The Trust Registration Service

What is the Trust Registration Service?

The Trust Registration Service (TRS) is an online service which came into force on 26 June 2017. It provides a single route for trustees and personal representatives of complex estates to comply with their registration obligations under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI No. 2017/692). There is a dual purpose to these Regulations: first, to digitalise the register of the tax-paying trusts, and second, to fulfil the UK’s obligations under the EU 4MLD (Money Laundering Directive) to keep a register of beneficial owners of taxpaying trusts. The TRS replaced the paper 41G (Trust) form and the ad hoc process for trustees to notify HMRC of changes in their circumstances. Trusts required to register with HMRC since June 2017 have needed to do so through the TRS.

Under the original 2017 rules, trusts needed to be registered only if the trustees incurred certain tax liabilities. The new rules enacted in the Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020 (SI 2020/991), amended the 2017 Regulations and came into effect on 6 October 2020. They state that even if there is no tax liability, almost all trusts set up during lifetime (with some exceptions), as well as certain will trusts, will have to be registered. Non-taxable trusts need to give much less information to HMRC. For trusts that are already registered, additional information will be requested regarding the individuals connected with the trust. This is to comply with the EU 5MLD which requires a register of the beneficial owners of all trusts.

All trusts (whenever they were established) which are not “excluded trusts” (see below) have to be registered by 1 September 2022 or within 90 days from the trust’s creation, whichever is later.

The HMRC guidance notes include comprehensive details on when, how and who should register and how to manage trust details (e.g. ensure that the information is up to date) online.  

Who is responsible for registering the trust?

The responsibility for registration lies with the trustees. If there is more than one trustee, they need to appoint a lead trustee to complete the registration process and be the main point of contact with HMRC. Alternatively, trustees may appoint an agent to register the trust on their behalf. 

What steps must be followed to register a trust on the TRS?

Trustees who are required to register must do so online at: https://www.tax.service.gov.uk/gg/sign-in?continue=/trusts-forms/form/registration-of-a-trust/new.

Before they can register, they must apply online for an “organisation” Government Gateway account to obtain a Unique Taxpayer Reference (UTR). A separate account is required for each trust, even if the settlor and trustees are the same.

What information does the TRS need?

The level of information needed depends on whether the trust is a taxable or non-taxable trust.

The first thing to remember is that the information required is about the trust in question and its “beneficial owners”. However, for this purpose, the term “beneficial owner” is much wider than is commonly understood and will include people who will often be prohibited from benefitting under the trust.

For TRS purposes, “beneficial owner” includes the following persons:

• The settlor(s).
• The trustees.
• The beneficiaries (including those named in a letter of wishes).
• Any individual who has control over the trust, such as a protector or another person with a power of veto or power to appoint or remove trustees or beneficiaries.

All trusts registering on the TRS must give information on both the trust and the beneficial owners of the trust. Taxable trusts must provide extra details of the trust assets and their tax liabilities.

What if the trustees fail to register their trust?

The Regulations allow HMRC to fine trustees if they don’t fulfil their obligation to register. HMRC’s stated intention is that a first offence (or inadvertent failure) will not carry a financial penalty – trustees will simply receive a ‘nudge’ letter. However, a deliberate failure will lead to a fine.

Which trusts need to register?

All UK resident trusts that are taxable and, except for Excluded Trusts (see below), all UK non-taxable trusts need to register. The vast majority of non-UK trusts do not need to register.

Excluded trusts

The types of trust (whether UK resident or non-UK resident) which don’t need to be registered on the TRS include:

• UK charitable trusts.
• trusts that arise as a result of statutory requirements – for example, statutory trusts arising for minor children under the UK intestacy rules.
• trusts for a bereaved minor (TBM) and “18-to-25” trusts, i.e. trusts set up under the will of a deceased parent of the child, where the child will become absolutely entitled to the trust property on or before the age of 25.
• trusts created by a will which only hold assets forming part of the deceased’s estate and are wound up within two years of the deceased’s death.
• ‘pilot’ trusts created before 6 October 2020 where the value of the property held by the trust does not exceed £100. If further funds are added to the trust so that the trust fund exceeds £100 the trust will have to be registered at that point.
• trusts created by, or to satisfy, a court order – for example, on divorce or the dissolution of a civil partnership.
• co-ownership trusts that exist solely for the purpose of jointly owning UK land.
• trusts that exist where two or more people co-own an asset legally and beneficially for themselves – for example, a bank account or shareholding.
• registered pension scheme trusts.
• trusts of life insurance policies or policies solely for the payment of retirement or death benefits - which have as their main purpose the payment of benefit on the death, terminal illness, or permanent disablement of the insured, or to meet healthcare costs. There is more detail below on the criteria for registration and exclusion from registration for protection and investment based life policies.
• trusts holding only benefits received on the death of a life assured from a policy described immediately above, provided the benefits are paid out to beneficiaries within two years of the death of the person assured.
• trusts incidental to commercial transactions.
• authorised unit trusts.

Although bare trusts and nominee arrangements are not excluded by legislation, HMRC has confirmed that bank accounts held for minor children will not have to register.

Note, however, that if the trustees of a trust that falls within one of the above exclusions become liable for UK income tax, capital gains tax (CGT), inheritance tax (IHT), Stamp Duty Land Tax (SDLT) or Stamp Duty Reserve Tax (SDRT) the trust will need to be registered on the TRS, so that the required trust tax can be issued.

Subject to a couple of exceptions, non-UK resident express trusts do not have to register.

What about life assurance protection plans and investment bonds?

HMRC have previously said that if a life policy within a trust has a surrender value it will still be an excluded trust, as long as the policy is designed to pay out only on the death, terminal or critical illness or permanent disablement of the person assured, or to meet the cost of healthcare services for the person assured. 

The HMRC manual now includes examples clarifying the position. There is one straightforward example in relation to a term assurance with no surrender value, but there is also a new section on policies with surrender values, shown below:

Policies with surrender values

Some policies can be surrendered by the policyholder for a cash sum during the term of the policy. The possibility of a policy being surrendered does not in itself mean that a trust holding that policy cannot qualify for the exclusion at Sch3A(4). This is because HMRC accepts that the surrendering of a policy is not generally the same thing as a pay out from that policy.

The general position is that trusts holding policies with surrender values can remain

excluded from registration under Sch3A(4) until such time as the policy is actually surrendered. If a policy is surrendered and the cash sum is retained in the trust, the trust would be required to register from that point.

Example

Iqbal takes out a whole of life insurance policy, which is written into trust at commencement. The policy will only pay out on the event of Iqbal’s death, but the policy is able to be surrendered for a cash value during Iqbal’s lifetime. As this meets the conditions set out above, the trust holding the policy is excluded from registration on TRS.

However, some policies (such as investment bonds) are designed to provide regular or periodic payments to the policyholder in the form of surrenders or part-surrenders during the term of the policy, with a small life assurance element payable on death which is incidental to the benefits provided through the surrenders. In those cases, HMRC’s view is that the withdrawals of cash in the event of a part or full surrender does constitute a pay out from the policy, because those withdrawals are intended from the outset as expected payments of funds from the policy. As this occurs on an occasion other than those listed at Sch3A(4), the exclusion does not apply to trusts holding these policies.

Example

Margaret takes out an investment bond which she places in trust. Under the terms of the policy, Margaret is able to withdraw up to 5% of the funds invested per year in the form of a part-surrender of the policy. As these withdrawals are anticipated as an integral part of the design of the policy, they do constitute pay outs from that policy. As these pay outs are on occasions other than those listed at Sch3A(4), the exclusion from registration on TRS does not apply.

With the extension of the TRS to non-taxable trusts, trusts holding bonds (including loan trusts and discounted gift trusts) will need to register to begin with as a non-taxable trust and then update the TRS if/when the trustees actually become liable to tax.

Trusts arising from personal injury payments

These trusts are also excluded from TRS registration, subject to certain conditions.

The manual now clarifies that, to qualify for the exclusion, the trust must derive from payments made to a person as a result of a personal injury to them and the trust of funds must also be disregarded from capital under regulation 46(2) of, and paragraph 12 of Schedule 10 to, the Income Support (General) Regulations 1987.

Schedule 10 to the Income Support (General) Regulations 1987 states that a trust of funds arising from personal injury is disregarded from capital for a period of two years, or longer if reasonable in the circumstances, starting either:

• from the date of the payment if the claimant or their partner is in receipt of an income-related benefit, or
• in any other case, on the date on which an income-related benefit is first payable to the claimant or their partner after the date of the payment.

With the extension of the TRS to non-taxable trusts, trusts holding bonds will need to register to begin with as a non-taxable trust and then update the TRS if/when the trustees actually become liable to tax.

Bare Trusts and Nominations

The manual confirms that there is no specific exclusion from registration for bare trusts. In general, if a bare trust is an express trust it should register on TRS, unless it falls within the definition of excluded trusts. Unfortunately, there is no concession for bare trusts or nominee accounts where the beneficiary is other than the bare trustee, such as a minor child (except for bank accounts), despite general acceptance that such arrangements are unlikely to be used for money laundering purposes.

Of course, bare trusts are not required to register for taxable purposes, because any UK tax liability is incurred by the beneficiaries (or the parental settlor, if relevant) rather than the trustees.

There is also an interesting explanation of what an express trust is (remember that only express trusts need to register as non-taxable trusts). According to the manual, an express trust is a trust created deliberately by a settlor, usually in the form of a document like a written deed or declaration of trust.

It is important to consider the question of whether a designated (nominee) account (like one used with unit trusts investment) which involved a gift will need to be registered. If a designation is made irrevocably with the intention that the investment is held for a designated beneficiary (sometimes designated as the “beneficial owner”) so that a bare trust is created (at least in England and Wales), then arguably this will be an express trust, even if the word “trust” is not mentioned. It will then have to be registered.

Express trusts can be contrasted with trusts that come into being through the operation of the law and that do not result from the clear intent or decision of a settlor to create a trust or similar legal arrangement (for example, implied or constructive trusts). Such trusts do not need to be registered unless they become “taxable trusts”. An "implied trust" is in effect a loose way of describing a trust that arises by operation of law such as a resulting trust or constructive trust and should not be confused with an express, but undocumented (e.g. oral), trust.

Full details on dealing with taxable trusts and non-taxable trusts can be found here in Trust Registration Service – non-taxable trusts and Trust Registration Service – taxable trusts.