Those who put off planning for trust registration "might find themselves next May or June with the proverbial shedload of data to be gathered and a deadline twelve weeks away", according to Gerry Brown, trust and estate planning consultant with Isle of Man-headquartered QB Partners.
And while it is "generally believed that HMRC will be ‘easy' on penalties - at least for a honeymoon period. That might well be the case but how long will the honeymoon last?"
The Trust Registration Service (TRS) is a register of the beneficial ownership of trusts. It was first set up in 2017 as a consequence of the 4th Anti Money Laundering Directive (4AMLD).
Initially trustees were required to register if the trust paid tax. In October 2020, as a consequence of the 5th Anti Money Laundering Directive (5AMLD), the scope of TRS was extended to all trusts whether they produced income or not.
Although there are many exemptions from registration it is fairly safe to assume that all bond-trust combinations (and particularly those used in inheritance tax planning strategies) will need to be registered.
Additionally, there will be many thousands of trusts holding family homes as assets as part of strategies to avoid or reduce contributions to long term care costs.
The EU wide requirement was that;
‘Each Member State shall require that trustees of any express trust administered in that Member State obtain and hold adequate, accurate and up-to-date information on beneficial ownership regarding the trust. That information shall include the identity of:
(a) the settlor(s);
(b) the trustee(s);
(c) the protector(s) (if any);
(d) the beneficiaries or class of beneficiaries;
(e) any other natural person exercising effective control of the trust.
Member States shall ensure that breaches of this Article are subject to effective, proportionate and dissuasive measures or sanctions.'
The information required by HMRC closely follows the above requirement; the settlor, trustees and beneficiaries (where named) have to be identified by way of name, date of birth, nationality, tax residence and mental capacity (in case HMRC or another authorised agency has to communicate with an individual). In the vast majority of cases provision of this information will be straightforward.
In the first phase of TRS (the 2017) ‘taxable trusts' had to be registered. Although there were some teething problems, the registration process was completed without undue angst.
However, the current cycle might prove more difficult and time consuming. The 2017 cycle involved trusts whose existence was already known to HMRC and submitted self-assessment returns annually. The agents acting in those cases (primarily solicitors) had all the required information ‘to hand' so in most cases the registration process proceeded smoothly.
The 2021-22 cycle might not run so smoothly. The typical trust now requiring registration will not have submitted self-assessments annually as they will not have generated a tax liability.
Discounted Gift Trusts, Loan Trusts and other trusts used in inheritance tax planning operate on a semi-automatic basis and require little intervention from trustees or advisers.
Digging out the required information might not be easy and may well be time consuming. The fact that the deadline is in the next calendar year might induce a sense of complacency - ‘we'll get round to it'. Christmas is coming; closely followed by the self-assessment deadline of 31st January and then tax year end planning.
Those who put off planning for registration might find themselves next May or June with the proverbial shedload of data to be gathered and a deadline twelve weeks away. Summer holidays will inevitably eat into the available time.
And it should be borne in mind that TRS work is additional to the adviser's normal workload.
The legislation does provide a penalty regime for late registration. HMRC has published a manual on TRS, but it is not yet complete.
The material that is there is helpful but unfortunately the section on penalties has yet to be completed or published. It is generally believed that HMRC will be ‘easy' on penalties - at least for a honeymoon period. That might well be the case but how long will the honeymoon last?
HMRC has recently demonstrated a toughness on penalties in respect of late reporting of capital gains on UK properties - no honeymoon period there. Can advisers really expect a different treatment in respect of failure to comply with TRS requirements.
We are not alone. Almost every country is developing a register holding details on trusts. The Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog, with 200 supporting jurisdictions, is facilitating a global registration effort.
In the Republic of Ireland, the Revenue Commissioners maintain a Central Register of Beneficial Ownership of Trust (CRBOT). The details included on CRBOT are similar to those required under TRS. For trusts established before 23 April 2021 the deadline for registering was 23 October 2021; for trusts established after 23 April 2021 details must be filed within six months of creation.
France has had reporting requirements since 2011 for trusts with a French connection (such as a French resident settlor or beneficiary, or the trust fund having assets situated in France). France incorporated 5AMLD into French law in February 2020 and had extended reporting requirements to non-EU trustees owning French land or property and to non-EU trustees entering into a business relationship in France.
Italy is developing a register of beneficial ownership (RBO). Trusts need to be registered if, under Italian law, these trusts have tax consequences.
Most advisers are aware of what has to be done; they now have to develop strategies to get what has to done, done.
By Gerry Brown, trust and estate planning consultant with QB Partners
