With the exciting announcement of a new Prime Minister just around the corner, you could be forgiven for forgetting about the impending trust registration deadline.
This need to register trusts was originally driven by a 2017 anti-money laundering (AML) directive and it initially only involved trusts which were subject to various UK taxes. In October 2020, the scope of the rules was widened and now pretty much all trusts need to register by 1 September 2022 (with few exceptions).
The deadline in more detail
Trusts which were created on or before 6 October 2020 must be registered by 1 September 2022. Any trusts created after that date need to be registered within 90 days or by 1 September 2022 (whichever is later).
The trustees have the obligation to meet these deadlines and HMRC will impose financial penalties if these deadlines are not met.
Trusts that need to be registered
Most UK trusts need to be registered, whether or not they have a tax liability. Some offshore trusts also need to register if they have a link to the UK. This link can either involve UK tax obligations, or the ownership of UK assets.
There are a few exceptions that will not apply in the majority of cases:
1. Will trusts created on death that only hold assets for up to two years.
2. Charitable trusts.
3. Trusts that are life policies which pay out on death or critical illness.
4. Trusts holding money in UK registered pension schemes.
5. Trusts holding land on behalf of minors as they are unable to hold legal title (this is exempt as it is a trust imposed by law).
6. Trusts holding land for more than four individuals (as the land registry restricts legal title to four).
7. There are a few more obscure exemptions.
What are the financial penalties?
The financial penalties are not particularly harsh compared to some others and are as follows:
(a)registration made up to three months from the due date – £100 penalty;
(b)registration made three to six months after the due date – £200 penalty; and
(c)registration more than six months late – either 5% of the tax liability or £300 penalty, whichever is the greater sum.
A penalty will apparently not be payable if HMRC are satisfied that a trustee took reasonable steps to comply with the regulations. Also, HMRC have indicated they will take a ‘soft touch’ in the first year, but what this means is unclear.
Forbes Dawson view
Trustees should now be biting the bullet and making trust registrations if they have not already done so. If the penalties are not enough to put them off delaying, they may want to consider whether failure to comply will increase the chances of HMRC initiating costly and time-consuming enquiries. There is also the question of penalties for AML breaches which could also be levied……….
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