Trustees of most UK and foreign trusts which are liable to pay UK Income Tax (IT), Capital Gains Tax (CGT) or Inheritance Tax (IHT), among others, in any given UK tax year, must now report beneficial ownership details to HMRC in relation to that tax year. This is part of the UK’s response to the EU’s 4th Anti-Money Laundering Directive (for more information on that, see my earlier blog post here: ‘UK beneficial ownership registers: now it’s your turn, trustees’).
HMRC has now introduced its Trust Registration Service (TRS), which has two main aims. Firstly it replaces Form 41G as the means by which newly created trusts and complex estates can obtain a Self Assessment (SA) tax reference number, to enable a tax return to be filed. Secondly, it enables affected trustees to comply with their duty to provide beneficial ownership information to HMRC.
HMRC published detailed guidance on the operation of the TRS, in the form of answers to FAQs, on 9 October 2017. The guidance will be required reading for trustees and advisers alike. The reporting obligations apply from UK tax year 2016-2017, so trustees must get to grips with the changes immediately.
The deadlines by which trustees are obliged to report beneficial ownership information have been the source of some confusion but the guidance note helpfully clarifies the position:
Trusts already registered for SA: registration no later than 31 January after the end of the tax year.
Trusts not registered for SA: registration no later than 5 October after the end of the first tax year in which a tax liability is incurred, if the tax liability relates to IT or CGT. For other taxes (IHT, Stamp Duty Land Tax and others), registration by 31 January after the end of the tax year in which the tax liability arises.
As a concession, HMRC has said that the deadline for registering trusts not already registered for SA will be extended from 5 October 2017 to 5 December 2017 in this year only and no (as yet unspecified) penalty will be issued provided the registration is completed by 5 December 2017.
The guidance makes clear that trustees have an ongoing duty to consider, on a tax year by tax year basis, whether they have an obligation to report beneficial ownership information for that particular tax year. However, the trustees only have a duty to report beneficial ownership information if they have incurred a liability to pay UK tax in the tax year in question. For example, if income is paid directly to the life tenant, or non-UK trust income or gains are attributed to a UK resident settlor or beneficiary under UK tax legislation, the trustees will have no obligation to report to HMRC because the tax liability is not theirs (however, the trustees will still have to maintain their own, private beneficial ownership records in compliance with the UK’s 2017 AML Regulations). No registration is required unless and until the trustees have a liability to UK tax, and therefore trusts with no tax liability to report do not need to provide beneficial ownership information. Once a UK tax liability has arisen for the first time and a first report is made, there is no need to report in subsequent tax years, unless and until a tax liability arises again, even if there are beneficial ownership changes in the interim. The assets generating the income or gains also have to be directly held by the trust. If a trust owns shares in a company (UK or foreign registered) and the company owns assets triggering a UK tax liability for the company, the trustees do not need to provide beneficial ownership information to HMRC.
There is also useful commentary in Section H on what needs to be reported if a class of beneficiaries is described in the trust deed, rather than named individuals, which will be of interest to trustees concerned about confidentiality. Especially noteworthy is the comment that details in attendance notes made by a solicitor of a settlor’s wishes need not be disclosed as a ‘document from the settlor’ (i.e. a document which needs to be examined to identify ‘potential beneficiaries’, whose beneficial ownership information also has to be disclosed to HMRC).
As I write, professional advisers are still unable to register to use the TRS on behalf of their clients and are therefore unable to proceed with registrations. It seems that SA logins that advisers already hold will not work in the new TRS. HMRC has blamed ‘technical errors’ which it is attempting to fix. STEP expects to receive an update from HMRC on the status of the service next week.