HM Revenue & Customs’ new online Trusts Registration Service is now up and running, and beginning to get the attention of trust providers in a big way. Here, tax commentator Gerry Brown looks at the new regulations, and what they will mean for those in the trusts industry.
The UK trust register is now up and running.
Despite a number of recently-published articles that have indicated otherwise, the online trust registry was conceived as an anti-money-laundering initiative, and not an attempt to attack tax-avoidance schemes involving trusts.
HM Revenue & Customs created some confusion in its April 2017 Trusts and Estates Newsletter, in which it announced that “All trusts with a UK tax consequence will need to be registered”.
The question this prompted was, of course, what HMRC meant by the term “UK tax consequence”.
The final regulations – snappily titled “The Money Laundering Terrorist Financing and Transfer of Funds (information on the Payer) Regulations” – at last appeared on 22 June, in Parliament, and officially came into force as of 26 June 2017.
The term “UK tax consequence” doesn’t appear in the final draft.
Some of the key elements of the new regulations that did appear, meanwhile, are detailed below.
What do the regulations state?
For a start, the “commissioners” (ie, HMRC) must maintain a register of :
(a) beneficial owners of taxable relevant trusts; and
(b) potential beneficiaries of such trusts.
The term “beneficial owner” in relation to a trust is a bit odd, but for the purposes of the regulations, is defined as meaning each of the following:
(a) the settlor;
(b) the trustees;
(c) the beneficiaries.
What is a taxable relevant trust?
A taxable relevant trust is deemed to be one where the trustees are liable to one of the main UK taxes – income tax, capital gains tax, inheritance tax, stamp duty land tax, land and buildings transaction tax (in respect of property in Scotland), or stamp duty reserve tax.
What information must the trustees provide?
(a) the full name of the trust;
(b) the date on which the trust was set up;
(c) a statement of accounts for the trust, describing the trust assets, and identifying the value of each category of the trust assets at the date on which the information is first provided to the commissioners (including the address of any property held by the trust);
(d) the country where the trust is considered to be resident for tax purposes;
(e) the place where the trust is administered;
(f) a contact address for the trustees;
(g) the full name of any advisers who are being paid to provide legal, financial or tax advice to the trustees in relation to the trust.
When must the information be provided?
The information must be provided by the 31st of January, following the tax year in which the income first arose.
This ties in with the self-assessment deadline.
For existing trusts, the first deadline is 31 January 2018.
Who will have access to this register?
The trusts register will not be open to the public. It will be available to HMRC, the Financial Conduct Authority, and UK law enforcement authorities.
How does this impact trustees of cross-border life assurance bonds (offshore bonds)?
In general, trustees holding only offshore bonds will not be required to provide information – at least not immediately.
There are two reasons for this.
1. Offshore bonds don’t generate income until a chargeable event arises.
2. When a chargeable event arises the tax liability falls on the settlor (when alive and UK resident) not the trustees.
This has been confirmed with HMRC.
There will, of course, be occasions when the trustees are liable for tax, and therefore, will need to provide certain relevant information to the register. This will be in respect of chargeable events arising when the settlor is dead, or non-resident.
It would be open for the trustees to assign the bond (or bond segments) to beneficiaries, thus avoiding a chargeable event on which the trustees would have a tax liability.
There might be an inheritance tax charge, depending on the value of the assigned bonds.
For many family trusts holding offshore bonds, there may never be a need to report.
Will trustees of offshore trusts need to register?
Yes – if they hold UK assets or receive income from a UK source.
What other trustees can avoid registration?
Trustees of “bare trusts” will generally not have to register, because the beneficiary rather than the trustees is liable for any tax.
The position with “settlor-interested trusts” requires further clarification. A settlor-interested trust is one in which any of the settlor, the settlor’s spouse and the settlor’s unmarried minor children are potential beneficiaries.
In such trusts, the tax charge usually falls on the settlor rather than the trustees.
What should trustees be doing now?
Trustees should be taking advice on their reporting obligations. As might be expected, there are penalties for those who fail to comply with the regulations.
Where can the regulations be found?
It may be found here: www.legislation.gov.uk/uksi/2017/692/pdfs/uksi_20170692_en.pdf
The main regulations applying to trustees are 44 and 45.
When will the new register be available for use?
HMRC has confirmed that the system went live on 10 July.