In order to meet increased money laundering standards, HMRC have launched a new Online Trust and Estate Register.
Rather unexpectedly, HMRC have taken the decision not to contact individual trustees about this. They are relying on advisors to inform them. This is especially frustrating as HMRC will impose penalties where the new requirements are not met!
So what is now required:
- it is now compulsory for all existing trusts and estates which have a “UK tax consequence” to complete the registration process.
- all new trusts and complex estates wishing to obtain a Unique Tax Reference (UTR) will need to complete the online register.
When does this need to be done?
For new trusts, the deadline will usually be 5 October following the end of the tax year, but for this year only, this has been extended to 5 December. For existing trusts and estates, registration must be made by 31 January 2018. Thereafter, annual updates will be required for all registered trusts and estates.
Who needs to do this?
The definition of having a “UK tax consequence” is very broad and will include trusts and estates which:
- complete a UK income tax return;
- pay CGT;
- complete an IHT return; and
- pay SDLT or VAT.
In short, any trust that has contact with HMRC after 26 June 2017 will need to register. Where trusts and estates have previously not had any contact with HMRC, in a tax year when they first have contact, for example where there is a 10 year charge, they should aim to register (we understand) by the 31 January following the end of the tax year in which the event happened.
We understand that bare trusts will not be required to complete the register, and where there is no separate trust tax return (for example a flat management company with less than £100 income), there will be no requirement to do this either. However, due to the way that interest and dividends are now taxed, in all likelihood, most trusts will need to complete a trust tax return. Accordingly, advice should be sought on any and all trusts where it is thought that the new requirements are not met.
Technically, the responsibility for completing the online register and make annual updates lies with the lead trustee. However, HMRC are anticipating that many trustees will ask their tax advisors and agents to do this for them, and an agent register has now been launched.
What happens if the register is not completed?
HMRC have not yet provided details of the penalty regime, although we are assured that there will be one, and that non-completion will be treated as a criminal offence. To date, HMRC have not provided any additional information as to how this will apply so we await further comment still at this stage. With other online campaigns in the past, there has been a relatively soft touch towards penalties in the first year that the regime is rolled out, with the penalties being imposed more formally from year two. We will update if and when HMRC release further guidance.
What information is required?
As the register is primarily a way for HMRC to capture information for anti-money laundering purposes, the data required is perhaps more extensive than at first seems reasonable.
In addition to fairly generic information, such as the date that the trust was created and the names of the settlor(s) and trustee(s), HMRC want details of dates of births and NIC numbers for the settlor, the trustees and the identifiable beneficiaries.
There has been some debate with HMRC over who will be treated as an “identifiable beneficiary”. This has now been confirmed as being anyone who is named in the trust deed and any member of a broader class who has received a distribution or benefit from the trust. This is therefore not quite the mammoth task that the industry was expecting.
In addition, the register also asks for information about the value of assets at the time when they were settled into trust. Depending on the quality of record keeping, this may be difficult to obtain, especially where the trust was not recently created. HMRC have confirmed that for older trusts, they will take a pragmatic approach to this, and a best estimate will be acceptable.
There will also be a pragmatic approach for information required about deceased settlors and minor beneficiaries.
In terms of investments and shareholdings, initially, HMRC were proposing to ask for company UTRs where a trust holds shares. However, we understand that this requirement has now been relaxed. The requirements for listing shares within a portfolio have also been relaxed and only totals will be required.
In short, the registration process is very new and changes to requirements are still happening. HMRC have confirmed that they expect the online forms to continue to evolve and therefore trustees may find that some boxes are added or removed over time. We will of course keep you abridged of any relevant changes as we uncover them.
What will HMRC use the information for?
Initially, HMRC are asking for this information for money laundering purposes. However, clearly we would expect HMRC to use it to link settlors and beneficiaries to trusts to ensure that income is being correctly reported.
One surprise is that, so far, we have been told that HMRC will not be using this for IHT purposes. That is that the register will not be used to set up an alert system for 10 year charges, or similar. This is disappointing, as this would seem like the ideal opportunity for HMRC to put measures in place to remind trustees of this often forgotten reporting requirement.
If you wish to register a new or existing trust, full details of how to do this can be found on HMRC’s website.
Alternatively, CBW will be offering a registration service for existing and new trusts and estates.
For further information, please contact the tax team on the details below.