If you’re considering setting up a trust or have already established one, you might be wondering whether or not you need to register trusts with HM Revenue and Customs (HMRC). In this blog post, we’ll answer that question and provide you with all the information you need to know, including when and how to register trusts.
What is a trust?
A trust is a legal arrangement where assets are managed by one person (the trustee) for the benefit of another (the beneficiary). Trusts are commonly used for estate planning purposes, as they can provide a way to pass on assets to future generations while minimising tax liabilities and protecting assets from creditors.
You can also read our full post about legal trusts.
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Why would someone want to register trusts?
There are a number of reasons why someone might want to establish a trust, including:
- To protect assets from creditors or legal action.
- To minimise inheritance tax liabilities.
- To provide for a vulnerable beneficiary.
- To pass on assets to future generations.
- To manage assets on behalf of someone who is unable to manage them themselves (such as a child or vulnerable adult).
Do you need to register trusts with HMRC?
The short answer is: it depends. If your trust generates income or capital gains, then you will need to register it with HMRC. This is because trusts are subject to the same tax rules as individuals, and any income or gains generated by the trust may be subject to tax. Registering trusts is also important for anti-money laundering efforts.
You must register a trust if it becomes 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).
If your trust is any of the following and does not have any tax to pay, it is classed as Schedule 3A and does not need to register with HMRC:
- A statutory trust by a court order or by law — for example, a trust created by a court when a couple cannot agree how to split assets during a divorce.
- Used to hold money or assets of a UK registered pension scheme — like an occupational pension scheme.
- Holding life insurance policies that only pay out on death, illness, or disability.
- A trust for a registered UK charity (or a charity not required to register with the Charity Commission under the Charities Act 2011).
- Set up to open a bank account for a child.
- Set up on death that takes assets from the estate and is closed within 2 years of death (also called a ‘will trust’).
- A trust with less than £100 and set up before 6 October 2020 (also called a ‘pilot trust’).
- A co-ownership trust set up to hold shares of property or other assets jointly owned by 2 or more people as ‘tenants in common’
- A trust relating to financial markets — including those created by default arrangements of a designated system or of the default rules of a recognised body.
- Created to hold money for people other than the trustee — or those relating to professional services
- Holding client money, securities and other assets — this must be incidental to the carrying on of business by a relevant supervised person
- A trust for capital markets and similar items.
- Created to enable commercial transactions.
- A trust relating to registration of assets — for example, trusts created to hold the legal title of an asset for the person to whom the transfer or disposal is being made.
- A trust relating to legislative requirements — for example trusts set up to hold property, money from compensation for a personal injury or set up for a vulnerable beneficiary such as a disabled person.
- Set up by government or other UK public authority.
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How do you register trusts in the uk?
You will need to complete the Trust Registration Service (TRS) online. The TRS is a self-assessment process that allows you to register your trust, provide details of the trustees and beneficiaries, and declare any income or gains generated by the trust. You can access the TRS through the government’s website, and you will need to have your trust’s Unique Taxpayer Reference (UTR) to hand.
For most trusts, you will have to register with HMRC within 90 days of it being created or becoming liable for tax, or on or before 1 September of the financial year in which it was established (whichever is later).
For the full list of details needed to register a trust, have a look at HMRC’s website.
GET EXPERT ASSISTANCE
If you have set up a trust, it’s important to understand whether or not you need to register it with HMRC. If your trust generates income or capital gains, then you will need to register it, and you can do so through the Trust Registration Service online. It’s always a good idea to seek professional advice when setting up a trust, to ensure that you’re meeting all your legal obligations and maximising the benefits of the trust for you and your beneficiaries.
Our CIMA-registered professionals at CIGMA accounting would be happy assist you or your business with any accounting needs. Contact us via phone or through the form below for a free quote.