Low Incomes Tax Reform Group warns of imminent trust registration deadline

The Low Incomes Tax Reform Group (LITRG) is reminding trustees that most trust arrangements need registering with HMRC’s Trust Registration Service (TRS) by 1 September 2022.¹ LITRG is concerned that this could catch people out, especially as a trust can exist without those involved realising it. Failing to register a trust with the TRS could risk a penalty of £5,000. 

A trust, in its simplest form, arises when an asset is held by someone (a trustee) on behalf of someone else (a beneficiary). It does not always need to be in writing. If the beneficiary has absolute entitlement to the capital and income of the asset, the arrangement is known as a bare trust. For tax purposes, the beneficiary of a bare trust is treated as owning the asset themselves. Other types of trust are treated as separate taxable entities which, depending on the circumstances, may or may not owe tax.

Originally, only trusts which themselves owed tax were required to be registered under the TRS. But the scope of the TRS has been expanded to catch virtually all trusts, whether taxable or not, including bare trusts.² Non-taxable trusts must now be registered by 1 September 2022, or within 90 days of coming into existence – whichever is later.

LITRG has recently published guidance on its website³ to help taxpayers understand if they might need to register an arrangement that amounts to a trust.

Antonia Stokes, Technical Officer at LITRG, said:  

“We are concerned that the broad scope of the Trust Registration Service means some people may not realise they are party to a trust which needs to be registered. For example, although Junior ISAs and cash accounts held for minors are not in scope, a relative directly holding stocks and shares for a minor is required to register that arrangement.⁴

“Bare trust arrangements are also common in property ownership scenarios; for example, where a rental property is held in the sole name of one person but a trust arrangement is in place to split rental income between a couple. Another registerable situation is where a couple’s main residence is held in the name of one person even though there is a declaration of trust in place that the couple share the beneficial ownership. Although there is an exemption for jointly-owned property, the legal owners and beneficial owners must be the same people for it to apply.⁵

“We encourage anyone unsure whether they have an arrangement which is registerable to check our guidance or call HMRC’s Trust Helpline.”⁶ 

LITRG also draws attention to the fact that failing to register a trust, or to update the TRS for any changes, could give rise to penalties.

The penalty risk is concerning, as it appears awareness of the requirement to register with the TRS is low.⁷

Antonia Stokes said: 

“HMRC have recently published details of the penalties for failures in connection with the TRS. Their guidance suggests that trustees could face a penalty of £5,000 per failure, if deliberate – such as after HMRC have issued them with warnings.⁸ We urge HMRC to raise awareness of this deadline and TRS among the public.

“Those in any doubt about whether they need to register must review their arrangements without delay. If necessary, the trust should be registered before the deadline to avoid the risk of a penalty for late registration.”