800,000 families at risk of £5,000 fines
Which trusts are now required to register, what are the deadlines and what are they required to disclose?
Since 2018, taxable UK trusts have been required to register on the HMRC trusts register; however, the deadline for most other UK trusts to do so is currently 1 September 2022.
All businesses should immediately assess the holding structures in their portfolios to find any trust arrangements, especially those involving assets owned by nominees, and try to have these registered as quickly as possible.
Non-taxable trusts
Trusts that do not owe taxes must now register by the latter of 1 September 2022 or 90 days after the trust's creation (unless exempt - see below).
This covers all arrangements, even those you might not consider being "trusts."
Which trusts does this apply to?
Unless they fall under one of the categories of excluded trusts, all express UK trusts that are or were in existence on or after October 6, 2020, are subject to the restrictions. Trusts based outside the UK must also register if they:
Bought land in the UK after October 6, 2020; or
Having a UK trustee and, after October 6, 2020, established a commercial connection with a regulated company (such as an attorney, an accountant, or a bank) in the UK.
There is no de minimis exception and the requirements do not merely apply to trusts established by deed. For instance, they also apply to:
co-owned property, including land pooling agreements, in which the property's beneficial owners are not the same as its legal (registered) owners;
Employee benefit trusts;
a partner who holds assets for the benefit of the partnership under a written declaration (the majority of Limited Partnership agreements will include such a declaration)
Most nominees and bare trusts (i.e., any time assets are held in a name other than the beneficial owner);
Trusts holding investments or insurance policies; and
New pilot trusts holding nominal sums
What are the exclusions?
Unless they are subject to UK tax, the following trusts are exempt from registration:
trusts established as a result of a business transaction where the trust's main purpose is accidental;
currency retained between the exchange and closing of a property transaction, for example, while a contract is being carried out;
trusts holding assets for registered pension plans, as well as those holding payments made as death benefits within two years of the date of death;
Trusts that hold life or retirement policies that pay out in the event of death, a serious sickness, or disability;
trusts established by court order, those mandated by the intestacy regulations, and trusts for beneficiaries who are more vulnerable;
the UK registered or exempt charities;
trusts established by a will and closed within two years of death;
trusts established before October 6, 2020, and hold less than £100.
What details are needed?
Less disclosure is necessary than it would be for a taxable trust. The name, address, birth date, place of residence, and nationality of one lead trustee are required. For trustees who reside in the UK, a national insurance number is required, as are passport numbers for those without them. All that is required of corporate trustees is their name and address.
Only their name, birthdate, country, and place of residence are disclosed to the other trustees, the beneficiaries, and the settlor(s). To eliminate the need to gather their information, beneficiaries may be named as a class if the specific beneficiaries cannot be readily recognized and are not actively receiving benefits from the trust.
Record keeping
The need placed on trustees to keep records of the information that must be entered on the register is one aspect of the trust legislation that has strangely garnered little attention to date. This is crucial because it applies to all express trusts, even those that fall within the exceptions and are therefore exempt from registration.
Taxable trusts
Since 2018, trusts with a UK tax liability have been required to register, which is still in effect today. The most demanding information to file for trusts that are first registered as non-taxable but later become subject to taxation is the specifics and valuations of the trust's assets at the time of registration.
Who will read the register?
Only two situations qualify as "public" access to the register:
Investigations: IN order to prove that they are participating in an investigation into money laundering or terrorist financing, applicants must show that they have good reason to believe that the trust is being used for these illegal acts.
Foreign companies: Whenever a trust owns a majority stake in an organization that is not a member of the EEA or the UK, applicants are eligible to apply.
The second poses a considerably bigger risk to privacy because it is easily applicable to many nominee arrangements holding investments in overseas corporations. It might provide the media and private investigators considerably greater opportunity to learn about registered trusts.
Penalties
Although HMRC's most recent update reaffirms that they will not impose fines for a first failure or late registration unless it can be demonstrated that the failure was caused by purposeful behavior, theoretical penalties are severe. Instead, they will send out letters of caution. The register is acknowledged as being "a new and unfamiliar obligation for many trustees" in this way.
In fact, the rule extension will undoubtedly lead to widespread non-compliance, especially for many nominee arrangements where families and businesses may be unaware of their obligations or possess trusts.
The fact that a trustee of a registrable trust will be unable to consult with regulated businesses (such as attorneys, accountants, banks, estate, and letting agents) regarding the trust or trust assets without first downloading and providing a copy of their registry entry is another practical barrier.