As big brother’s grip gets every tighter on all of us, we’ve now got a new requirement: to register all trusts, even just bare trusts and nomineeships, with HMRC – including in situations where those trusts don’t actually have any tax liability. The ostensible reason for this snooping into people’s affairs is to counter “money laundering”, particularly in relation to terrorism. We’re still scratching our heads in puzzlement at the idea that the government apparently has, that terrorists are meekly going to queue up to give full details of their financial arrangements to HMRC. It may be naive of us, but his looks like just another instance of piling on the bureaucratic pressure on the “innocent”, where real criminals are just going to blindly ignore the rules in any event. But that’s how it is. If you object, you have two possible ways of making your objection known:
1. The traditional, fuddy duddy way of writing to your MP to say you don’t like these new laws he or she is making; or
2. Much more trendy and indeed much more fun, gluing yourself to some motorway somewhere and causing mayhem to all and sundry.
In a way, you’ve got to feel sorry for poor old HMRC (not a phrase you see here very often!) because this is just another job they’ve been landed with which has nothing to do with raising tax revenue. Obviously the top HMRC guy didn’t take one step back when they were looking for volunteers to take on this new burden.
Who needs to register? It’s always been the case that you need to register a trust if it has income or gains that are liable to tax. So if, for example, you put a buy to let property on trust, and the trustees receive rent, they obviously have to register for self assessment with HMRC, in the same way that any individual receiving rent has to. The same applies to a trust which realises a taxable capital gain from selling a trust asset. That has to pay the tax on the gain, and in order to do so needs to get a self assessment UTR (Unique Taxpayer Reference).
But the new rules we’re talking about here go a lot further than that. All trusts, including ones that don’t have any tax liability, now have to register. All trusts, that is, subject to certain exceptions, one of which is potentially very important indeed:
· “Non express trusts”, that is, trusts which come about by the operation of some legal rule but which haven’t been intentionally made by an individual settlor; and
· Non UK trusts that aren’t liable for tax in the UK, have no land or property in the UK, and have no trustees resident in the UK.
Other specific exceptions to the requirement to register trusts are:
· Pension schemes
· Life insurance policies and similar policies written in trust
· Charitable trusts
· “Pilot” trusts holding less than £100 and set up before 6 October 2020 (when these new rules actually came in)
· Trusts set up to hold property as “tenants in common”
· Trusts set up in a person’s will, providing they’re wound up within two years of the person’s death
· Trusts for bereaved young people up to the age of 25; and
· “Financial” or “commercial trusts” created in the course of professional services or business transactions for holding client money or other assets
All the time, of course, the overriding requirement to register exists if your trust actually has a tax liability.
Nomineeships and Bare Trusts
One of the particularly fearsome aspects of these new big brother rules is that you even need to register all nomineeships and bare trusts. These are situations where an asset is held in the name of one person but the asset “really” in every sense, belongs to someone else. For example, I might own some quoted shares which are held on my behalf by Lloyds Bank Nominees Limited. This is a bare trust. Or it may be that I am holding a bank account, shares, or property for people who are under 18, because it makes sense for them not to have the asset registered in their own name or indeed it may be impossible to be registered in their name. Or I might want to distance myself from ownership of an asset for reasons of commercial confidentiality, where it’s important that others (perhaps business rivals) don’t know that I own a particular asset. All these bare trusts have to be registered now.
This leads on to the important question of who knows about the existence of the trusts? As far as we can see, the register which HMRC are building up as a result of all these notifications that they will be receiving under the new rules are not on public display, unlike the details of ownership of companies and LLP’s. So it does look as though bare trusts which are set up for commercial confidentiality can still be effective in achieving this. Third parties can’t simply go on “fishing expeditions” to find out who “the real” owners of assets are.
There is one important situation, though, where the new rules do require you to tell someone other than HMRC. This is where you enter into a contract with a third party with an asset held on trust as its subject matter. This is most of all going to effect property holding structures designed to get round the “Osborne Tax”.
A Blow for Tax Efficient Property Holding Structures
Until these new rules took effect, people who wished to put their buy to let property portfolios into limited companies, or into LLP’s with limited company members, weren’t faced by the stark choice of keeping the current financing arrangements and accepting the disallowance of interest for higher rate income tax purposes (the “Osborne Tax”) and refinancing the properties in the names of the intended company or LLP owner. It was possible to have “the best of both worlds” by continuing with the property in the name of the individuals, but those individuals executing bare trusts in the favour of the company or LLP. For tax and accounting purposes, a bare trust is as good as a formal transfer of the legal title: but without, often, the need to tell the bank or building society that they needed to reregister the loan in the name of the new entity.
It looks as though this “best of both worlds” situation may be a thing of the past for many. If you are going to a bank asking for a loan on security of a property registered in your name, you now have a legal obligation to tell them if you’re actually holding it as bare trustee for someone else, like a company or LLP for example.
We’re still getting our heads round the new rules, but a similar situation, where you are holding a mortgaged property in your own name and in your own beneficial ownership, but then move the beneficial ownership by bare trust over to somewhere else without disturbing the loan, would appear not to be caught by this new restriction such that it looks as though you don’t have to tell the bank if you change the beneficial ownership in this way. But we certainly need to caveat this view with a strong recommendation to take legal advice (as is always the case where execution of trusts like this is in point).
When Do I Have to Register My Trust?
The deadline for registering trusts depends on whether they are “taxable” or “non taxable” trusts, when the trusts were created, and, in the case of taxable trusts, when they first became due to pay tax.
1. Non taxable trusts created on or before 6 October 2020 have to be registered by 1 September 2022.
2. Non taxable trusts created after 6 October 2020 have to be registered within 90 days of being created or becoming liable to tax, or on or before 1 September 2022 – whichever is later.
3. Taxable trusts created on or after 6 April 2021 have to be registered within 90 days of the trust becoming liable for tax, or on or before 1 September 2022 if this is later.
4. Taxable trusts created before 6 April 2021, and that are liable to income tax or CGT for the first time, have to be registered on or before 5 October in the following tax year.
5. Trusts that have been liable for income tax or capital gains tax before have to be registered by 31 January in the tax year after the one in which the trust any income has capital gains, and is liable for tax.
It’s almost needless to point out that there are penalties for failure to register, and that the process of registering is a head banging online process. If you have an accountant, much better just to get them to do it!
Comments