HMRC’s new Trust Registration Service – trustees’ obligation to register

To give effect to its obligations under The Money Laundering, Terrorist Financing and Transfer of Funds (Information on The Payer) Regulations 2017 (“the MLTFTF Regs.”) – which give effect to the 4th EU Money Laundering Directive – HMRC has established an online Trust Registration Service (“TRS”). In consequence, the old HMRC Form 41G providing limited information about a trust for tax purposes has been withdrawn. Existing trusts which have submitted a Form 41G must register under the new online service.

It should be noted that the scope of the TRS extends beyond that of HMRC’s own obligations under Reg 45 of the MLTFTF Regs, which apply only to a trust or company service provider acting in the course of a business in the UK, in that the TRS applies to anyone acting as a trustee of an express trust which incurs a liability to a relevant UK tax.

The TRS may be accessed through:

Trusts not already registered with HMRC for self-assessment and which have incurred a liability to UK income tax or CGT in a tax year must register by 5 October after that tax year or, if first liable for another relevant UK tax in a tax year, 31 January after the end of that tax year. (No penalty is imposed if, in relation to the tax year 2016-17, the registration of a trust not already registered for self-assessment and which has incurred a liability to income tax or CGT for the first time, is completed before 5 December 2017.)

HMRC published detailed guidance on the new TRS on 9 October 2017.

Registration is not required in a given tax year if:

–    the trustees do not need to file a tax return and have not incurred a liability to a relevant UK tax;

–    the trust is a non-UK express trust and has no UK source income or UK based assets but for some other reason has incurred a liability to pay any of the relevant UK taxes; or

–    the settlor or a beneficiary has incurred a liability to pay a relevant UK tax but the trustees are not so liable; or

–    the trustees are holding the trust property as bare trustees (as any liability to a relevant UK tax is that of the beneficiary).

It would seem to follow that trustees of a non-UK resident employees’ trust which is not liable to a relevant UK tax is not obliged to register, but the trustees may wish to do so voluntarily to avoid unintentionally failing to do so if such a liability should arise. Changes to the information registered may be notified at any time and, if the trustees incur a liability to a relevant UK tax in any tax year, must be so notified by 31 January next following. Curiously, details of the trust assets need only be provided once at the point of first registration and are not required by HMRC to be updated. Information on assets later added or held is to be provided in the annual trust tax return (SA900). In the case of multiple trustees, a lead trustee may be nominated to be responsible for the administrative duties in relation to the tax affairs of the trust and will be the main point of contact for HMRC. Trustees may appoint an agent to register on their behalf, but the legal responsibility remains that of the trustees.

Changes in the information provided must be notified by 31 January next following the tax year in which the change occurred if in that year the trustees were liable to a relevant UK tax. If they are not so liable, the obligation to update is deferred until 31 January after the next tax year in which they are so liable, although trustees may, and in practice are expected to, update on a voluntary basis even if not so liable. So, for example, if trustees of an employees’ trust make share awards to employees in circumstances in which the trustees are not themselves liable for any relevant UK tax, there is no obligation to notify a change of beneficial ownership, although the trustees have a duty to maintain a written record of the awards. If a beneficial interest in unquoted company shares is sold, triggering a liability to SDRT, this will normally be a liability of the transferee, not of the trustees. The trustees must register if, exceptionally, a liability to CGT arises on their part because the shares are sold otherwise than pursuant to an option and in circumstances not qualifying for a claim to be made for hold-over relief from CGT (which might be the case if the company has non-business assets or a liability to inheritance tax arises on the part of the trustees under s72 or s65 IhTA 1984).

Information which, because of shortcomings in the software, cannot be notified (such as, for example, details of more than one corporate trustee) may be provided in writing to: Trusts, HMRC, BX9 1EL.

To avoid liabilities to income tax under the ‘disguised remuneration’ rules, it is common practice for trustees of an employees’ trust to agree with the employer company that they will satisfy awards or option exercises by transferring shares without having the names of the employees disclosed to the trustees. In such a case, it is difficult to see how the trustees can provide information on the employees or ex-employees concerned until they have been given the names, typically when the awards become vested or the options exercised. That is clearly the occasion of a change in the information provided, but an obligation to notify HMRC of the change will not immediately arise if the trustees are not in that tax year liable to a relevant UK tax. That said, it is likely to be easier in practice for the trustees to update the information on a voluntary basis regardless of whether such a liability has arisen. If thereafter the trustees hold the bare legal title to the shares on behalf of the employee or ex-employee, it would seem that no further obligation to notify any change in the information provided to HMRC would arise by reason only of the beneficial owner deciding (for example) to sell the shares, as a liability to a relevant UK tax would not then arise at the trust level.

Employees’ trusts

The HMRC guidance refers to “employee ownership trusts”, but this is understood to be intended to refer to all forms of employees’ trusts and not merely those which rank as “employee-ownership trusts” (per s236H TCGA 1992). In such cases, the guidance provides that “to help keep administrative burdens to a minimum for business type trusts with large numbers of beneficiaries…the trustees will only be asked to identify the class of beneficiary if the number of named beneficiaries exceed 10”. It appears to follow that, if in the case of a typical ‘s86-type’ employees’ trust, there are fewer than 10 employees, or there are named beneficiaries but fewer than 10 of them, details of those beneficiaries must be given. Likewise, details must be given of any beneficiaries who are in receipt of benefit and can be named, regardless of how many there are of such actual beneficiaries. The guidance goes on to provide that the identity of current “key employees and Directors” must in any event be provided.

Meaning of “key employees and Directors”

This is defined in the HMRC guidance as “staff who are responsible for the operational running of the business at the top of the organisational chain by making key decisions or that have a financial ownership or stake in the organisation. We [HMRC] would also define this as key members of staff whose skill and expertise are critical to the business for which they enjoy a high level of remuneration….”

Share Incentive Plan trusts

As these are express UK trusts, the trustees are obliged by Reg 44(1) to maintain written records of the beneficial owners (as defined) and potential beneficiaries. The obligation to register the trust with HMRC, and notify the appropriate information and any changes to it, arises only if and when the SIP trustees have a liability to a relevant UK tax in a tax year. It should be noted that dividends on unawarded shares are now charged to income tax at the dividend ordinary rate (the exemption for dividends on such shares in the “applicable period” now extending only to tax at the higher dividend trust rate). If the shares are purchased in a transaction attracting a charge to SDRT or if unawarded shares are sold outside of the “relevant period” so as to attract a CGT charge, an obligation to register will arise. In practice, therefore, SIP trustees are likely to want to register voluntarily to avoid inadvertent failure to register when obligated to do so.

Details of the trust assets

Details to be given include the nature of the trust assets and the value of shares (or other assets) held based on their market value at the date the information is first provided. A formal share valuation is not required, although “[HMRC] would expect trustees acting within their professional duties to provide a good estimate of the market value of the assets” and reference is made to HMRC’s Shares and Assets Valuation Manual. If the trust was established long ago and the value was previously notified through either Form 41G or the SA return, “you should just complete “Other asset” field using the term – “Already notified”, leaving all other asset fields marked as “£1”.”

Details of advisers

The TRS requires only the details of any agent acting on behalf of the trustees in relation to their registration and not of other advisers. The information about an agent is their name, address, telephone number and customer/agent reference. The trustees, if acting in the course of business carried on by them in the UK, do however have an obligation under the MLTFTF Regs to keep written records of the full name and address of any paid advisers providing legal, financial or tax advice in relation to the trust.

The data provided to HMRC

The information given to HMRC is not on the public record and, if requested, can only be shared by HMRC with law enforcement agencies in the UK or an EEA member state.

‘In-house’ trust companies

It is not uncommon for a private company to establish a wholly-owned subsidiary to act as sole corporate trustee of its employees’ trust and/or its qualifying Share Incentive Plan. Such a trustee company would be acting in the course of business, even if it receives no consideration for acting as trustee and will be obliged to maintain written records and register the trust with HMRC pursuant to the TRS.

© David Pett, Temple Tax Chambers  October 2017

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