New reporting requirements for trusts
QUESTION: My brother died suddenly a few years leaving a young family. In his will certain investment assets were placed into trust until his children reach the age of 25 years. The will named me as executor and trustee. The investment assets create yearly income and expenses and trust tax return forms are submitted disclosing the income to HMRC and tax paid accordingly. Someone told me that there is a new obligation to report this trust to HMRC. I don't understand what this is as tax return forms are already submitted every year.
ANSWER: As part of increasing global demands for transparency the European Union passed The Fourth Anti-Money Laundering Directive. These regulations require all EU states to create a centralised beneficial ownership register for trusts.
HMRC has been tasked with the responsibility of creating and supervising the new online Trust Register. Trustees must ensure and confirm that the trust has been registered and that the information is accurate and updated in each tax year that the trust generates a UK tax consequence.
UK and non-UK resident trusts with a liability to income tax; capital gains tax; inheritance tax; stamp duty land tax; or stamp duty reserve tax, need to comply. Personal Representatives of complex estates will also need to use this online register.
Therefore, if the trustees of a trust have not incurred a tax liability, either because they have claimed a relief or because the liability falls on the settlor or on a beneficiary, registration on the Trust Register is not required. This would include the situation where income is mandated directly to an interest in possession beneficiary.
Trusts that have no UK tax liability other than a tax liability of less than £100 on bank or building society interest income are also exempt from the requirement to register.
Registration will not be required if the trust is a bare trust, although trustees of bare trusts are nonetheless required to keep accurate and up-to-date written records of the beneficial owners in the same way trustees of any other trust type must do.
An estate is classed as complex if the tax liability for the whole of the administration period is in excess of £10,000, or the estate has a value at the date of death in excess of £2.5m, or the proceeds of assets sold by the personal representative in any one tax year exceeds £250,000 for deaths before April 2016, or the proceeds of assets sold by the personal representative in any one year exceeds £500,000 for deaths on or after April 2016.
Information required includes; name of trust and date of creation, place where trust is administered, contact address for trustee, details of any professional advisers, details of settlor; trustees; beneficiaries; and any other individual who has control over the trusts and details and value of trust assets at date they were added to the trust.
Failure to register will give rise to penalties. For existing trusts no penalty will be charged provided the registration takes place before March 5 this year. For new trusts created after April 2016, the deadline is January 31 following the end of the 1st tax year when a UK tax liability is incurred.
:: Feargal McCormack (firstname.lastname@example.org) is managing partner of PKF-FPM (www.pkffpm.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept liability for any direct or indirect loss arising reliance placed on replies.