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The Trust Registration Service (TRS) serves as a register of the beneficial ownership of trusts. First set up nearly a decade ago, the TRS initially only applied to trusts liable to UK taxation. However, the Fifth Money Laundering Directive ((EU) 2018/843) (MLD5) which entered into force on 9 July 2018 significantly expanded the number of trusts that need to register with HMRC, to include express trusts, which are registrable unless an exception applies.
HMRC confirms that “All UK express trusts, and some non-UK express trusts, are required to register, unless explicitly excluded from registration as an ‘excluded express trust’” 1.
There are two reasons why a UK trust is registrable with the TRS:
- The trust is liable to UK taxation, such as capital gains tax, income tax, or Stamp Duty.
- The trust is an express trust which is not excepted from registration.
If a trust falls into either of these categories (although it may fall into both), then the trust will be registrable.
To Register or Not to Register?
A declaration of trust, by its nature, can create an express trust as it is a method by which a person expressly declares that he holds assets on trust for the benefit of one or more beneficiaries.
Therefore, commonly occurring express trusts over property created by a declaration of trust – such as in a transfer deed in the conveyance of property – can lead to registration obligations on behalf of the trustees, subject to exceptions.
Generally, the express trust that is created will not need to be registered where the legal and beneficial owners of the trust property are one and the same. This may be referred to as the co-ownership exclusion. That is, in the case of a couple purchasing a property and making a declaration of trust in the transfer deed, that trust would only need to be registered if someone other than the couple were party to the trust itself.
For example, John and Jane purchase a property in their respective shares (equal or unequal), and they both contribute all of the proceeds between them. Here, there is no need to register the trust, as the legal and beneficial owners are identical.
If, however, Jane’s parents (together with John) had contributed to the purchase of the property, then whilst the property is registered in the names of Johan and Jane, they hold the property on trust for John and Jane’s parents (who together with John) have a beneficial interest in the property.
Or, if there is one legal owner owning the property on trust for themself and another, this trust would be registrable, as the beneficial ownership does not mirror the legal ownership.
There are a number of other exceptions which go beyond the scope of this article. For a list of different types of trust and consideration of whether registration is required, please refer to HMRPC’s TRS manual.2
Whose Obligation is it to Register?
It is the obligation of the trustees themselves to register the trust. HMRC’s guidance indicates that they will be lenient at first with non-compliance; however, it also confirms a fixed penalty of up to £5,000 as a potential consequence. Trustees can register themselves, or ask a professional agent such as a firm of solicitors to complete the registration.
As to what registration entails and what information is required, this will depend on whether the trust is a taxable trust, or a registrable non-taxable express trust. The register will also need to be updated when circumstances affecting the trust change.
Will Trusts
It is worth noting that trusts created by wills are also express trusts, albeit whose effect commences on the death of the person making the trust (the “settlor”). In this case, registration is not required unless the administration of the estate remains ongoing two years after the settlor’s death.
Conclusion
Trustees need to be aware of their registration obligations in addition to their other duties under the trust.
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