The deadline for the vast majority of express trusts to be registered with HM Revenue & Customs’ (HMRC) Trust Registration Service (TRS) is now just six days away – and a lot of questions are still to be answered.
It was recently reported that 211,000 trusts have now been registered with HMRC – 62,000 of which came in the first six months of this year – though there is still a significant number of trusts yet to be registered.
Naturally, the workload for all parties associated with the process has exploded, with one legal practitioner telling Today’s Wills and Probate that they are “snowed under” ahead of the deadline.
Here, Irwin Mitchell’s John Bunker TEP talks all things TRS, discussing the issues yet to be resolved ahead of the deadline, HMRC’s communication around the service, and what constitutes a “deliberate” failure to register.
A HSBC Life survey found that 63% of financial advisers are concerned about a failure to register. Do legal practitioners share this sentiment?
Yes, many do when they appreciate the issues. The problem of non-registration is huge for four reasons.
Firstly, the potential scale is immense as It does not just apply to new trusts, but goes back (for most purposes) ad infinitum.
Secondly, so many of the old trusts are not currently being administered, but are “dormant” while a beneficiary lives in a property, until they die, or during a lifetime of a life assured under a life policy held in trust. Therefore, there is no current contact between a solicitor or accountant/tax adviser on that trust, or if they are acting on something else, no one appreciates the trust issue needs attention.
Thirdly, because HMRC keep bringing out new guidance in the TRS Manual (TRSM), which includes potentially major additions to the scope of trusts needing registration on TRS, e.g. changes on 20th July, re partnerships where some partner(s) hold assets on behalf of the whole; and on 2nd August regarding situations in estates where a new registration is needed, such as after a deed of variation or after two years from the date of death.
Finally, so many of the trusts needing registration do not appear to have any money laundering risk. There is thus a huge problem of perception. Many clients cannot see the reason to spend money on getting a trust registered and feel it is a most unreasonable sledgehammer to crack a nut. In my training work, I explain the difficulty of where HMRC draw the line, e.g. on bare trusts between the potentially risky obscuring of true beneficial ownership and the totally innocent holding of an investment for, say, a grandchild – it’s all about “line drawing” which can seem random or unfair!
How has HMRC’s help & communication been around the TRS?
The recent TRSM changes have major implications, yet come out so late in the theoretical “year” to get trusts registered. It’s difficult for practitioners to work with a constantly moving target! Many solicitors have urged a postponement of the 1st September deadline, but that would require new secondary legislation, so is not possible. HMRC have offered a flexible approach to penalties, but that doesn’t reassure the conscientious adviser who wants to get it right!
There will be no penalty for a first offence or failure to register, though where it can be shown that the failure was deliberate, there will be a £5,000 charge per offence. Is this policy appropriate?
The new guidance issued in the TRSM, only on 2nd August, suggests a really deliberate failure to comply, with references to getting “repeated warnings”, so it seems this high penalty requires a prolonged non-compliance. However, some advisers are understandably concerned that the real penalty will be trustees of many trusts, including trust corporations, being put on some HMRC record of regular non-compliant trustees. While this is not referred to now, one does not need to be too cynical to see this might be developed in the future, as more and more old trusts come out of the woodwork!
Kirstie Williamson MA ATT (Fellow) TEP, Associate Tax and Trust Manager also of Irwin Mitchell, shared John’s concerns.
Issues surrounding non-registration
Whilst the finance and legal sectors have been aware of the deadline for over a year, the general public have had relatively little awareness until very recently. There has been very little direct publicity of the requirements from HMRC and most lay trustees have only become aware of these new obligations either via articles in the press or direct contact by their professional advisor.
As a result there are likely to be a significant number of trusts which fail to register by the deadline. In particular, the rules around property trusts are complex and property owners may not even be aware that their ownership structure constitutes a trust which requires registration. A further complication is that trusts which have been wound-up may require registering if they were in existence on 6th October 2020.
Recent articles in the media have resulted in a surge in enquires by concerned trustees and as a result legal practitioners have found themselves overwhelmed with requests to assist and advise on trust registration requirements. With only 2 working days to go now before the deadline we are still receiving multiple new enquires only a daily basis.
HMRC’s communication regarding the TRS
Communication from HMRC on the whole has been poor and difficulties have been exacerbated by continuing last minute changes to the guidance around registration in the online TRS Manual. In addition, when clients have contacted HMRC directly for guidance, they have been given conflicting and incorrect information about the registration requirements which has only served to add to the confusion. A further concern is that at present registration can only be completed online, so for digitally excluded trustees there is no paper alternative and HMRC cannot yet say when one will be available.
HMRC’s response
When approached for comment on the difficulties that practitioners are facing, HM Revenue & Customs said the following:
“As expected as we near the upcoming deadline, we are currently receiving high numbers of registrations. We encourage anyone who has not yet registered to do this as soon as they can.
More generally, there will be no penalty for non-deliberate failure to register or late registration as we recognise this is a new requirement for many. Deliberately not registering may result in a penalty of £5,000 per offence. We will determine this by investigating the trustee’s awareness of the registration requirement and what steps had been taken to comply with them. For example, a penalty may apply if a trust continues to fail to register despite repeated warnings from HMRC.
We have also published comprehensive guidance to help trustees through the trust registration process.”
To help with TRS registrations ahead of the deadline, HMRC is providing further last-minute guidance to practitioners with queries via a temporary email inbox – it is accessible via trustenquiries@hmrc.gov.uk.
A manual containing all necessary information for practitioners using the TRS is available here.
