Why registering trusts is important and how to do it

The list of different trusts that need to be registered with HMRC through the Trust Registration Service (TRS) has expanded dramatically in the past five years. This is due to two anti-money laundering directives issued by the European Union.

Trusts that previously didn’t need registering now must be. There are also rules around trust record-keeping and reporting trusts that have been amended.

Read on for everything you need to know about the trust registration requirements, and why it matters. 

Using trusts is a key part of inter-generational financial planning
Although traditionally associated with the very wealthy, trusts can be used effectively by anyone, regardless of their assets. This is because they allow you to be specific in terms of how and when you want your assets distributed. 

Trusts are particularly useful when it comes to estate planning, as they can help reduce the value of your estate that’s liable to Inheritance Tax (IHT). 

They can also be used to earmark assets to children or grandchildren who may be too young to currently receive a sizeable sum of money.

Background to the changes to registration
Since 1991, the European Union has issued a series of anti-money laundering directives (AMLDs) designed to combat money laundering carried out with the intention of financing terrorism. The fourth AMLD (4AMLD), issued in 2015, included details of how and when trusts should be regulated by member countries. 

The UK government implemented 4AMLD in 2017.
 
In 2020, the fifth AMLD (5AMLD) expanded the scope of trusts needing to be registered even further. 

Although the UK is no longer a member of the European Union, the UK has committed to carrying out the terms of each AMLD.

The trusts that need to be registered
Any trust that includes assets that are liable for tax need to be registered with HMRC. These taxes include Income Tax, IHT, Capital Gains Tax and Stamp Duty Land Tax.

However, even if no tax is liable, 5AMLD stipulates that all express trusts need to be registered. Because of this, we recommend that you get expert advice regarding the registration of your trust, as mistakes can potentially be costly.
 
Unless the trust has a liability to UK taxation, you do not need to register your trust if any of the following apply:

• The trust holds assets of a pension scheme registered in the UK
• The trust holds life policies that pay out on death, critical illness, or permanent disability 
• The trust is holding insurance policy benefits payable after the death of the person insured. In this instance, the benefits must be paid out within two years of death.

The steps you need to follow to register a trust
You need to register your trust via the government website. 

Before you can register your trust, you’ll need to get a Unique Taxpayer Reference (UTR). For this, you’ll have to apply for an “organisation” Government Gateway account.
 
You may already have a UTR for your online self-assessment tax return, but you’ll need a separate Gateway account for each trust you want to register. 

When registering your trust, you’ll need to provide:

• The name of the trust
• Contact details
• The date the trust was set up
• The country where the trust is resident
• Trust asset details, including addresses of any property, and an estimated market valuation of any trust assets. 

You’ll also need to confirm the identity of the settlor, trustees, the beneficiaries of the trust, as well as anyone else who has any control over the trust being registered. 

There are deadlines for registration
If you have a trust that needs to be registered, you should also bear in mind that there are deadlines that need to be met when it comes to registering it. 

Any applicable trust that was in force before 6 October 2020, needs to be registered by 1 September 2022.

Trusts set up since 6 October 2020 need to be registered within 90 days of starting.

Failure to register your trust before the end of the 90-day deadline could result in a financial penalty and could be as much as 5% of the tax liability in the trust.
 
You also need to register any changes to a trust
As well as registering trusts, you also need to register any changes made to the trust with HMRC. You do this through the same website you use for registering. 

The timescales within which you need to inform HMRC of any changes are slightly less onerous than for initial registration. You need to report any changes by 31 January of the tax year following the tax year in which you made the changes.

For example, if you were to amend a trust on 1 March 2022, you would have until 31 January 2023 to register these amendments.
 
There’s an obligation to keep accurate records of all trusts
As well as registering trusts, HMRC also requires trustees to keep accurate trust records. These include: 

• The full name of the trust and contact details of the trustees
• The date on which the trust was created
• Details of the settlors and beneficiaries
• The place where the trust is administered
• The country where the trust is considered to be resident for tax purposes
• Details of any advisers such as solicitors, accountants, and financial advisers who are providing advice in relation to the trust.

If these details change, it’s important that records are kept up to date.

This article gives you an overview of the things you need to consider when setting up and registering a trust. The rules outlined here are not exhaustive and so it is always wise to seek expert advice to make sure you don’t fall foul of the rules.

Get in touch
If you’d like help or guidance regarding setting up a trust or registering it with HMRC, we’ll be glad to help. Email info@aspirafp.co.uk or call us on 01454 632 495.

This article is for information only. Please do not act based on anything you might read in this article. 
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.