The reporting obligations under the Trust Registration Service (TRS) are ever-changing. So what changes will the introduction of the EU’s Fifth Anti-Money Laundering Directive (5MLD) bring and who will now need to register.

In 2017, HMRC introduced the Trust Registration Service (TRS)  in order to comply with the fourth Anti-Money Laundering Directive (AMLD).

Under the initial rules, a trust had to register with HMRC’s TRS where there was a liability to any of the following UK taxes: Income Tax, Capital Gains Tax, Inheritance Tax, Stamp Duty Land Tax or Stamp Duty Reserve Tax. Offshore trusts also had to register when they become liable to UK tax from UK source income or from the disposal of UK property where Capital Gains Tax was payable, or where there was a charge to UK Inheritance Tax.

What are the changes in 5MLD that affect trusts?

However, due to the introduction of 5MLD, there’s going to be a significant increase in the number of trusts that must register going forward. The new rules came into force from 5 August 2020. In addition to the above requirements, trusts with the following connections will also now have to register where at least one of the trustees is a UK resident, and any of the following conditions are met:

1. The trust enters into a new business relationship with a UK service provider - service providers include accountants, lawyers, bankers and investment managers. 

2. The trust acquires UK real estate - this will also apply where all of the trustees are non-residents and isn’t a requirement of 5MLD. Where there are no UK trustees, this information will not be publicly available. 

3. Nominee/bare trusts where they do not meet specific exemptions - this includes exemptions for commercial activities, or where there’s a normal custody arrangement for portfolio investments. However, where assets are held by parents on behalf of minor children in a bare trust arrangement, the nominee/bare trustee will be required to register. 

The main categories of trusts which are exempt from registering include the following:

• Trusts for bereaved minors or vulnerable beneficiaries

• Charitable trusts which are UK regulated

• Pension trusts which are UK registered

• Will trusts created upon death and wound up within two years of death, as long as no assets have been added other than those from the estate. Including trusts that only receive death benefits from a life insurance policy. 

• Existing trusts where the value of assets is under £100 (the exemption will no longer apply if assets are added). 

• Trusts which are established by statute and aren’t a result from the clear intentions of the settlor. 

• Personal injury trusts

Non-UK trusts won’t have to register if all of the trustees are non-UK residents, there’s no UK tax liability and it doesn’t hold assets in the UK directly. These trusts can continue using UK service providers which will be some relief for professional offshore trustees.

HMRC has enabled trustees to register and make any changes to the details in relation to trusts where the trustees were required to register under the 4MLD. The system for registering trusts, which will now be required to register under the 5MLD, was intended to be up and running by spring 2021. However, HMRC has announced that the IT system will not be ready until summer and the original deadline of March 2022 will be extended so that trustees will have approximately 12 months to register from the date of IT delivery. The date has not yet been announced but we will update this article when it is.

What if your trusts is already registered?

Trusts already registered on the trust register also now have an obligation to update the trust register on a yearly basis with any changes that occurred during the year. For example, where there’s been a change in trustee. This isn’t just a case of updating as and when a change is made, as trustees will also have to confirm that there haven’t been any changes. This can be done by an agent on behalf of a trustee, but ultimately adds to the on-going compliance costs of maintaining a trust. 

What happens if you fail to comply?

Penalties will apply where trustees fail to register or update the register where required - the proposed penalty is £100 per failure. 

Nevertheless, this is still an improvement on the initial proposals which would’ve resulted in an even higher number of trustees being required to register and in a much shorter time frame. There will, however, still be a risk that trustees unintentionally fail to comply with these new rules. 

Speak to an expert 

Do you want to learn more about other instances where trustees may need to register? The above is intended as a brief overview only and the position may be much more complicated in certain circumstances. There are also other scenarios where trustees may need to register, which have not been covered. 

We can identify whether each trustee will now be required to report under TRS and support you in gathering the required information ahead of the reporting deadline. Get in touch now for further information using the form below.