Complying with the requirements of the Trust Registration Service (TRS) is likely to absorb a very significant proportion of an adviser’s time over the next twelve months or so.
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.
In March 2021, HM Revenue & Customs (HMRC) announced:
“As you are aware the Trust Registration Service will be extended to enable non-tax paying trusts to register in compliance with the Money Laundering Regulations. We are now able to provide more detail on the timescales and registration deadlines:
- We now expect the IT system to open for registrations in summer 2021 rather than the spring.
- We appreciate this will be a cause for concern in terms of the current registration deadline of March 2022.
- We therefore intend to extend that deadline within the legislation in order to provide trustees and agents of existing trusts with approximately 12 months in which to register from the date of IT delivery.
- We will provide further updates and clarification on this in due course.”
Trusts holding life assurance policies - which don’t generate income - will, in principle now be required to register. Trustees (and possibly settlors and beneficiaries) of such trusts will turn to their financial adviser for assistance with the registration process for the very good reason that the adviser suggested using a trust in the first place!
HMRC has recently published the Trust Registration Service Manual (TRSM). It would be useful if advisers knew their way round this manual. It is not yet complete but provides a useful introduction as to what needs to be done.
Only ‘express trusts’ need to be registered. TRSM defines an express trust thus:
“An express trust is a trust created deliberately by a settlor, usually (but not always) in the form of a document such as a written deed or declaration of trust. Most trusts are express trusts... Trusts that are not express trusts ... are not required to register on TRS as registrable express trusts but may have to register for taxable purposes if they have a UK tax liability.”
There are many exemptions from the requirement to register; covered in some detail in TRSM. HMRC has confirmed that trusts of investment bonds are not exempt.
The advisory practice needs to have a plan to deal with the requirements of TRS
The most basic decision to be made is whether the practice is to have any involvement with TRS? The registration process is not straightforward and in many cases will be time consuming. An alternative might be to direct trustee clients to solicitors or accountants. This could be a double-edged sword resulting in a strengthening of ‘professional connections’ but a concomitant weakening of the practice’s relationship with not only the trustees, but the settlor and beneficiaries.
Who will help those trustees unhappy with involving solicitors or accountants? It is important to appreciate that failure to register could lead to the trustees suffering a penalty. Although the legislation sets out penalties for late registration and other failures in the registration process TRSM does not as yet include details on the operation of the penalty regime. HMRC has indicated that penalties will not be levied until the new system has ‘bedded in’.
Communication with client trustees will be essential and the sooner this is started the better.