts could not be easily used to launder money, or finance terrorism. Since 2017, most trusts with a UK tax liability (even non-UK resident trusts) must register with the TRS – rendering them “taxable trusts”. In this process, key details must be provided by trustees including the trust assets, beneficial owners and trustee identities.
What is changing in 2022
More trusts will be required to register with the TRS, even if they have no UK tax liability. As such, many who have not already registered a trust with HMRC may inadvertently be caught out by the new rules.
Broadly speaking, three further trust types must now also register with the TRS:
- All UK resident ‘express’ trusts (unless specifically excluded). This is a specific type of trust which is purposely created by a settlor (i.e. not created through the operation of the law or a court decision). Other criteria defining an express trust can be found on the UK government’s website.
- Specific non-UK resident express trusts. These include trusts which acquire UK property or land, have at least one trustee who is a UK resident and enter into a business relationship with an ‘obliged entity’ (e.g. a tax adviser or legal professional).
- Non-express trusts and certain excluded express trusts, which have a UK tax liability.
Not all trusts need to register with the TRS, however. For instance, charitable trusts and trusts for bereaved minors (or adults aged 18-25) are excluded. Please bear in mind that bare trust arrangements and employment related trusts (e.g. Employee Benefit Trusts) may be obliged to register with the TRS.
What this means for you
A critical factor in all of this is when your trust was established. If yours was established before 6 April 2021, then your first relevant tax liability could arise at any time. When it does arise (in the case of income tax or capital gains tax), the trust must be registered by 5 October following the end of the tax year in which this happened. In other cases, the registration deadline is pushed back to 31 January.
If your trust was established after 5 April 2021, then the first tax liability may arrive before 4 June 2022. In which case, you must register by 1 September 2022 to avoid penalties. For those whose tax liability comes after 3 June 2022, you must register within 90 days of its arrival.
This might sound very complicated, and it is! Here, a Financial Planner can be immensely helpful to show you what you need to do – making sure you meet your obligations and act on the best information available.
Bear in mind that any changes to your trust details or ownership must be updated on the TRS within 90 days of the changes. If a trust is taxable, then trustees must also declare that the trust is up to date on their next self-assessment tax return.
As a general rule, if you have a trust – or want to establish one – then consider seeking financial advice to make sure you comply with the new requirements. This will give you peace of mind that your estate is fully in order, and your loved ones will have no nasty surprises when sorting through everything after you are gone.
Invitation
If you would like to discuss estate planning and our investment service for trustees, then we would love to hear from you. Get in touch with your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.
Reach us via:
t: 01228 210 137
This content is for information purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.