Being a trustee carries a significant set of legal obligations, including intricate reporting requirements set by HMRC. Whether you’re stepping into this role through nomination, execution of a will, or power of attorney, understanding your duties is crucial. This guide outlines what you need to know to navigate your responsibilities effectively.
Who is a Trustee?
Simply put, if you’re named as a trustee or appointed as an executor of a will or attorney under a durable power of attorney, you’re a trustee. This role kicks in the moment you take control of an individual’s assets, bringing with it a set of legal duties that remain consistent, regardless of your title.
HMRC Reporting: A Critical Task
Trustees must adhere to HMRC reporting requirements, a key aspect of their legal duties. With legislation enacted in 2021, most trusts must register with HMRC’s Trust Registration Service, even if tax-exempt. Failure to register can lead to fines.
Tax Returns and Notices
Receiving a Notice to File from HMRC obligates trustees to file a tax return, irrespective of tax dues or reportable income. It’s essential for trustees to inform their adviser upon receiving such a notice to ensure compliance within deadlines.
International Compliance
In addition to UK regulations, trusts may need to comply with international reporting standards, such as the Foreign Account Tax Compliance Act (FATCA), highlighting the need for a comprehensive understanding of both local and global obligations.
Making Tax Payments
Trusts are required to report and pay income tax, with specific rules depending on the trust type and income distribution methods. Trustees must understand these rules or seek expert advice to avoid penalties.
Asset Disposal and Inheritance Tax
New regulations affecting capital gains tax and inheritance tax underscore the need for proactive planning by trustees. These regulations affect how and when trustees must report and pay taxes, especially in relation to property and discretionary trust disbursements.
Documenting Trustee Decisions
Proper documentation of trustee decisions, through formal deeds or meeting minutes, is vital. These records are essential for demonstrating compliance with trust management obligations.
The Importance of Trust Accounts
Beneficiaries have rights to request trust account information. Preparing these accounts annually and ensuring transparency is key to maintaining trust and avoiding disputes.
Investment and Property Management
Trustees have a duty to regularly review investments and ensure real estate assets are properly managed and insured. This includes obtaining professional investment advice and ensuring any beneficiary occupancy is formally authorized.
Delegating Responsibilities
Trustees should not manage investment portfolios alone but delegate this responsibility to a third-party investment manager, in line with the Trustee Act 2000. This collaboration should produce an Investment Policy Statement, regularly updated to reflect current strategy.
Annual Oversight
Annual trustee meetings are crucial for reviewing trust activities and ensuring collective decision-making. Documenting these meetings helps maintain clarity and accountability.
Conclusion
Serving as a trustee is a role fraught with responsibilities that, if neglected, can lead to significant legal and financial repercussions. Awareness and adherence to legal duties, especially regarding HMRC reporting, are paramount. For trustees seeking guidance or concerned about their obligations, seeking knowledgeable and friendly advice is a wise step forward.
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Ray Best
Like his academic development, writing came late to Ray. He has written several published works, “Inheritance Tax Planning – My Way” and “Shareholder Protection & Partnership Protection” and has had four feature articles published in Tax Adviser magazine, but the publication he is most noted for is the joint collaboration with Tony Granger “Inheritance Tax Simplified”.
