Compulsory Trust Registration
Vicky Bligh, Head of Private Client Services
The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 came into force on 26th June 2017. The principle behind this directive (‘The Directive’) was to prevent companies and trusts from being used to finance terrorism and facilitate money laundering. There were however implications for trusts which have been used for years, with a view to protecting ordinary families and their assets. The Directive imposed the following obligations:
- Trustees of “relevant trusts” must keep and provide information about the beneficial owners of the trust;
- HMRC must maintain a trust register of “taxable relevant trusts”;
- Trustees of “taxable relevant trusts” had to register the information about beneficial owners.
What types of Trusts are affected?
When the Directive came into force, the registration rules only applied to a relatively small number of trusts, mainly discretionary trusts, which are liable to pay tax, be it income tax, capital gains tax, inheritance tax or stand duty land tax.
The type of trust, which we commonly used for the protection of family assets in a Will is an IPDI trust, more commonly known as a life interest trust. Its most common use is in relation to the family home, whereby from the death of the first spouse, his/her half share of the property is held on trust for the benefit of the surviving spouse and on the survivor’s death passes to the children of the first to die. This type of trust is often used to protect the inheritance of the children of a previous marriage and is also used to protect a half share of the matrimonial home from being dissipated in the payment of care home fees for the survivor.
These life interest trusts did not need to be registered under the terms of the Directive, as usually there is no tax to pay during the life of the trust. However, new regulations came into force on 6th October 2020, which will bring these life interest trusts into the registration net. Registrable non-taxable trusts which were in existence on or after 6 October 2020 must register by 1 September 2022 and any new trusts established must now register within 90 days of creation.
We anticipate that there will be a significant number of life interest trusts, already in existence which will need to be registered by 1 September 2022 and many trustees/beneficiaries will be unaware of this obligation, particularly in the situation where the first spouse has died and the survivor is still living in the matrimonial home, half of which is owned by a trust established by the Will of the spouse who has died first.