Don’t Get Caught Out by Changes to Trust Registration: an Update for 2022

Any practitioner specialising in estate planning will have trust options in their toolbox to offer their clients. However, 2022 has seen two important changes to trust registration requirements so far. We will firstly consider the changes to HMRC’s Trust Registration Service, and secondly the Registers of Scotland’s new Register of Persons Holding a Controlled Interest in Land. Whilst there is work to be done to ensure compliance, now is an excellent time to contact clients to give their arrangements a health check.

Trust Registration Service

Practitioners will already be familiar with the Trust Registration Service (TRS), established by HMRC in 2017 in an effort against money laundering and the funding of terrorism. The first phase involved the registration of trusts incurring a tax liability in the UK, be that income tax, Capital Gains Tax, Inheritance Tax, SDLT, or LBTT (in Scotland). These trusts are known as Registrable Taxable Trusts; registration should take place upon trust creation or when a tax charge arises (e.g. a ten-year IHT charge).

However, the second phase of TRS extends to many more trusts than before. These are known as Registrable Express Trusts.

Who is affected?

Registrable Express Trusts effectively apply to all trusts unless an exemption applies. Exempt trusts include:

• Will trusts which hold assets for less than two years after the deceased’s date of death;
• Bereaved minor’s trusts, 18 to 25 trusts, and disabled person’s trusts;
• Charitable trusts;
• Trusts used to hold assets of a UK-registered pension scheme;
• Certain trusts used to hold life or retirement policies;
• Trusts holding insurance policy benefits received after the death of the assured, but not including trusts holding investment bonds;
• ‘Pilot trusts’ set up before 6 October 2020 which hold less than £100; and
• Co-ownership trusts holding shares of assets owned jointly by two or more people, such as joint bank accounts. 

Note that bare trusts are not excluded from classification as Registrable Express Trusts unless they also falls under an exemption.

What do I need to do?

Let’s say that you have recently assisted your client in settling a discretionary trust - the Auction House Trust. This does not fall into any exempt categories, so will need to be registered with HMRC before the deadline. HMRC requires comprehensive information about the trust itself, the settlor(s), the trustees, the beneficiaries, and the trust assets.

Be aware of the level of detail required for trust assets - the guidance states that for share portfolios they will wish to see the company name, the number, class and type of shares, and approximate value of the shares on the date of registration.

For trusts holding antiques and valuables, it is more important than ever to ensure that up-to-date valuations are to hand when registering a trust or updating trust information. Lyon & Turnbull are at hand to offer such a service at clients’ convenience.

The work doesn’t stop there, as any changes to trust details should be made to TRS within 90 days, for example the assumption or resignation of a trustee. Frequent contact with trustees is advisable so as to keep a close eye on any changes that should be reported.

When is the deadline?

All Registrable Express Trusts that either existed before 6 October 2020 or were created before 1 June 2022 must be registered in TRS by 1 September 2022.

Practitioners must ensure that all registerable trusts are registered in TRS before the deadline, and that all information supplied to HMRC is up to date. If in doubt as to whether a trust requires to be registered, the safest option may be to go ahead and register so as to ensure compliance. HMRC have indicated that they may apply a ‘soft touch’ enforcement of the rules to lay-people, but such approach will not apply to practitioners who are expected to be ahead of the game.

Register of Persons Holding a Controlled Interest in Land (RCI)

RCI is a register that became available on 1 April 2022 as part of the Registers of Scotland. It is publicly searchable and intends to show who has a significant influence or control over the owner or long-standing tenant (for more than 20 years) of land and property in Scotland.

Who is affected?

Trusts, and individuals who own tenant land (for more than 20 years) are likely to be categorised as people with significant control and therefore may have a responsibility to supply information to RCI, if it is the trust making decisions about the land.

What do I need to do?

Let’s say that the Auction House Trust now holds several let residential properties in Edinburgh’s New Town. The trustees are named on the Land Register as the owners of the properties. As they are already named, there is no requirement to register the owners in RCI. However, if the trustees have changed since the property was registered, then the current trustees will be considered as people with significant control, and therefore must provide RCI with the title numbers for the properties, and their own names and contact details. This can be done by the trustees directly, or by their representatives (e.g. their solicitors).

Another scenario is that the settlor of the Auction House Trust retained some decision-making power over the trust, such as a right to appoint or remove trustees, or to revoke a trust, even if they perhaps have never exercised that right. Here, the settlor may be considered as a person with significant control, so will require to provide the relevant information to RCI.

When is the deadline?

The information must be supplied to RCI from 1 April 2022, with a 12-month grace period to do so before penalties are applicable. Failure to supply information could lead to a fine of up to £5,000.

With a significantly higher number of trusts requiring registration with HMRC, and the introduction of the RCI, practitioners have been busy ensuring that clients’ trusts are fit for purpose. The time is right to meet with clients to give their trust arrangements a ‘health check’ and that no deadlines are missed. Lyon & Turnbull’s services are at hand to ensure that trust assets are properly valued and reported to HMRC for trustees’ peace of mind.

Maeve McCorry is a Senior Solicitor with Lindsays. She specialises in succession and tax planning through Wills and lifetime gifting, estate administration, and advice on the creation and running of trusts. She is a member of STEP, the leading worldwide professional body for practitioners in the fields of trusts and estates.