Why should I keep my Trust updated with the Trust Registration Service (TRS)?

Why should I keep my Trust updated with the Trust Registration Service (TRS)?

Continuing our conversation on the Trust Registration Service. In the previous podcast episode, we discussed how you should register a Trust. In this episode, we are discussing how you should claim a Trust and keep your Trust updated, with Ian Winterbotham.

How do I claim a Trust? How does this work?

The first step, as we’ve described, is registering the Trust. The next step is to claim the Trust. In between, you should receive a letter in the post from HMRC with a unique reference number, otherwise known as a URN.

The Lead Trustee then needs to go online and search how to claim a Trust in their usual search engine. Then they select ‘Manage your Trust’s details – gov.UK.’

What changes need to be made in the future?

You need to make updates to the HMRC Online Trust Register for your Trust throughout the year – or where relevant changes occur. For example, if a new beneficiary is born, or if someone moves home and their address is required. You would be well advised to keep annual Trust minutes, recording a meeting with all the Trustees once a year.

What taxes might be payable?

The taxes that I’ve come across are 10 year anniversary charges and exit charges.

If there is more than the nil rate band in value in a Trust, so if the assets in the Trust are worth more than £325,000 [at the time of speaking in December 2024], and they grow in value, anything above £325,000 will be taxed at about 6%. That happens on the 10-year anniversary.

What if the assets in a Trust are less than £325,000 but more than £300,000?

HMRC’s rules say that a return is still required even if there’s no tax to pay. You should still report the assets in a Trust even if the value is less than 100%, but more than 80% of the nil rate band. So that would be more than 80% of £325,000 at the moment, in December 2024.

What is CGT holdover tax?

This comes into play usually if someone has an investment property and they don’t want to pay Capital Gains Tax when they transfer some of the assets to their children or other beneficiaries.

The Capital Gains Tax can be paid when the property is sold, rather than at the time the Trust is created.

What are exit charges?

Exit charges are like Capital Gains Tax. If assets have gone up in value, you can imagine that HMRC wants to take a tax percentage on those assets when they’re sold, if they’ve gone up in value by more than the allowances that apply to a Trust. The allowances that apply to a Trust are usually half those that apply to individuals.

Why should I review my Trust before the 10 year anniversary?

It’s extremely important and probably very easy to to ignore, especially if Trustees are not really in full understanding of how Trust law works and the taxation of them.

In some cases, you could have a lot of assets in a discretionary Trust. If they are appointed out, or if the Trust is disbanded before the 10 year anniversary, you can avoid that 6% tax completely.

There are so many scenarios and complexities to discuss on this, though, and that should really be addressed to a tax expert. The key thing to remember is to review your Trust before the 10-year anniversary.

What happens if I have not entered data correctly?

It’s the responsibility of the Lead Trustee to go back into the register and update it. I’ve seen a lot of cases where the data has not been entered correctly, and it’s something the Lead Trustee needs to work out how to do themselves – or ask us to guide them in the right direction.

What if I fail to register on time or to keep the register up to date?

At the moment HMRC have decided not to impose any fines. All the Trustees are liable for taxes to be paid on time on the Trust. If you don’t keep the register up to date, HMRC might say there are fines to pay and interest on any taxes due.

What else do we need to know about keeping a Trust updated with the TRS?

I’ve been given a briefing note by a company we work with that specialises in registering Trusts. They were just set up to register these Trusts when it became a requirement a couple of years ago.

The note says: “There have been some relevant changes to the information Trustees are required to provide since the initial registration came into force. The most significant change for Trustees is the need to identify all potential beneficiaries to a Trust.

“This is a marked change on the previous ability to register with the inclusion of a class of beneficiaries – like children or grandchildren who could potentially benefit. Now they want you to find out who those children, grandchildren and great-grandchildren are, and add in their names and their dates of birth, and whether they’re UK residents or not.

“The TRS manual of requirements for Trustees says beneficiaries should only be recorded as part of a class of beneficiaries if they cannot all reasonably be identified individually by the Trustees.

“So if all the members of the class can be identified individually by the Trustees, they should instead be recorded as individual beneficiaries.

“If a Trust had been settled by Mr. Silver some generations ago, it may not be reasonable for the Trustees to now identify each descendant, but the beneficiaries could therefore be recorded as a class of beneficiaries.

“However, if the beneficiaries were instead a distinct group, such as the grandchildren of Mr. Silver, it is reasonable to expect the Trustees to be aware of the identity of each individual.
Therefore, they should be recorded as individual beneficiaries rather than just added as a class of beneficiaries.

“On top of that, HMRC are also beginning to make use of the online register to identify potential 10-year inheritance tax charges for Trusts. They are sending letters out to Trustees where a Trust has recently passed its 10-year anniversary.

“If the value of Trust assets is more than 80% of the nil rate band, then Trustees will be required to complete an IHT return, even if no tax is due. Where the value of the Trust assets exceeds the nil rate band, Trustees will be required to report this on the Trust return and make payment of IHT accordingly.”

It’s a bit of a bleak warning, isn’t it? It’s an area where more information and experience will uncover more interesting questions – and hopefully interesting answers.