Tax Journal: The trust registration service one year on
The trust registration service (TRS) was introduced by HMRC in June 2017 to comply with the EU Fourth Anti-Money Laundering Directive. Trustees have to register all taxable relevant trusts with HMRC via the TRS, although there have been some changes to requirements of trusts with non-UK resident trustees. The level of detail that must be reported on the TRS is much greater than was previously supplied on form 41G, requiring trustees to maintain an accurate and up-to-date record of the beneficial owners at all times. HMRC has confirmed that the penalties for non-compliance would be severe, with civil and criminal proceedings both possible.
Jonathan Shankland and Patrick Malone (RadcliffesLeBrasseur) examine the operation of the trust registration service, penalties for failing to register, and future changes.
Having been in use now for just over a year, it is the perfect time for trustees and professional advisers alike to refresh their understanding of the scope of the trust registration service (TRS), the types of trusts it is intended to cover and its impact on non-UK trustees, so as to ensure compliance and avoid penalties, particularly in light of the various clarifications made by HMRC in the past 12 months.
As many readers will be aware, the UK introduced a variety of new trust registration and reporting requirements (‘the requirements’) in June last year, in order to comply with, and implement, the EU Fourth Anti-Money Laundering Directive (EU 2015/849). At its heart, this aims to increase transparency and reduce tax evasion.
One of the requirements is that trustees have to register all taxable relevant trusts with HMRC, via the TRS. The purpose of this particular requirement is two-fold. Firstly, it is intended to digitalise the registration of trusts for self-assessment purposes (replacing the now defunct paper form 41G). Secondly, it satisfies HMRC’s obligations to collect information about trusts under the new registration and reporting requirements.
Which trusts are subject to the TRS?
The TRS applies to all ‘taxable relevant trusts’, which include the following:
- trusts where all the trustees are resident in the UK;
- trusts where at least one trustee is UK resident and the settlor was resident and domiciled in the UK when the trust was established or when funds were added to it; and
- trusts not falling within points (1) or (2) above, which has UK income or has assets in the UK on which it is liable to pay one or more of the following UK taxes:
- income tax;
- capital gains tax (including non-resident capital gains tax);
- inheritance tax;
- stamp duty land tax (SDLT) and the Scottish equivalent (land and buildings transaction tax); or
- stamp duty reserve tax (SDRT).
Accordingly, trusts with non-UK resident trustees only have to register with HMRC when a liability to one of the specified UK taxes referred to above arises.
In May 2018, HMRC has confirmed that it no longer believes that a trust, with non-UK resident trustees, holding UK assets indirectly (e.g. via a non-UK company) needs to register via the TRS. Since the non-UK trust does not own any UK assets, it holds shares in the non-UK company which owns a UK asset.
Trustees will need to register for self-assessment the first time that they have a UK income tax or capital gains tax liability, using the TRS (rather than the old paper system).
The registration deadline for self-assessment has not changed, and falls six months a er the end of the tax year in which the UK tax liability first arose (e.g. for the tax year ended 5 April 2018, the deadline would normally be 5 October 2018). For last year only the deadline was extended to 5 January 2018 to allow all parties to get to grips with the new system (to which agents were only given access on 17 October 2017).
The deadline for populating the TRS with information about beneficial owners falls on 31 January following each year in which a relevant tax liability arises. The first relevant year was 2016/17, even though the TRS only came into force in the current tax year. However, if a non-UK trust was already registered for self-assessment with HMRC but has been wound up since 6 April 2017, it does not need to be included on the register. A trust which was wound up since 6 April 2017 but was first liable to UK tax in 2016/17 will still need to register in order to pay the tax, but does not need to populate the trust register with additional information.
For the first year only, any trusts which were already registered for self-assessment under the old regime, or which have a relevant tax liability other than income tax or capital gains tax in 2016/17, had until 5 March 2018 to provide the relevant information.
Taxable relevant trusts will then need to update the TRS by 31 January after the end of each tax year with any changes which occurred in the preceding year, or confirm that no changes have occurred. However, changes can be made to the TRS at any time, and in practice trustees will need to ensure that their internal records are up to date at all times in any event. Note that trusts which are not taxable relevant trusts for the year do not need to update the TRS.
What details are required?
The level of detail that must be reported on the TRS is much greater than was previously supplied on Form 41G. The trustees must provide HMRC with the following information:
- details of the settlor, trustees, beneficiaries (in some circumstances a class of beneficiaries can be identified) and any other person who has control over the trust such as a protector. Trustees must provide information including the individual’s name, date of birth and national insurance number (or passport number);
- details of the governing law of the trust, place of administration and where the trust is resident;
- a statement of account, detailing the assets comprised within the trust and their estimated market values (as at the date of registration). If the assets include real property, the TRS requires disclosure of the property address; and
- details of the agent acting on behalf of the trustees in relation to the registration of the TRS.
There is a requirement for the trustees to maintain an accurate and up to date record of the beneficial owners at all times and to review this information and update HMRC on an annual basis provided that the trustees remain liable for UK taxes (although this will not apply to changes in assets and their value).
Trustees not liable for UK tax in a particular year will not have to update the register. However, any historical information previously provided will remain on the register and will not be removed. A trust will only be removed from the trust register when HMRC is notified that it no longer exists.
Who can access the information?
At present, the register is not public and the information will only be available to law enforcement agencies in the UK and other EEA countries. This includes HMRC, the Financial Conduct Authority, the National Crime Agency, various UK police services and the Serious Fraud Office.
Penalties for failing to register
When the TRS was originally introduced, full details of the penalty regime for non-compliance were sketchy. In March 2018, however, HMRC confirmed that the penalties would be severe, with civil and criminal proceedings both possible.
HMRC can charge penalties for administrative offences, such as a failure to register using the TRS by the due date and a failure to notify of any change of information by the due date. HMRC will charge a fixed penalty to reflect the period of delay:
- registration up to three months late: £100;
- registration up to six months late: £200; and
- registration over six months late: the greater of 5% of the tax liability or £300.
Notwithstanding the above, trustees will not be committing an offence if they can show that they took ‘all reasonable effort and steps’ to comply with the TRS and obtain and update the information requested. It is therefore essential that trustees maintain accurate and up-to-date records.
As is often the case, it is likely that enforcement of such penalties against non-UK trustees will result in practical diffculties. This may well be a moot point however as most trustees will be more concerned about reputational damage resulting from non-compliance rather than any penalty itself. In addition, non-UK trustees may well need to consider whether any con ict of laws may result in penalties (e.g. if the jurisdiction in which the trust is resident has strict privacy laws which prevents disclosure via the TRS).
What should trustees be doing?
Clearly, trustees should have already identified the trusts that fall within the scope of the TRS. If a particular trust is within the scope of the TRS, the trustees must ensure that they have all of the information required in order to make a full disclosure. is should be collected well in advance of the due date so as to avoid any potential bars and problems (e.g. any offshore jurisdiction privacy laws).
It is important that trustees consider not only the UK position but also other countries’ similar reporting requirements that may also affect them.
For more information or guidance, please contact:
Partner, Head of International Private Wealth
T. 020 7227 7414
T. 020 7227 7440
This article was first published by Tax Journal Magazine on 6 September 2018 and is reproduced with kind permission. You can read the original article by clicking here.
This briefing is for guidance purposes only. RadcliffesLeBrasseur accepts no responsibility or liability whatsoever for any action taken or not taken in relation to this note and recommends that appropriate legal advice be taken having regard to a client's own particular circumstances.