Following new EU Money Laundering regulations, and as part of increasing global demands for transparency, trustees are now required to maintain specific data about their beneficial owners – broadly settlors, trustees and beneficiaries. Trusts with tax consequences must provide this information, together with further details of the trust, via the Trusts Registration Service (TRS) to HMRC. The resulting Trust Register will be available to law enforcement agencies, but not the public.
For most reporting trusts, the deadline to submit their data is 31 January 2018. Trustees have had access since July, however agents will not have access to the new system until some point in October.
Agents seeking UTRs for trusts and complex estates[1] are also waiting for access to the service which, following withdrawal of form 41G in April 2017, is now the route for these entities to register for self-assessment.
Who needs to use the TRS?
All relevant trusts must retain specified information about their beneficiaries. Those with a taxable consequence in 2016-17 must report this information to the TRS by 31 January 2018. Thereafter the data submitted must be reviewed and updated each year the trust has a tax consequence.
The term relevant trust includes express UK trusts and also express foreign trusts which have either:
- a UK income source, or
- UK assets
on which one of the taxes noted below is due.
A taxable consequence means that the trustees are liable to one or more of the following taxes:
- Income Tax
- Capital Gains Tax
- Inheritance Tax (IHT)
- Stamp Duty Land Tax (SDLT)
- Land and Buildings Transaction Tax (LBTT)
- Stamp Duty Reserve Tax
Most trusts in the self-assessment system will be subject to TRS reporting requirements.
Trusts which are not required to report include bare trusts, and trusts where all the income has been mandated to beneficiaries and the trust is no longer required to submit a tax return.
Trustees not in self-assessment will need to be alert to the possibility of registration being required because, for example, the trust buys a property and pays SDLT/LBTT, or has a liability to an IHT charge.
What information is required?
In addition to basic information such as the name of the trust and correspondence address, the TRS requires details of the trust’s beneficial owners and assets.
Beneficial owners are defined as the settlor(s), trustees and beneficiaries as might be expected. Also included are any protectors (unlikely unless the trust has an offshore aspect) and any other person who has control or influence over the trust.
As far as possible, with a view to transparency, all beneficiaries – including potential beneficiaries in a letter of wishes or other written document – should be disclosed. HMRC expect all individuals named in trust documents as actual or potential beneficiaries to be disclosed. Where beneficiaries are unknown, e.g. future unborn children, they should be disclosed as a class of beneficiaries using the wording in the trust deed. Once a beneficiary previously included in a class receives a benefit they should be disclosed in their own right.
When considering if any other person has control of the trust, HMRC consider parents of minor beneficiaries to have control if they can direct that their children should or should not receive a benefit from the trust. HMRC also highlight cases where the rule in Saunders v Vautier might apply. In this situation, where the beneficiaries are all of age and capacity and, acting together, could agree to break up the trust, HMRC would consider the beneficiaries as having control over the trust.
For assets, HMRC are expecting the details of the assets originally introduced to the trust, including their values at the start of the trust, the address of any properties and details of shareholdings.
HMRC are aware that some trustees may struggle finding historic information and appreciate that they will simply have to do the best that they can.
Extended deadline for self-assessment registration
Trusts and complex estates first liable to self-assessment in 2016-17 would usually need to register by 5 October 2017. Due to the delays in agent access to the TRS, HMRC have extended the registration deadline to 5 December 2017 for this year only.
Summary
While the extension for registration for self-assessment is to be welcomed, many agents will still have a significant challenge to gather the detailed information required and submit it by the 31 January deadline, alongside existing self-assessment obligations. Furthermore, some aspects of the process still need clarification.
Compliance will be a substantial exercise, therefore trustees need to be aware of their additional responsibilities and the importance of communicating changes to beneficiaries and family situations to professional advisers promptly.
Helen Thornley is a technical officer with the Association of Taxation Technicians.
[1] A complex estate is defined as one where either (i) the estate is valued at over £2.5m, (ii) the tax due for the whole period of administration will exceed £10,000 or (iii) the estate will make sales of assets exceeding £500,000 (£250,000 for estates resulting from a death prior to 6 April 2016).