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HMRC have beefed up the penalty regime for the Trust Registration Service (TRS). Trustees who fail to complete the HMRC Trust Register may now face a £5,000 fine for each offence.

However, HMRC also recognise that there will be many trustees who are simply unaware of their obligations to register and will show some lenience. They've confirmed that there won’t be a penalty for a first offence of failing to register, or for late registration, unless it was shown to be a deliberate act by the trustees.

In addition to possible fines, trustees who fail to register may also struggle to manage trust investments or seek financial advice.

UK registration the clock is ticking

The pressure is now on for the many existing trusts which have still to register before the 1 September 2022 deadline. This includes the majority of the off the shelf trust solutions offered by product providers which typically use investment bonds as the investment choice.

As these trusts will often have had no tax to pay they may have escaped the need to register, but that has now changed. The 5th Money Laundering Directive (5MLD) has introduced a requirement for all UK express trusts - that’s any trust deliberately created by the settlor unless specifically exempt - to register on the TRS (see our practical guide 'Trustee reporting requirements' for a detailed list of exemptions).

Non-UK trusts will also need to register if the trust holds UK land. Additionally, if the overseas trust has at least one UK resident trustee, it will be required to register if the trusts enters into a business relationship with a UK relevant person after 6 October 2020. This would include seeking financial advice in the UK and purchasing products or investments from a UK product provider.

Irish registration

UK trusts will be viewed as an overseas trust from an Irish perspective. This means that UK trustees must register in Ireland if they enter into a business relationship with an Irish provider.

Where a UK trust holds a Dublin based offshore bond, it must therefore register in both the UK and Ireland. There is no exemption from this as the UK is no longer part of the EU.

Existing trusts created before 23 April 2021 had to register on the Irish Central Register of Beneficial Ownership of Trusts (CRBOT) by 23 October 2021. While this deadline has passed, the Irish Revenue have acknowledged that there may have been genuine difficulties in registering by the required dates and will provide support to trustees who are making best efforts to register.

What does this all mean going forwards?

Much of the focus for advisers to date has been on identifying which trust clients need to register, making trustees aware of their obligations and supporting them ahead of the September registration deadline.

Post 1 September, advisers and product providers will have their own obligations when dealing with trusts under 5MLD. Both are deemed as ‘obliged entities’ and therefore required to carry out customer due diligence when entering into a new business relationship with a trust.

This will mean that proof of registration will be needed where advisers recommend estate planning solutions. such as gift trusts, loan trusts or discounted gift trusts, or if they begin to advise the trustees of an existing trust.

Advisers with existing trust clients who they have been advising prior to 6 October 2020 do not need to obtain proof that the trust has been registered and if investments were made prior to this date the product provider would only require proof of UK registration to pay out any claims if all of the trustees had changed since the investment was made.

Providing proof of registration

Trustees can prove they have registered on TRS by providing their Unique Reference Number (URN), or Unique Tax Reference (UTR) for taxable trusts. Alternatively, the trustees can download a proof registration document from the register.

Of course, some trusts, such as trusts holding protection policies, are exempt from registration and the trustees will need to notify the obliged entity as to the reason why they believe the trust does not need to be registered.

Will trusts are exempt for a period of two years from the date of death. This is the period in which the trustees may appoint out to the beneficiaries and have the trust effectively treated as if it never existed, with the gift deemed to have come directly from the deceased’s will.

This temporary exemption will be useful for those trusts which are intentionally brought to an end in this way. But many will trusts are designed to provide benefits to beneficiaries for many years, or even decades, ahead. There is as risk that for these trusts registration could get overlooked, so it may be prudent to simply register when the decision is made to invest the trust assets rather than waiting for two years.

Irish offshore bonds

In addition to UK trust reporting, any UK trusts investing in a Dublin based offshore bond will have six months in which to register on the Irish CRBOT. But while that may give the trustees a little breathing space and time to collect the necessary information, it should be remembered that without proof of Irish registration it may not be possible to operate the bond.

Irish anti-money laundering rules require the bond provider to check that  CRBOT registration has been fully and correctly completed before any claims can be paid out. This applies to both new and existing trustee owned offshore bonds where any of the trustees reside outside the EU on transactions such as surrenders, part surrenders, regular withdrawals and death claims.

Summary

Trust registration creates an additional layer of anti-money laundering requirements for advisers and their trust clients to complete. But putting this additional administration off could lead to delays when trying make or run trust investments and could ultimately leave trustees facing a hefty fine.