Her Majesty's Revenue and Customs (HMRC) issued an updated set of frequently asked questions (FAQs) on December 8 2017 regarding the new online Trust Registration Service (TRS) (for further information please see "New register for trusts") and the information that certain trustees must maintain and report. In addition, HMRC confirmed further extensions to the deadlines for registering trusts with its online service. This update sets out details of the key changes to the FAQs and examines more recent developments.
Extended registration deadline
The updated FAQs note that the deadline for registering trusts which were not already registered with HMRC for self-assessment, and which incurred an income tax or capital gains tax liability for the first time in the 2016/2017 tax year, was extended from October 5 2017 to January 5 2018 (ie, no penalty should be imposed in this situation if registration was completed before January 5 2018). There were calls to extend this deadline further, but it was not extended. HMRC has since stated that if a trustee or agent was unable to register solely due to technical issues, it will take a reasoned and proportionate approach to penalties, provided that registration took place as soon as reasonably possible. It also provides a facility to complete a paper return in such cases.
On December 8 2018 an extension to the deadline for registering other trusts (ie, those which met the registration requirements, but did not incur a tax liability for the first time in 2016/2017) was announced. This deadline has now been extended from January 31 2018 to March 5 2018 (again, no penalty should be applied if registration of these trusts occurs after January 31 2018 and before March 5 2018). Both extensions apply for the TRS's first year of operation only.
Details of the availability of the relevant online services have also been included in the FAQs. Links are provided to various related websites. In addition, the online service should now allow agents to save a partially completed registration for up to 28 days.
Information required on beneficiaries
The original FAQs were not particularly clear regarding the information required on beneficiaries who are members of a class of beneficiaries or a contingent beneficiary.
The updated guidance states that if a beneficiary is unnamed in a trust deed, being only part of a class of beneficiaries (eg, the grandchildren of Mr Bloggs), then disclosure of such beneficiary's identity is required only if they receive a financial or non-financial benefit from the trust after June 26 2017 (the date on which the TRS regulations came into force). This seems to be the case even if the name of one or more of the class of beneficiaries is known to the trustee.
The guidance also states that if an individual who is expressly named in a trust deed will only become a potential beneficiary contingent on some event occurring (eg, the death of a named beneficiary), then such individual may be listed in a class until the relevant contingency occurs. It is unclear how they would be described in this scenario. Presumably they could be described as the "nephew of Mr Bloggs" or similar, but this seems an unusual approach when the individual is specifically named in the trust deed.
The guidance sets out how HMRC will interpret the section of the regulations which says that individuals benefitting from a trust may be described as a class if they have not been 'determined'. They say that 'determined' means when a beneficiary receives a financial or non-financial benefit from the trust, because at that point the trustees will have been able to identify the beneficiary to make a distribution (and therefore their identity should be disclosed).
Further, it is now stated that a trustee will not commit an offence under the regulations if it can show that it has taken all reasonable steps to obtain the relevant information (eg, in terms of the records that the trustee must maintain and the details it must register on the TRS about who stands to benefit from a trust).
Examples A and B The two examples given in the initial FAQs have been extensively reworked in the version issued on December 8 2017. Overall, this approach reinforces the one set out above, although some uncertainties remain.
For instance, Example A describes how a nephew, who may receive distributions following the death of a niece if none of the settlor's grandchildren have died beforehand, is capable of being identified when he receives a distribution. At that time, he should therefore be identified individually on the TRS. However, he might be expected to be disclosed individually even if he does not receive a distribution if the niece dies and none of the grandchildren have pre-deceased her. Presumably, at that point, the nephew is a named beneficiary and his potential to benefit is no longer contingent. The guidance says that at "such time as the contingent event occurs… the individual potentially stands to benefit and should be named".
Example B sets out that named beneficiaries that may benefit at any time, and that have received benefit, should have their individual details provided. This is because they are named beneficiaries and they have "been "determined" in light of the trustees being able to make a trust distribution". It is unclear why the quoted section has been included. Presumably, these beneficiaries (who do not seem to form part of a class) should be individually named anyway because:
- they are named beneficiaries;
- they are not within a class of beneficiaries; and
- there are no contingencies applying to whether they can benefit.
This seems to be at odds with an earlier section of the FAQs, which states that "where a beneficiary is named on a trust instrument separate from members of a named class then they can clearly be determined and the trustees must provide the relevant information".
The guidance on underlying companies has been amended. This addresses an unexpected section in the earlier FAQs, which stated that if an asset was owned beneficially by trustees, but legal ownership was via a nominee, this would not create an obligation on the trustee to register.
The updated FAQs reflect the interpretation that was to be expected (ie, that HMRC will treat a trust holding UK property in the name of a nominee as holding such UK property directly). If the nominee is looked through for tax purposes, so a relevant tax liability arises for the trustee and not the nominee, there will be an obligation on the trustee to register. Consequential amendments have been made to various other sections of the FAQs to clarify how look through entities are to be treated.
Updated information requirements
The guidance states that an individual's unique taxpayer reference number may be given instead of their national insurance number (eg, where information is being provided on a settlor), although it indicates a preference for the national insurance number if possible. There is also guidance on details that may be given when information is unknown. For instance, if the date of birth of a deceased settlor is unknown, the date of January 1 1900 may be given. Guidance is also provided about unknown dates of death and addresses. If there are difficulties in providing information via the online service (eg, in registering more than one corporate trustee), HMRC has advised that the trustee or agent should write to HMRC to provide the relevant details.
The section about how asset values should be determined has been amended, with various sections being deleted. This seems to suggest that a good estimate of market value will be sufficient.
Specific cases where registration is not required
The new FAQs set out a number of circumstances when registration will not be required. Many of these cover scenarios where it seemed unlikely that there would be an obligation to register, although the clarification is helpful. The most useful of these updates is that a trust need not be registered if it has no UK tax liability other than a tax liability of less than £100 of bank or building society income (ie, a de minimis exemption). Originally, this exemption applied only in the 2016/2017 tax year, but it has recently been extended to apply to the 2017/2018 and 2018/2019 tax years also.
HMRC have specifically confirmed that, if for administrative reasons tax is paid to HMRC by a third party (eg, a solicitor paying stamp duty land tax to HMRC with regard to a house purchase or a broker paying stamp duty reserve tax on trading in UK equities) with regard to a trust, then the tax liability would fall ultimately on the trustees. The third party will be reimbursed for the tax paid. In such cases, the trust will need to be registered.
The section setting out the circumstances in which registered pension schemes are not required to register has been deleted.
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For further information on this topic please contact Anthony Thompson or Robert Payne at Forsters LLP by telephone (+44 20 7863 8333) or email ([email protected] or [email protected]). The Forsters LLP website can be accessed at www.forsters.co.uk.
