Recent changes to the Trust Registration Service (TRS) mean that thousands of trusts will need to be registered by 1 September 2022, so, for many, the clock is ticking.

The TRS was launched in 2017 in response to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 to counter concerns that money can be ‘hidden’ inside legal vehicles such as trusts and companies. The Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020 (SI 2020/991), which came into effect on 6 October 2020, expanded the scope of the TRS but, to accommodate the changes, HMRC needed to update its TRS systems.

HMRC quietly released the long awaited, updated version of the TRS on 1 September 2021. This introduces new rules around the registration of trusts on the TRS as a result of the implementation of the Fifth Money Laundering Directive.

These new rules mean that most express trusts (trusts created deliberately by a settlor) now need to be registered on the TRS. The rules also formalise the trustees’ general duty to keep and maintain an up-to-date written record of the beneficial owners involved in the trust (including settlors, trustees and beneficiaries) as well as people with control over the trust (e.g. trust protectors). This information must be made available on demand from a law enforcement authority and, from 1 September 2022, to other third parties who have a legitimate interest to access the trust’s information. HMRC’s TRS Manual sets out when and how such legitimate access requests may be made.

Most express trusts now need to be registered on the TRSPreviously, only trusts which had incurred a tax liability to one or more of income tax, capital gains tax, inheritance tax, stamp duty land tax, land and buildings transaction tax (in Scotland), land transaction tax (in Wales) and stamp duty reserve tax needed to be registered, although trustees of other trusts were able to register voluntarily.

Trusts with a perceived low risk of money laundering are excluded from the requirement to be registered – these include trusts of registered pension schemes, charities and trusts that are established by statute, for example, on intestacy. More details of excluded trusts are available in HMRC’s TRS Manual.

Examples of excluded trusts that may be of interest to financial advisers and wealth managers include trusts holding life insurance policies and pilot trusts. However, the exclusion does not apply to all such trusts.

The exclusion for a trust that holds a life insurance policy(ies) or healthcare policy(ies) is only available if the policy can only pay out on the death, terminal or critical illness or permanent disablement, or to meet the healthcare costs, of the person assured. If the trust holds multiple policies, all policies must meet these conditions for the trust to be excluded from registration.

It is our understanding that, currently, if a life insurance policy held in the trust acquires a surrender value that can be accessed, the trust needs to be registered. This is particularly relevant to trusts holding life insurance policies such as investment bonds or flexible whole of life policies or capital redemption policies. HMRC has, however, said that it is considering the position of policies with surrender values.

Previously excluded trusts that incur tax liabilities need to be registered on the TRSA trust holding insurance policy benefits received after the death of the person assured is an excluded trust only as long as the benefits are paid out from the trust to beneficiaries within two years of the death. If such benefits are still held in the trust after two years, the trust will need to be registered.

A ‘pilot’ trust which was set up before 6 October 2020 and which currently holds no more than £100 is an excluded trust but pilot trusts set up after 6 October 2020 will need to register. If a pre-6 October 2020 pilot trust subsequently receives further assets so that its value then exceeds £100, it will have to be registered at that time. Pilot trusts include by-pass trusts to receive pension and DIS (death in service) benefits.

Should a trust that was previously an excluded trust incur a tax liability, it then needs to be registered on the TRS. The TRS is now the route for trustees to obtain a unique taxpayer reference (UTR) to allow a self-assessment SA900 Trust & Estate tax return to be submitted to HMRC. The personal representatives administering a deceased person’s estate will also have to register to obtain a UTR if a tax liability has arisen on the estate.

A trust that has not incurred a tax liability will be issued with a unique reference number (URN) following registration. This URN is needed for the trustees to subsequently access the TRS or should the trustees need to apply for a UTR should a tax liability arise.

Registering a trust could require trustees to obtain substantial amounts of information. The responsibility for registering a trust lies with the trustees, who can register a trust for free or appoint an agent to register the trust on their behalf if they find the process time-consuming or daunting. Trustees of trusts created before 1 September 2022 must register their trust by the later of 90 days after the creation of the trust or 1 September 2022. Trusts created after 1 September 2022 are required to register within 90 days of the trust’s creation date. Similarly, trustees must now update their registration for any changes to the details of the trust within 90 days of the date of the change.

The responsibility for registering a trust lies with the trusteesIf a trust that was previously an excluded trust is registering because it has incurred a tax liability, it must register by 31 January following the end of the tax year in which the tax liability arose. However, this date is brought forward to 5 October following the year in which the tax liability arose if the trust has become liable to pay income tax and/ or capital gains tax for the first time. If a trust is liable to more than one tax and both deadlines apply, the trustees should register the trust by the earlier of the two deadlines.

Trustees, and their advisers, should act now to determine whether their trust(s) is required to register on the TRS. Trustees of trusts that are required to register but who have not registered the trust within its applicable deadline (see above) may become liable to fines and penalties. HMRC has indicated an intention that it will send a ‘nudge’ letter to trustees of a trust that it believes should have been registered but which hasn’t been, before considering enforcement action, but trustees may be better advised to take action before this stage.

Trustees of trusts that are not required to register (excluded trusts) may wish to consider ‘voluntary’ registration as a way to fulfil their general record keeping duties on the beneficial owners of the trust, discussed above.

There still appear to be some anomalies in these new rules around the registration of trusts and HMRC intends to deal with these through updates to the TRS Manual. These anomalies should not prevent advisers discussing the requirements around the TRS with trustees.

Our website summarises the new rules and how the TRS works. We will update this as and when further information becomes available.