QUESTION: What are the new rules coming into force in September regarding registering a trust with HMRC?
ANSWER: It is now necessary to register most types of trusts with HMRC, including trusts which do not produce an income. Failure to register a trust in time may result in penalties.
A trust is a separate legal entity and can be used to manage assets which can include investment, money, land/or property. Trusts can be used to protect family assets or pass assets to your beneficiaries in a will.
There are a variety of trusts, and these are taxed differently. A trust is usually set out in a document which refers to the settlor, trustees, and beneficiaries of the trust deed.
The settlor creates the trust and decides how the trust should be used. A settlor can also be a beneficiary. Trustees are responsible for managing the trust and paying the tax (if any) due. Beneficiaries can benefit from the trust by receiving income (for example rental income from a property held in a trust) or capital (for example a cash gift for a minor to be held on trust until they attain a certain age).
In October 2020, new legislation has further extended the rules on reporting information to HMRC. Therefore, any trusts that were created from then will now need to be registered. Trustees are now required to register their trust under HMRC’s online portal, the Trust Registration Service (TRS).
Previously, trustees were usually only required to register their trust under the TRS if the trust was liable to pay any UK tax.
Trusts that now need to be registered are all UK express trusts (unless exempt), for example:
• Declaration of Trust
• Life Interest Trust
• Discretionary Trust
• Bare Trust
There are certain trusts that do not need to be registered (unless the trust is liable to pay UK tax). These types of trusts include some of the following:
• Trusts that are set up to hold money from UK registered pension scheme (for example Occupational pension scheme).
• Certain charitable trusts.
• Pilot trusts created prior to 6 October 2020 and hold no more than £100 (however, if created after 6 October 2020 this may need to be registered).
• Trusts that are used to hold retirement or life policies (providing the policy only pays out upon death, critical or terminal illness or permanent disablement, or to meet the healthcare costs of the person assured).
• Trusts for bereaved minor or adults aged 18 to 25 set up under the will (or intestacy) of a deceased parent.
• Certain co-ownership trusts that are set up to record the beneficial interest held in property or other assets (unless both the trustees and legal owners are different).
Examples of trust arrangements that now need to be registered with HMRC includes:
• Mother and father transfer shares to a minor child, as the shares are legally held by the parents as trustees for the child who is the beneficiary – this creates a bare trust.
• Property bought 50:50 between husband and wife but they make a declaration of trust to change the beneficial ownership to 99:1.
• Husband owns a house in his sole name but has recently transferred 50 per cent of the beneficial interest in the property to his wife.
In order to register all trustees named in the trust are equally responsible, but you can nominate “one” lead trustee to be main point of contact for HMRC. Before you can access HMRC’s online portal you will need to apply for a Government ID which will enable you to use the Government gateway account. The trustees will need to provide HMRC with some basic information regarding the settlors and beneficiaries named in the trust, as well as details of the assets held.
:: Malachy McLernon (m.mclernon@fpmaab.com) is partner at FPM Accountants (www.fpmaab.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies
