Does a US revocable trust need to be registered under the UK's Trust Registration Service?

Article Experience

With the deadline for registering a wider group of trusts fast approaching, it is important to understand what arrangements require registration under the Trust Registration Service (‘TRS’), as soon as possible.

Previously express trusts with a UK tax liability were required to register with the TRS, the private register held by the UK tax authority, HMRC. From 1 September 2022, many more UK trusts and non-UK trusts will be required to register, regardless of whether or not they have a UK tax liability. The main categories that require registration under the expanded rules are:

  • All trusts that have a UK tax liability, even if they are not express trusts (as previously);
  • All UK express trusts unless excluded from registration under one of the exclusions listed in the legislation (1), which are a limited category of trusts deemed by HMRC as being low risk for money laundering and terrorist financing purposes or supervised elsewhere (referred to as an ‘Excluded Trust’ – not to be confused with an Excluded Property Trust). Common examples of which are charitable trusts and trusts holding life insurance policies during the lifetime of the life assured, although these only qualify if the trust holds only policies that meet certain conditions, and so trusts that hold investment bonds or a bank account funded to meet the trust’s expenses in addition to the life policies would not qualify); and
  • Non-UK resident express trusts, unless an Excluded Trust or an EEA registered trust, where there are connections to the UK, such as UK property or land is held or, for trusts with at least one UK resident trustee, the trustees enter into a business relationship with a UK relevant person eg financial institution, legal professional, accountant etc.

For trusts without a UK tax liability, the information that needs to be supplied to HMRC on registration includes information on the trust, the trustees, the settlor, the beneficiaries and any individual or company with control over the trust, such as a protector. This includes each individual’s name, date of birth, nationality and country of residence. Further information is needed for trusts which incur a UK tax liability, including the value of the assets in the trust at the date of registration.

The privacy position changes from 1 September. In addition to sharing information on the Register with law enforcement agencies, HMRC may also grant access to an individual who can show they are looking into a specific instance of money laundering or terrorist financing activity. This relatively high bar does not need to be met in relation to requests for information relating to trusts which have both a controlling interest in a non-EEA company and a UK resident trustee; and HMRC may grant access to any individual requesting information on such a trust. The ability of HMRC to grant access to beneficial ownership information on the Register is subject to the caveat that HMRC will not share information on specific individuals if doing so would lead to a disproportionate risk of harm.

The TRS and US revocable trusts

The extended scope of the rules requiring trusts to register is of particular interest in the context of US revocable trusts. It is common for people with assets in the US to establish a US revocable trust as part of their estate plan. While there is a wider question as to whether such a revocable trust should be treated as a substantive trust or a bare trust for UK tax purposes, this analysis is not relevant for this article, because it is clear that under the expanded TRS rules, revocable trusts now need to be registered if:

  • they are UK trusts for TRS purposes (ie all the trustees are UK resident or at least one trustee is UK resident and the settlor was resident and domiciled (under general law rather than deemed domiciled for tax purposes) in the UK at the time when the trust was set up or the settlor added funds to the trust); or
  • they are non-UK trusts for TRS purposes and there are connections to the UK. While it may be unlikely that a revocable trust would own UK land, it is possible that the trust would need to be registered by virtue of having the other possible connection to the UK, which can only occur if there is at least one UK resident trustee. A trust will also have the requisite connection if the trustees, in their capacity as trustees, enter into a business relationship, after 6 October 2020, that has an element of duration with a UK relevant person.

Despite lobbying for bare trusts and nominee arrangements to be exempted from the requirements, there is no general exemption which would exclude a revocable trust, although there are exemptions in certain other scenarios, such as a bare trust holding a child’s bank account.

A settlor of a US revocable trust who is UK resident may fund the revocable trust with only a nominal amount (£10 or £100 perhaps), with the idea being that the will operates to transfer the assets held at death into the trust on death. For established trusts that hold only a nominal amount, there is a low value exception, such that if the value of the assets in the trust was no more than £100, there was no registration requirement. This only applies to trusts created before 6 October 2020, so these trusts only need to be registered on the TRS once the value exceeds the £100 limit, for example when fully funded on the death of the settlor. However, for trusts created on or after 6 October 2020, there is no de minimis exception.

By far the most common scenario that will trigger a registration requirement is where the settlor of a US revocable trust is acting as the sole trustee during his lifetime and is (or becomes) UK resident. Unless such a trust was established prior to 6 October 2020 and falls under the de minimis exception, this trust will need to be registered. If a revocable trust which does fall under the de minimis exception is amended and restated, there is nothing to indicate that this would trigger a registration requirement. For estate plans involving revocable trusts that are put in place from now on, the deadlines for registration and updating the information if there is a change, as set out below, should be noted.

If a US revocable trust has no UK resident trustees, a requirement to register would only be triggered if a UK tax liability arises or if the trust acquired UK land. Trusts with a UK tax liability are subject to different deadlines.

Occasion

Deadline for registration / providing information

Occasion

Registrable non-taxable express trust established on or after 6 October 2020 and before 3 June 2022

Deadline for registration / providing information

Register on or before 1 September HMRC has confirmed that even if the trust has been wound up prior to 1 September, the trustees should still register it and then immediately close the trust record to record the fact that the trust no longer exists. Information on persons involved with the trust at creation must be provided even if they have ceased to be involved

Occasion

Registrable non-taxable express trust established on or after 3 June 2022 (90 days before 1 Sep 2022)

Deadline for registration / providing information

Register within 90 days from the date of creation

Occasion

A trust that is otherwise not registrable becomes registrable (eg a non-UK trust acquires UK land after 6 October 2020)

Deadline for registration / providing information

Register within 90 days of the trust becoming registrable or on or before 1 September (whichever is later)

Occasion

Trustee becomes aware that any of the information provided to HMRC about a registered non-taxable trust has changed

Deadline for registration / providing information

Notification of change to HMRC within 90 days of the trustee becoming aware of the change

Whilst initially it is hoped that HMRC will be taking a light touch approach to penalties, with a possible penalty of up to £5,000 for each offence of late registration, it is worthwhile to consider registration now.

How we can help

With our London-based US/UK private client team, we are very well positioned to advise on any aspect of the TRS, and, if registration is required, we are able to offer, through our Trust Management Group, a dedicated service to trustees, in registering and maintaining a trust’s records on the Trust Register.

For more information, please get in touch with Lara Crompton or your usual Withers contact.

(1) – Sch 3A (Excluded Trusts), Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017/692

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