Trust Registration Service – It’s here to stay

by | Jan 21, 2025

By Anthony Whittaker – Client Director, Trusts & Estates. 

How the Trust Registration Service came to be.

Following the introduction in 2017 of the succinctly named Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, any UK trust with a tax liability was required to register on an online portal administered by HM Revenue & Customs (HMRC).

Because this first stage related to trusts with any tax liability (so not just income tax and capital gains tax but also inheritance tax and stamp duty land tax) and because the portal was managed by HMRC, the TRS was often misguidedly associated with tax. It did not help that the TRS portal was the only place that trusts or complex estates could obtain their Unique Taxpayer reference (UTR) that allowed them to report income and gains.

However, the clue was in the name. The TRS  (Trust Registration Service) is part of the UK’s response to the threat of money laundering and terrorist financing and its quite a detailed piece of legislation with far reaching consequences well beyond the need to register trusts on the portal.

In 2020, the requirement to register was widened to encompass all UK trusts, irrespective of tax liability, with a few notable exceptions. The most recently published figures (March 2023) show that 633,000 trusts have been registered with around three quarters of those registrations made between April 2022 and March 2023. These figures are well below HMRC estimates of the total number of trusts that need to be registered and based on the steady stream of registrations we have been receiving, there are still a large number of unregistered trusts out there.

The process was a little bumpy in the beginning, and those who tried to register in December 2017 when the online system first became available will testify to the vast improvement to the service today.

A few of the outcomes of the TRS legislation were initially surprising and, in some cases, counter intuitive:

  • The requirement to register estate administrations two years after death if the residuary clause in the Will uses the phrase ‘on trust’,
  • The requirement to register (and immediately close) a trust that was in existence on 6 October 2020 but has since wound up,
  • And (most surprisingly) the requirement to register a non-exempt property co-ownership trust following the death of a beneficial tenant in common.

Some of the above issues are currently under review with HMRC and the professional bodies and we eagerly await the outcome of those deliberations in the hope that there will be sensible solutions.

However, the publication of HMRC’s online Trust Registration Manual was a game changer. The Manual provides very specific guidance with several relatively clear worked examples. The Manual is updated regularly and is always worth referencing to check your understanding of the most recent position.

To a large degree, the Trust Registration Service has been very successful in reminding professional trustees of their record keeping obligations. Under the legislation, trustees need to maintain accurate, up to date written records of all the actual and potential beneficial owners of the trust. Professional trustees are also required to hold the specified information for five years after the final distribution from the trust.

Another impact on professionals acting for trusts, is the obligation when engaging with the trustees of a registrable trust, is the need to check that the trust is registered on the TRS, and the information is up to date.

In line with all of our ongoing compliance obligations, it is now also necessary to carry out discrepancy checks by reviewing the entries on the TRS, to check for any material differences with the information held.

There are procedures for how these discrepancies can be resolved (such as asking the trustees to register or update the TRS before engagement) but if these issues cannot be resolved, we must report the discrepancy to HMRC. Thankfully, HMRC have provided guidance on what they consider to be material discrepancies at TRSM70050 of the TRS Manual.

Now that almost every trust must register before it can even open a bank account, we are encountering a large number of discretionary relevant property trusts, holding investment bonds as the only asset. The trustees have not needed to engage with HMRC (or any professional adviser) for several years, as these bonds do not generate reportable income or gains unless there is a chargeable event.

Trustees can make tax deferred withdrawals to trust beneficiaries without any income tax reporting obligations and do so frequently. However, any distribution is classed as a capital distribution under trust law and potentially subject to an inheritance tax (IHT) exit charge.

These capital appointments also reduce the trust’s nil rate band on a 10-year anniversary calculation. This has resulted in trusts with a value well below £325K incurring IHT liabilities that the trustees did not expect, just by looking at the market value of the bond on the anniversary.

If no IHT return was submitted at the time, under legislation (S240(7)/ IHTA1984) HMRC are able to go back 20 years to recover any unpaid tax. This has resulted in some pretty hefty tax bills for a lot of trusts. More upsettingly for these trusts, chunky penalties (max £3,200) and late interest payments (currently at 7.5%) can also be incurred, when this money should really have been going to the trust beneficiaries.

If you are a professional trustee with any of these investments or are acting for trustees with the same, then we would suggest that a quick ‘health check’ with a suitably qualified trust accountant may be in order.

Please get in contact with our Trusts and Estates Team who will be happy to help.

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