What is a trust, and why do I need to register it in the UK?

Posted on By Louise Polcaro
A child on his grandfather's shoulders with daughter looking on

A trust is a way for someone who owns assets, such as money, a house or shares, to transfer them to someone else. Although it is currently difficult to accurately estimate how many trusts there are in the UK, families have been using them for centuries to plan how they transfer money to future generations.

Trusts are not only for the very wealthy: they are also a useful tool for ordinary families. For example, a trust can prevent a disabled adult who is on benefits from losing their benefits if they inherited their parents’ estate. Even a relatively modest amount of money would be enough to cause difficulties for someone in this situation. A trust can give everyone involved peace of mind that no such difficulties will arise.

There are three main roles in a trust, which are the:

  1. ‘Settlor’: the person who puts the assets in a trust.
  2. ‘Trustee’: the person or people who manage the trust. For most trusts, having two to three trustees works best.
  3. ‘Beneficiary’: the person who benefits from the trust. In the example above, it would be the disabled adult on benefits.

There are several different kinds of trusts. You can find out more about them in this briefing.

Why you may need to register your trust

The EU has passed legislation in recent years to tackle money laundering, which covers how trusts are run. In response, the UK government has brought in new legislation that requires people to register trusts.

How it works

HM Revenue and Customs (HMRC) set up the Trust Registration Service (TRS) in 2017. Although there are some exceptions, most trusts will need to be registered with the TRS by 1 September 2022. The exceptions include:

  • Registered charitable trusts,
  • Certain types of life insurance trusts that pay out only on death, serious illness or disablement, and
  • Bank accounts held on behalf of minors or adults who have lost capacity.

You must register if the trust becomes, or is liable for any of the following taxes:

  • Capital Gains Tax
  • Income Tax
  • Inheritance Tax
  • Stamp Duty Land Tax
  • Stamp Duty Reserve Tax
  • Land and Buildings Transaction Tax (in Scotland)
  • Land Transaction Tax (in Wales)

The following types of trusts must register even if they have no tax liability:

  • all UK express trusts — unless they are specifically excluded (see here for those that are excluded)
  • non-UK express trusts, like trusts that acquire land or property in the UK or have at least one trustee resident in the UK and enter into a ‘business relationship’ within the UK.

Trustees have up to 90 days to let the TRS know of any changes to the information it holds on the register. The law was changed in February 2022 to give people experiencing a bereavement more time to notify the TRS of any changes.

How to register a trust

This briefing gives a brief overview of the registration process. The HMRC website gives full details and all the information that a ‘lead trustee’ will need to provide, including a Government Gateway User ID.

Find out more about registering trusts here

If you are not sure whether you need to register, talk to a qualified professional advisor about what you need to do to ensure you remain fully compliant.

HMRC is investigating me. What do I do?

Posted on By Louise Polcaro
worry,tax,concern

HMRC’s powers enable it to check whether your tax returns are correct. HMRC uses the term ‘compliance check’ to cover all types of enquiries, investigations and visits to business’s premises.

What are the main types of compliance check?

Tax return enquiry

For individuals and trustees, the most common type of compliance check is an enquiry focusing on a specific tax return. This is opened within 12 months of the return’s submission, unless it was submitted late. HMRC requests information and documents to enable it to check any aspect of the return (including the original cost of assets sold) and to ensure the return is complete. When it completes its enquiries, HMRC usually issues an ‘enquiry closure notice’ to either confirm that the tax return requires no amendments or to amend it.

Discovery assessments

In other cases HMRC may use its powers to obtain information and documents before issuing ‘discovery’ assessments to collect income tax or capital gains tax (CGT) for past years.

Code of Practice (COP) investigations

In some cases HMRC’s Fraud Investigations Service may open Code of Practice (COP) 8 or 9 investigations.

COP9 is used for cases of suspected fraud or deliberate errors.

COP8 tends to be used for cases where fraud is not suspected so the problem is more likely to be a technical issue, for example whether someone needs to pay tax in the UK. Both these investigations can be lengthy and may end in civil (rather than criminal) settlements.

For a COP9, HMRC only allows 60 days for an individual to decide how to respond: admit deliberate errors and disclose what went wrong; or deny fraud. The risk is that failing to tell HMRC of deliberate errors or failures may result in prosecution, so getting advice from a specialist tax advisor quickly after receiving HMRC’s opening letter is essential.

If you face a criminal investigation then you need a specialist solicitor’s help immediately.

Seven tips for dealing with compliance checks

The following tips will help you to deal with enquiries or civil investigations into income tax or capital gains tax.

  1. Seek professional advice  quickly from an advisor who specialises in dealing with the type of enquiry or investigation that you face
  2. Provide HMRC with the relevant information and documents quickly, as delays may increase penalties if they are due
  3. Anticipate HMRC’s next question and answer it now – providing explanations often shortens the enquiry process
  4. Be ready to explain what went wrong if there is an issue with your tax return – HMRC needs to know in order to decide if a penalty is due. Penalties can be up to 300% of the tax and may result in publishing of your details, although careless error penalties may be suspended
  5. Making a payment on account of tax due will mitigate late payment interest charges
  6. If you disagree with HMRC’s decisions, closure notices or assessments, then get help to appeal them within 30 days of the date they were issued
  7. If you will struggle to pay what you owe and you need time to pay, ask now – don’t wait for HMRC to use bailiffs, insolvency powers, etc.

Helen Adams TEP is Tax Principal at BDO LLP in London, UK