Trusts play a pivotal role in estate planning and asset management, offering a secure means of preserving wealth and assets for generations. In order to combat tax evasion and fraud, it has been necessary to improve the oversight and regulation of trusts. We wonder, though, if there is unnecessary duplication between the two different registration systems for trusts:
Legal Entity Identifications (LEIs)
Trust Registration Service (TRS)
Trust Registration in the UK
Traditionally, trusts were hidden by a veil of privacy. However, in a bid to combat money laundering and promote transparency, the European Union (EU) issued a directive mandating the use of Legal Entity Identifications (LEIs) for trusts that hold investments.
The UK, as an EU member at the time, implemented this directive, necessitating trusts engaged in financial activities to obtain an LEI. This ensured that trusts engaged in financial activities were traceable and identifiable.
Later, the UK launched the Trust Registration Service (TRS) as a centralized platform for registering trusts; only the TRS evolved to encompass a broader spectrum of trusts, including those not engaged in financial activities.
The Cost Implication of LEIs
One often overlooked aspect of LEIs is the ongoing cost associated with their maintenance. Unlike one-time registration fees, LEIs require annual renewal, incurring additional expenses for trustees and beneficiaries.
This expansion inadvertently created a dual registration system, raising concerns about redundancy and complexity in the registration process.
Many trusts now find themselves navigating two distinct registration processes: one under the TRS and another under the Trust Registration Act. This duplication in effort and reporting creates a considerable financial and administrative burden.
Advocating for Simplification
To streamline the trust registration process, eliminate ongoing costs, and simplify administrative burdens, there is a compelling case for the elimination of LEIs altogether and the consolidation of trust registration requirements exclusively under the Trust Registration Service (TRS).
- Cost Savings: Abolishing LEIs would alleviate the financial burden on trusts, trustees, and beneficiaries associated with annual renewal fees, resulting in substantial cost savings.
- Efficiency: A single registration platform under the TRS would eliminate redundancy and streamline the process, saving trustees and professionals involved in trust administration time and resources.
- Transparency: The TRS has already proven effective in enhancing transparency within the financial sector. Expanding its coverage to include all trusts would further strengthen the UK’s commitment to combating financial crime and money laundering.
- Simplicity: A unified registration system would be far simpler for trustees to navigate, reducing the risk of inadvertent non-compliance.
Wills Tax & Trusts’ View
The UK has made commendable strides in promoting transparency and combating financial crime through trust registration. However, the introduction of the Trust Registration Act (TRA) alongside the existing Trust Registration Service (TRS) has inadvertently created both additional complexity and ongoing costs.
By eliminating the need for LEIs and consolidating all trust registration requirements under the Trust Registration Service, trust registration can be simplified, ushering in a more cost-effective era of trust registration.
The Trust Registration Service
Who Needs to Register?
Not all trusts need to be registered on the TRS. Registration is typically mandatory for:
- Trusts that incur a UK tax consequence. This includes trusts liable for Income Tax, Capital Gains Tax, Inheritance Tax, Stamp Duty Land Tax (SDLT), and Stamp Duty Reserve Tax.
- Complex estates are generally those that take longer than two years to administer.
As regulations evolve, especially post-Brexit, there might be changes or expansions to the list of trusts required to register, so it’s always wise to stay updated with the latest guidelines from HMRC.
Information Required
When registering a trust on the TRS, various details must be provided, including:
- Details about the trust itself: Type of trust, date of establishment, and a statement of accounts that describes the trust assets.
- Details about the individuals associated with the trust: This encompasses the settlor, trustees, beneficiaries, and any other individuals with influence over the trust. This usually includes names, addresses, tax identification numbers, and other relevant data.
Deadline for Registration
Trusts that need to register must do so by the set deadlines. For new trusts, this is usually within 30 days of the trust incurring a tax consequence. For existing trusts, periodic updates might be required to ensure the accuracy of the information held.
How to Register
Wills Tax & Trusts provides an advisory service on trusts for both guidance and registration.
Penalties for Not Registering on the Trust Registration Service
Failing to comply with the requirements of the Trust Registration Service (TRS) in the UK can lead to penalties. If a trust incurs a UK tax consequence and the trustees don’t register it in time or provide accurate details, HM Revenue & Customs (HMRC) can impose penalties. Below is an overview of the potential penalties:
1. Late Registration:
- If a trust is registered late but within 3 months of the deadline, a penalty of £100 will usually be imposed.
- If the delay is more than 3 months, additional penalties can apply. The exact amount might vary depending on the duration of the delay and the reasons behind it.
2. Failure to Register:
- If a trust is not registered at all, penalties can be significantly higher. They may be calculated based on a percentage of the tax liabilities of the trust or a flat-rate fine, depending on the circumstances.
- In severe cases, particularly where the failure to register is seen as deliberate concealment, penalties can be even steeper.
3. Inaccurate Information:
- If the information provided during registration is found to be inaccurate and this inaccuracy is deemed careless or deliberate, a penalty can be imposed. The amount will usually be a percentage of any potential lost revenue.
- The severity of the penalty can depend on whether the inaccuracy was disclosed voluntarily or whether HMRC discovered it.
4. Repeated Failures:
- If a trustee repeatedly fails to comply with the TRS requirements, they may face escalated penalties. This could involve increased fines or additional sanctions.
5. Reasonable Excuse:
- It’s worth noting that if a trustee has a ‘reasonable excuse’ for any failures or inaccuracies, they might not have to pay a penalty. However, what constitutes a ‘reasonable excuse’ can be subjective and is determined on a case-by-case basis. Simply forgetting or not being aware of the requirement usually won’t be considered a reasonable excuse.
6. Interaction with Other Penalties:
- Trustees should also be aware that penalties from the TRS can be in addition to any other penalties related to the trust’s tax affairs. For instance, if a trust fails to pay the correct amount of tax due to not being registered, there might be penalties both for the underpayment of tax and for the failure to register on the TRS.
In conclusion, it’s essential for trustees to be aware of the requirements of the TRS and the potential consequences of non-compliance. The penalties can be substantial, both financially and in terms of reputation. Regularly checking for updates from HMRC and seeking professional advice can help ensure that trustees fulfil their obligations and avoid these penalties.
Need Advice on Trusts or Assistance with Trust Registration?
Navigating the complexities of the Trust Registration Service (TRS) can be daunting. The intricate nuances, deadlines, and potential penalties for non-compliance or inaccuracies underscore the importance of getting it right the first time.
Don’t leave it to chance! Wills Tax & Trusts specialises in assisting clients with both trust advice and registration, ensuring not only compliance but also peace of mind. With our expertise, you can be confident that your trust registration will be handled meticulously, accurately, and in a timely fashion.
Benefits of Engaging with Wills, Tax & Trusts:
- Expert Guidance: We provide step-by-step assistance throughout the registration process.
- Timely Compliance: Never miss a deadline with our team ensuring all timelines are met.
- Accuracy: Minimise the risk of inaccuracies that can result in penalties.
- Peace of Mind: With our professionals at your side, you can focus on other aspects of your trust management, knowing the registration is in capable hands.
Take Action Today!
At Wills Tax & Trusts Ltd., we specialise in providing expert guidance and advisory services for trusts of all kinds. If you require advice on trusts, we can help you navigate the intricate world of trusts with precision and confidence – help is just a call away – 0118 934 7920.
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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”.
