HMRC’s Trust Registration Service (TRS) has been upgraded from the start of September 2021 following the implementation of the Fifth Money Laundering Directive which expanded the scope of trust registration requirements to require more trusts to be registered. Previously it was only a requirement for taxable trusts to be registered. Now non-taxable trusts need to be registered unless they fall into a number of exceptions.
Whilst the changes to the Trust Registration Service mainly apply to lifetime trusts being set up immediately, there are implications that are applicable to will based trusts that will be created on the death of a testator. This article will cover an overview of the changes and cover will based trust implications in more detail.
What trusts do not need to be registered?
There are a number of excluded trusts detailed in the Fifth Money Laundering Directive that do not need to be registered unless they are liable to pay UK tax. Many of these will not be relevant to estate planners, but notable exclusions include:
- Statutory trusts including the statutory trusts arising on intestacy.
- Certain pension scheme trusts holding assets of a pension scheme that are already subject to regulation by either the Financial Conduct Authority or the Pensions Regulator.
- Trusts holding life insurance policies which only pay out on death, illness, or disability.
- Charitable trusts.
- Pilot trusts holding less than £100 and set up before 6 October 2020.
- Co-ownership trusts where the trustees and beneficiaries are the same persons e.g. a couple who own their home jointly with no one else.
- Certain express trusts established to meet legislative conditions, for example:
- a trust for a disabled person.
- a trust for bereaved minors.
- An 18-25 trust.
- A trust created by a relevant supervised person for the purpose of holding client money, securities, or other assets.
- Personal injury trusts.
All other trusts will need to be registered with the TRS.
What are the implications for will based trusts?
Firstly, it is important to clarify that no will based trust needs to be registered with the TRS whilst the testator is alive. Any will based trust does not exist until the testator has died. It is only after the testator’s death would any registration need to be considered.
All trusts created by will are excluded from registration with the TRS for a period of two years following the date of the testator’s death. If the trust is still in existence at two years from death it would need to be registered with the TRS from that point. If the trust accepts an addition of assets from outside of the estate, it will need to be registered from that date assuming none of the exceptions apply (e.g. it is a disabled trust).
HMRC has also confirmed that any will based trust only needs to be registered from the point that the trust commences (at the point when assets actually vest in the trustees) and only if this is more than two years following death.
If the trust becomes taxable within two years of the deceased’s death, the trust will need to be registered with the TRS in order for a trust tax return to be issued and the two-year exemption will stop applying.
Registration of a will based trust is a duty of the trustees of that trust. They must also update the register when any changes occur. They can however employ an agent to deal with this on their behalf if needed. Trustees may face a fine of £100 per offence where a trust is not registered on time or where the TRS is not updated following a change.