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The deadline for registering express trusts with the Trust Registration Service for the first time is now just 20 weeks away. This will include many off the shelf estate planning trusts offered by product providers such as gift trusts, discounted gift trusts and loan trusts. Most advisers will be unable to register on behalf of their trust clients but they can help them understand their reporting obligations and get the trusts in order ahead of the deadline.

The deadlines

By 1 September 2022, all non-taxable 'express' trusts in existence at 20 October 2020 must register unless 'excluded'. Express trusts created after 3 June 2022 will have 90 days to register.

Existing trusts which have tax to pay should have already registered, as the TRS is the mechanism by which trustees obtain the Unique Taxpayer Reference (UTR) needed to submit a self-assessment return. Taxable trusts established after 5 April 2021 have until the later of 1 September 2022 or 90 days after first becoming liable for tax in which to register.

The main focus of this article is on the non-taxable express trusts that must register by 1 September 2022 to comply with the Fifth EU Money Laundering Directive.

Express trusts

An express trust is a trust deliberately created by a settlor, usually in writing. They may be taxable or non-taxable.

The majority of trusts recommended by advisers for tax and estate planning will be UK express trusts as they will typically use a deed from a product provider. The deed is the evidence of a clear intention to create a trust. These will often be non-taxable as the trust investment will be in life policies, including investment bonds, which do not produce a natural income.

Such trusts, whether they are bare trusts, flexible interest in possession trusts or discretionary trusts, must now be registered by 1 September this year (or 90 days after creation if later) unless they are 'excluded'.

Excluded trusts

Certain trusts will not have to register by 1 September, the most relevant to advisers being:

• Protection policies, where the only benefit is a sum assured paid out on the death of a life assured (or terminal illness). Protection policies in trust that are capable of being surrendered, such as whole of life policies, can also remain excluded. But the exclusion does not extend to trusts holding bonds as these are seen as investments with minimal life cover benefits.
• Historic pilot trusts. Trusts with a value of £100 or less which were already in existence before 6 October 2020 are excluded. This will include pilot 'bypass' trusts created for the purpose of accepting death benefits from a pension scheme.
• Will trusts are excluded from registration as an express trust for the first two years after death. If the assets have not been paid out by this time, the trustees must register the trust.

Our practical guide, 'Trustee reporting requirements', provides a more comprehensive list of excluded trusts, but regardless of any trust having excluded status, they must still be registered if they become taxable.

Registration

The legal responsibility for registering falls on the trustees. They are the only people who know the details required. These include the name and date of the trust, the personal details of the trustees and beneficiaries (names and dates of birth), plus information on any deceased settlors. A lead trustee must also be appointed with their contact details and NI number.

With regards to beneficiaries, each named beneficiary must be reported. However, many 'off the shelf' flexible and discretionary trust wordings from product providers will contain wide beneficial classes to meet most common family situations.

In this case, where all beneficiaries in a class can be identified, their individual details must be reported on the register. Where it is not 'reasonable' for the trustees to be able to identify all beneficiaries in a class, then the class can be reported rather than individual names.

Further clarity has been sought from HMRC in terms of what is 'reasonable' and to what lengths trustees are expected to go to in identify individuals within a class. Additional guidance would also be welcomed on registering as a class rather than individuals where the class of beneficiaries may stretch across several generations including potential beneficiaries yet to be born. But there is no guarantee we will get updated guidance from HMRC in time for September's deadline and trustees should use their discretion in determining whether they believe it is reasonable to identify by class or as individuals.

Alternatively, trustees may appoint an agent to complete the registration for them.

However, while financial advisers may have recommended a trust and possibly have most of the information required for registration, it is unlikely they can act unless they have registered for an agent services account with HMRC. As things stand, they can only do this if their business operates as an accountancy service provider.

An opportunity to review

An adviser's role with regards to the Trust Registration Service may be limited to guidance. But much may have changed since the trust was created and the trustees may require help with some simple housekeeping in terms of adding or removing trustees or it may prompt discussions on whether the original trust objectives continue to be met.

Changing trustees

Since the trust was established some of the original trustees may have died, lost mental capacity, no longer wish to be involved or may not be traceable. Not only will this cause problems and delays in updating TRS, it may also prevent the trust from being fully operated until they have been removed and potentially replaced.

If the trustees need to be changed, it may be prudent to do this before registration if time allows. Details of who can add and/or remove trustees will usually be contained in the trust deed.

If the removal or appointment of a trustee cannot be achieved under the terms of the trust, a solution may be found under the Trustee Act 1925, although this could take more time to complete. Legal advice would be needed and possibly consent from the Court of Protection.

Trust objectives

The original objectives of the trust may also have changed with time. Family relationships change, beneficiaries may have died and new ones born. Although the trust may cater for these changes, giving the trustees discretion over who benefits and when, if the intended beneficiaries have changed then this may have a knock-on effect for the investment strategy or mean it is time to bring the trust to an end.

It is worth noting that appointing the trust assets to the beneficiaries and winding up the trust before the reporting deadline does not remove the reporting obligation for the trustees and if it triggers a tax charge, it could also involve additional reporting as a taxable trust.

These conversations can be a gateway to building relationships for future intergenerational planning.

Summary

Investment bonds have been a popular investment choice for trustees, as typically there is no tax reporting unless there are chargeable gains assessable upon the trustees or IHT periodic and exit charges to pay. The vast majority of express trusts needing to register for the first time will feature investment bonds as the underlying investment and will often use the product providers own trust deeds.

This combination will continue to be a valuable solution for estate planning in the future, albeit with the added requirement to register.

The deadline for registering non-taxable trusts is fast approaching. Trustees should begin getting their trusts in order and gathering the neccesary information in order to register in good time.

Once registered, there will be ongoing duties with regards to keeping the register up to date. These will be covered in a later article, together with any relevant updates from HMRC.