New rules, transposing the Fifth Money Laundering Directive (5MLD) into UK law took effect on 10 January 2020. One impact of the rules was to broaden the scope of the Trust Registration Service (TRS) requirements. you can read more about 5MLD and TRS here.
In brief, the previous rules required that all express trusts that incur a UK tax consequence be registered with the TRS. This went live in 2017.
An express trust is one that is set up deliberately by a settlor. Trusts which are imposed by courts or created by legislation, are not ‘express trusts’ and therefore do not have to register unless they are liable to one or more of the following taxes:
- Capital Gains Tax
- Income Tax
- Inheritance Tax
- Stamp Duty Land Tax
- Stamp Duty Reserve Tax
- Land and Buildings Transaction Tax (in Scotland)
- Land Transaction Tax (in Wales)
5MLD widened the scope of TRS to require ALL UK and some non-EU resident express trusts to be registered, whether or not the trust has UK tax liabilities unless they are explicitly excluded from the registration requirement – see below. However, it was not possible to actually register non-taxable trusts online immediately. The online service to register non-taxable trusts finally went live on 1 September 2021.
The deadline for registrations for non-taxable trusts in existence on or after 6 October 2020 is 1 September 2022.
Non-taxable trusts created after 1 September 2022 must register within 90 days.
Trusts that are specifically excluded from the need to be registered include those:
- where the assets in the trust go back to the settlor (a ‘resulting’ trust) — for example, when the trust ends and all the beneficiaries have died
- trusts used to hold money or assets of a UK registered pension scheme — such as an occupational pension scheme
- trusts used to hold life or retirement policies providing that the policy only pays out on death, terminal or critical illness or permanent disablement, or to meet the healthcare costs of the person assured
- trusts holding insurance policy benefits received after the death of the person assured — as long as the benefits are paid out from the trust within 2 years of the death
- will trusts which are created by a person’s will and come into effect on their death — as long as they only hold the estate assets for up to 2 years after the person’s death
A full list of excluded trusts and other guidance can be found on the relevant section of the HMRC website.
The third and fourth exclusions listed above would appear to apply only to term assurance policies written under trust. However, reference to the relevant HMRC manual page confirms that whole life policies written under trust are also excluded from the requirement to be registered, by dint of (Sch3A(4) of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017), provided certain conditions are met. HMRC includes the following specific example:
“Grace takes out a whole of life insurance policy which is written into trust. During Grace’s lifetime this trust is excluded from registration under Sch3A(4).
On Grace’s death, the trust receives the pay-out from the policy. The trust remains excluded from registration for up to two years under Sch3A(8), giving time for the trustees to direct the pay-out to the beneficiaries of Grace’s estate.”
Finally, some financial products and arrangements using the word ‘Trust’ in their marketing, such as the Child Trust Fund or Venture Capital Trusts, are not really trusts, and do not need to be registered.