By Joshua Hearn-Collins
WHAT IS A TRUST?
A trust is a legal arrangement whereby one or more individuals (known as trustees) hold and manage assets for the benefit of others (known as beneficiaries). The registration obligations ensure transparency in beneficial ownership and compliance with anti-money laundering regulations.
A Trust comes to in existence once a person(s) (known as the settlor(s)), transfer assets (money, property, or investments) to the trustees. This creates a legal responsibility upon the trustees to manage the trust under the terms set out in the trust instrument (the legal document) in pursuit of benefitting the beneficiaries.
The main parties involved:
Settlor: the person creating the trust and transferring assets into it
Trustees: individuals or organisations responsible for managing the trust
Beneficiaries: those who benefit from the trust assets or income
Trusts are commonly used in the UK for:
Estate planning;
Asset protection;
Charitable purposes; and
Preserving family wealth across generations.
All registrable trusts must register through HMRC’s Trust Registration Service (“TRS”) – Register a trust – GOV.UK
CATEGORIES AND TYPES OF TRUSTS
Since 2020, all UK express trusts must register through the TRS even if there is no tax liability (unless an exclusion applies). – This main change was introduced by The Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020
Registration requirements broadly apply to:
UK express trusts (unless excluded)
Certain non-UK express trusts where they incur UK tax liabilities, acquire UK land or enter into specified UK business relationships.
Types of Trusts in UK
Bare trusts – Beneficiaries have an immediate and absolute right to the trust assets and income
Interest in Possession (Life Interest) Trusts – A beneficiary has the right to receive income generated by the trust assets during a specified period.
Discretionary Trust – Trustees have discretion over how and when income or capital is distributed among beneficiaries.
Charitable Trust – Established exclusively for charitable purposes and subject to specific legal requirements.
EXCLUSIONS FROM REGISTRATION
Schedule 3A of the Money Laundering Regulations 2017 sets out excluded trusts which are considered to present a lower risk of money laundering, these include:
Trusts imposed by law
Court-ordered trusts
Pension scheme trusts
Trusts for bereaved minors or individuals lacking mental capacity
Additional excluded trusts:
Trusts created for the purposes of holding client money, securities or other assets by a relevant (supervised) person;
Trusts created by agents to facilitate or enable holding property or documents on behalf of another pending the performance of a contractual condition between two or more other people;
Trusts holding tenants’ service charge contributions for the purposes of section 42 of the landlord and tenant act 1987; and
Trusts arising on intestacy (for limited periods).
PRELIMINARY STEPS TO REGISTERING A TRUST
Step 1 – Deciding on the Trust Structure
Taking into consideration:
The purpose of the trust;
The assets to be transferred;
The beneficiaries;
Tax implications;
Trustee responsibility.
It is important to note that some trusts can be complex and of high value, this may provoke the need for Professional legal or tax planning advice to prevent inaccuracies.
Step 2 – Drafting the Trust Instrument
Which may comprise of the following:
The name of the settlor(s), the trustee(s), and beneficiaries
The trust’s objectives
Trustee powers and duties
Rules governing distributions
Procedures for appointing or removing trustees
Trust deeds may be drafted independently; however, to ensure certainty, peace of mind and compliance with UK Law, instructing a solicitor will provide this.
Step 3 – Transfer assets into the Trust
Assets to be transferred by the settlor(s) into the trust – different types of assets may require different legal formalities.
Examples of transfers may include:
Registering property ownership changes with the Land Registry
Transferring shares through the relevant company registrar
Moving cash into a dedicated trust bank account
Step 4 – Determining whether registration is required
Most UK express trusts must be registered through HMRC’s TRS.
Reference to the four categories detailed above will assist in determining whether registration is required.
REGISTERING THE TRUST
When the trust is ready to be registered, the following information will be needed:
Trust Name
Date the trust was created
Details of trustees
Details of the settlor
Information about beneficiaries
Information about trust assets
National Insurance number or tax references where applicable
A ‘Lead Trustee’ will be the one nominated to provide this information, ensuring accuracy and kept up to date.
The ‘Lead Trustee’ is required by HMRC as a main point of contact – although, the remaining trustees remain equally legally responsible for the trust.
FURTHER CONSIDERATIONS
Compliance
Trustees have a continuing responsibility after registration; this responsibility may involve:
Keeping trust records updated,
Reporting relevant changes to HMRC,
Filing tax returns where required,
Maintaining accurate financial records,
Acting in the best interests of beneficiaries.
Failure to comply can result in penalties and regulatory issues:
Trustees have 90 days to register a new trust (or to update the TRS in the case of changes to information supplied)
There is not an automatic penalty for a non-deliberate failure to register, but HMRC will send the trustees a warning letter setting out their obligations and a deadline by which they must comply to avoid a fine.
Trustees may be subject to a fixed penalty of £5,000 if a trust is not registered by the relevant deadline or if information is not reported or updated on time.
Common Mistakes to avoid
Selecting the inappropriate trust structure
Failing to prepare a valid trust deed
Missing registration deadlines
Providing incomplete information to HMRC’s TRS
Neglecting ongoing trustee duties
HOW CAN WE HELP?
Dealing with Trusts and navigating through the TRS can be complex from start to finish.
We can assist from registering your trust to ensuring compliance is maintained. Our Trust specialists are here to help answer all questions and queries.
Please contact us today if you are thinking about creating a trust or concerned whether your trust is meeting regulation requirements.
Disclaimer
This article provides general information only and should not be relied upon as legal or tax advice. Every trust is different, and professional advice should be obtained before establishing or administering a trust.
