Do I need to register a Will trust?

The UK Government introduced the Trust Register to provide greater transparency around the ownership of Trust assets and individuals connected with trusts. This article looks at the new legal requirements that apply to trusts created by a Will.

Background

The Fourth Money Laundering Directive introduced a register of trusts, maintained by HMRC, known as the Trust Registration Service (TRS). This imposed requirements on various trusts, including requirements to provide specific details about the trust for inclusion on the Trust Register and to keep those details up to date. The rules mainly affected trusts that produced income.

How has the law changed?

The Fifth Money Laundering Directive extended the scope of trusts that need to register with TRS. This now includes most UK trusts (even if they don’t pay UK tax) and non-UK trusts with certain UK connections. There are some limited exceptions. Express trusts affected by the new requirements must register with TRS by 1 September 2022.

What is an express trust?

An express trust is a trust created deliberately by a settlor, usually in the form of a document such as a written deed or declaration of trust. This new legislation includes trusts that are created by a Will. A settlor is a person placing or gifting assets to a trust, so the term settlor also includes a deceased person who made a valid Will (known as the testator or testatrix).

Why do I need to register?

There is a legal obligation for trustees to register express trusts. HMRC will enforce penalties if you are a trustee and you do not register a trust, or don’t keep the details on the register up to date.

The purpose of the trust register is to clamp down on money laundering. The UK Government has acknowledged that lay (non-professional) trustees may not be aware of the requirements to register their trusts which is reflected in the penalty regime. HMRC have suggested that trustees will receive a “nudge letter” if they fail to register or update details on the TRS. 

Do all Will trusts have to be registered?

When you make a Will, it’s very likely that it includes a trust to protect your assets so they pass to the people you choose, at a time you choose. Will trusts are very common. Notably, a trust created in your Will does not exist until you die, so there is no requirement to register the trust in your lifetime.

If your Will includes a trust for your children (not your grandchildren) and they inherit on or before their 25th birthday, the trust is excluded from the requirement to register. Vulnerable beneficiary trusts are also excluded.

How quickly do trustees have to arrange registration?

After your death, your trustees must take responsibility for registration. There is a maximum two-year period to do this, providing the trust is not producing income. If the trust will continue after the two year period, it requires registration on the Trust Registration System (TRS). All trusts that produce income are required to register.

You’ll find more information on the gov.uk website.

What is a life interest trust created by Will?

A life interest trust is a common arrangement in Wills. It’s a form of trust often used to protect assets for the next generation and can be very useful for blended families. For example, if you have children from a previous relationship and want them to inherit your wealth, but you want your new partner to carry on living in your home, a life interest trust would give them the right to do so. The partner who has the right to live in the property or the right to income from a property is known as the life tenant. When the life tenant dies, the trust assets pass to your children. Often the trust will end as the children inherit and take ownership of the assets.

Do all life interest trusts require registration?

Life interest trusts (also known as an interest in possession trust) are not one of the categories of trust excluded from registration. Some exclusions could apply, depending on the terms and purpose of the trust.

A life interest trust in a Will does not need to be registered unless the person who made the Will has died.

A life interest Will trust will need to be registered with HMRC even where the life tenant receives all the trust income and declares this on their tax return.

Can anyone register a trust on the TRS?

Before registering a trust as a trustee (not as an individual), you must have an Organisation Government Gateway user ID and password. This is not the same as your self-assessment or business Gateway details.

If you do not have a trustee Gateway user ID, you can create one the first time you register. You’ll need a Government Gateway user ID for each trust you want to register.

You’ll need:

• an email address (this will be linked to the trust’s Government Gateway account)

• your full name

Alternatively, you can appoint a professional firm to complete the registration on your behalf. Fees for this work start at around £200 - £300, and many firms offer a fixed fee service.

What information is needed to register a trust on the TRS?

The Trust Registration Service requires information about the trustees, beneficiaries and the settlor. A testator (the Will-maker) who has died is a settlor, as their Will has created the trust.

The information needed to register will include:

• the name of the trust

• date of creation

• type of trust and assets held

• the name, address, date of birth and national insurance number for each of the settlor, trustees and beneficiaries.

What happens if trustees don’t register a trust?

HMRC has not provided a formal extension to the TRS deadline but has confirmed they will not automatically charge penalties for failures to register by 1 September 2022, understanding that COVID pressures may make it difficult for trustees to meet this deadline.

If you are the trustee of a trust created by a Will, contact us and we will refer you to a specialist who can help you.