Registration rules for high risk trusts face overhaul

Registration rules for high risk trusts face overhaul

Mar 18, 2024

The government is planning to change the reporting requirements for trusts filing on the Trust Registration Service and introduce a de minimis tax threshold

The proposed amendments to the Trust Registration Service, the central register of the beneficial ownership of taxable trusts, are intended to increase transparency in relation to certain higher risk trusts while reducing administrative burdens on low-risk trusts.

The Treasury warned that ‘because trusts are arranged privately, they can be used to conceal the beneficial ownership of assets, and thereby facilitate money laundering’.

The government proposes to make changes to the register including:

  • requiring the registration of all non-UK express trusts with no UK trustees, that own UK land acquired before 6 October 2020;
  • sharing trust information of non-UK express trusts with no UK trustees that own UK land by making these trusts subject to the current trust data sharing process;
  • simplify trusts registration for estates management by aligning deadlines for certain trusts by aligning the registration requirements of some trusts required to register following the death of a settlor;
  • clarifying that Scottish survivorship destination trusts are not required to register; and
  • introducing a de minimis for low-risk non-taxable trusts to reduce administrative burdens.

The consultation also focuses on the wider issues of the transparency of ownership of UK land. This is in response to the large amounts of cash that can be invested in the sector and that non-UK trusts ‘are likely to be more attractive for illicit purposes as they can offer better levels of secrecy and tax advantages compared to UK-based trusts’.

Under current rules, where trustees beneficially own overseas entities – the beneficial ownership details (settlors, beneficiaries, etc) are recorded on the register of overseas entities. However, where a corporate trustee owns land directly, the register only captures the corporate trustee’s details.

For example, a corporate entity acting as a trustee for multiple trusts could own many UK properties directly but the register of overseas entities captures no information about the beneficial owners of that land, only the details of the corporate trustee.

On the registration front after death, the plan is to exclude co-ownership property trusts that would become registrable upon death from registration for two years from the date of death. This will align the timing of registration with will trusts that become registrable on death.

Trusts created by a deed of variation would also be excluded from registration for two years from the date of death.

There will also be some tax changes as a result of the de minimis changes. The plan is to exclude from registration a trust that meets all of the following tests:

  • the trust is not liable for relevant UK taxes;
  • the trust does not own or have an interest, in whole or in part, in UK land/real property;
  • the trust does not hold more than £5,000 in assets;
  • the trust does not distribute more than £2,000 in assets and expenses (combined) in any 12-month period.

Once a trust exceeds any of the threshold amounts, the trust would become registerable and remain registerable. For instance, were the value of a trust’s assets to be above £5,000 and then fall below this amount, then the trust would remain registerable.

From tax year 2024-25 a new tax rule will take trusts out of income tax where their income is less than £500, allowing more trusts to meet the first test.

There will also be rules in place to prevent settlors from creating multiple trusts to take advantage of the de minimis restrictions.

For the trust registration service (TRS) beneficial owners are defined as generally anyone with a legal interest in the trust such as the settlor, the trustees or the beneficiaries, and may be individuals, corporate entities or other organisations such as charities.

The closing date for the consultation is 9 June 2024.