UK TRUST SET UP & TRUSTEE SERVICES
Families have been using trusts to preserve and manage their wealth for centuries. Unlike corporate vehicles, the lack of rigid formal requirements for the creation and operation of trusts, and the tremendous flexibility of trust instruments, make them uniquely useful for estate and succession planning.
Although many of the tax benefits that were associated with trusts have been eroded in recent years by anti-tax avoidance legislation, they still offer great advantages – particularly for individuals who:
The practical advantages of setting up a trust are gained from the distinction that is drawn between the formal or legal owner of property, the trustee, and those people that have the use or benefit of the property, the beneficiaries.
It is vital that the trustee remains independent and exercises proper control over the trust property. A trust may be deemed to be invalid if the settlor continues to exercise power over the trust assets by retaining benefit or control, or by giving directions to the trustees.
Those unfamiliar with the trust concept are often concerned by the idea of transferring ownership of their property to a trustee. This concern can be alleviated if the trust concept and the distinction between legal and beneficial ownership is properly understood and it is clear that the trust is governed by a reliable trust law that can be enforced in a reputable jurisdiction.
Sovereign has more than 30 years’ experience of setting up and managing various types of trust both in the UK and overseas. We are authorised and licensed to establish trusts and provide professional trustee services in the following jurisdictions:
Importantly, non-UK property that is settled into a trust by a settlor who is not domiciled (or ‘deemed’ to be domiciled) in the UK becomes excluded property for UK Inheritance Tax (IHT) purposes. Trusts benefitting from this status are usually referred to as ‘Excluded Property Trusts’ (EPTs) and effectively offer permanent shelter from IHT, even if the settlor subsequently acquires a UK domicile or becomes deemed UK-domiciled (provided that certain conditions are met). Furthermore, any gains made by assets in this form of trust – or that are made by any underlying offshore company held by the EPT – will not generally be subject to UK CGT.
UK Trust Registration Service
The Trust Registration Service (TRS) is a register of the beneficial ownership of trusts and ‘complex estates’. It was set up for taxable trusts under the EU Fourth Anti-Money Laundering Directive (4AMLD) in 2017 and extended to all express trusts (unless exempt from registration) and some non-UK trusts by 5AMLD in 2021. The UK agreed to maintain the TRS as part of the Brexit Withdrawal Agreement.
All UK express trusts need to register on TRS unless the trust is excluded.
Foreign (i.e., non-UK) express trusts need to register if certain conditions are met.
If a trust is required to register, then a specific procedure must be followed with registration completed within the prescribed deadlines.
If the registration is late then penalties may apply, the trustee must also ensure that the information on the register remains up to date.
Therefore, TRS is now an ongoing issue for trustees; a trust may not currently need to register but registration may subsequently be required either because the TRS Regulations change or because the composition of the trust changes.
The UK taxes in scope for taxable trusts are Income Tax, Capital Gains Tax (CGT), Inheritance Tax (IHT), Stamp Duty Reserve Tax (SDRT) and Stamp Duty Land Tax (SDLT) – or its equivalent in Scotland and Wales.
An express trust is any trust that was deliberately created by a settlor who expressly transfers property to a trustee. This can be by Will, to take effect on their death, or by Settlement Deed in their lifetime.
Trusts excluded from the requirement to register, include:
Existing relevant taxable and non-taxable trusts were required to be registered by 1 September 2022. Non-taxable trusts created after September 2022 are required to be registered within 90 days of establishment. Taxable trusts set up on or after 4 June 2022 must be registered within 90 days of the trustees becoming liable to pay UK taxes.
Non-UK Trusts
To determine whether a non-UK trust needs to register on TRS the following filter should be applied:
- Is the trust an express non-UK Trust?
- Does the express non-UK trust hold UK assets or receive UK income directly?
- Has the trust been liable for one of specified UK taxes in the UK tax year in question?
If all 3 conditions are met, the non-UK trust will be required to register.
There is a special rule for UK Property acquired on or after 6 October 2020 by a non-UK Trust: the third condition does not need to be met.
Trustees of a non-UK express trust with at least one UK resident trustee must also register when the trustees, in their capacity as trustees of the trust, enter into a business relationship with a UK relevant person on or after 6 October 2020.
Trusts already registered in another EU Member State are exempt from UK registration. However, this exclusion does not apply if the trust is a non-UK trust with no UK trustees where the trustees acquire UK land on or after 6 October 2020. These trusts are required to register even if already registered on an EEA register. Furthermore, trusts already registered on an EEA register are still required to register on the if they have a UK tax liability.
TRS registration process
The trustees are responsible for registration. They are required to keep accurate and up-to-date written records of the beneficial owners, including settlors, trustees, beneficiaries and any individual who has control over the trust, such as a protector. These persons may be individuals or legal persons such as companies.
The procedure for registration can be undertaken through HMRC’s Online Government Gateway. However, before a trustee can register a trust themselves, they need to have an Organisation Government Gateway User ID and password for each trust they want to register.
A significant amount of information regarding the trust and the persons involved in the trust is required in order to register a trust.
If a trust has multiple trustees, they can nominate one of the trustees to act as the lead trustee to register the trust. The lead trustee is then responsible for the administrative duties in relation to the tax affairs of the trust and is obliged to keep the register updated each year or when certain specific events occur. HMRC may impose penalties and fines for non-compliance on trustees who fail to comply with the registration requirements.
Sovereign Tax Services (‘STS’) in Gibraltar is a registered tax agent with HMRC and has an HMRC Agent Services Account, it is therefore well placed to assist any trustees if they need help with any registrations. As registered tax agent, STS can register any trust on the trustee’s behalf.
Once a trust is registered on the TRS, any changes to the trust details or circumstances must be registered within 90 days.
STS can help the trustees claim a trust and then STS, as tax agents can maintain the trust, if so desired by the trustees.
Details of the register will only be released in certain circumstances to those with a ‘legitimate interest’ such as law enforcement agencies where there is evidence of money laundering or terrorist financing activity. Beneficiary information will not be disclosed if there is a risk of fraud, kidnapping, blackmail, extortion, harassment, violence, or intimidation, or where a beneficiary is a minor, or otherwise legally incapable.
Trusts that register on the TRS will be issued either a trust Unique Taxpayer Reference (UTR) if the trust is liable to pay UK tax, or a Unique Reference Number (URN) if the trust does not have to pay UK tax.
For trusts liable to pay UK income and/or capital gains tax, as registered UK tax agents, STS are well placed to prepare and complete on-line filing of any annual UK self assessment trust tax returns (SA900) through its tax agent software, providing peace of mind and avoiding any tax and penalty headaches! Non-UK residents cannot use HMRC’s on-line self-assessment service.
STS can be contacted on: +350 200 76173 or email tax.gib@SovereignGroup.com
Please contact us if you have any questions or queries and your local representative will be in touch with you as soon as possible.
