According to research carried out by Aviva, more than half of over-55s want to pass wealth on while they’re still alive, as opposed to via inheritance when they die. One of the most effective ways to do this is to create an intergenerational wealth plan, which provides a roadmap on how to best leave your wealth to friends and family.
To find out more about the benefits of intergenerational wealth plans, please read our informative blog.
If you’re considering or already have an intergenerational wealth plan in place, you may be using trusts to provide greater control over your assets. Trusts are legal frameworks that allow you to express how your wealth is passed on and, in some situations, how your money is then used by the beneficiary.
If you’ve created a trust or are thinking about doing so, you may not be aware of the rules that require you to register it with HM Revenue & Customs (HMRC). If you don’t, you could face a penalty. Before you read on to learn more about these rules and how you register a trust, let’s look at what trusts are and how they work in more detail.
A trust is a legal framework for passing on your wealth
Trusts are legal arrangements that enable you to place assets such as cash, investments or property aside for someone else. If you create the trust, you are called the “settlor”, and the person you’re setting the assets aside for becomes known as the “beneficiary”.
You can have one or more beneficiary, and the main advantage of creating a trust is that the beneficiary does not have immediate access to the assets. This means that you can put in place legal conditions that must be fulfilled before the money, investment or property is released to them.
A trust provides greater control over how your money is passed to beneficiaries
This might be beneficial if you want to pass your assets on to children or someone vulnerable, as it provides peace of mind that your wealth will be used as you would want. For example, you might be concerned that a younger beneficiary could use the money that you pass on to them to buy an expensive sports car instead of using it as a deposit to buy their first home.
In this situation, you can create a condition in the trust that states that money from the trust will only be released when it can be proved that it’ll be used for this purpose. The person – or persons – who decide whether the trust’s conditions have been met and whether the assets should be released are called “trustees”, and you can be one of them.
Other trustees include people you know well and trust, or professionals, such as a solicitor.
As you can see, a trust could provide peace of mind, which is why many people use them. That said, if you do have one, you might be at risk of inadvertently falling foul of lesser-known rules that mean they have to be registered with the Trust Regulation Service (TRS), something we will look at next.
You may need to register your trust if you’ve not already done so
The TRS was set up in 2017 as part of an anti-money laundering directive. Then, in 2020, new rules were introduced requiring many types of UK trusts and some non-UK trusts to be registered.
Broadly speaking, the following outlines the types of trusts that may need to be registered:
- Taxable trusts, which are liable to taxes such as Income Tax or Capital Gains Tax. which could include an “interest in possession trust” or “bare trust”. The trust needs to be registered at different times depending on when it was created, something a financial planner will be able to confirm for you.
- Trusts that have been liable for Income Tax or CGT in the past must be registered. This needs to be done on or before 31 January of the tax year following the one in which it received an income or made a gain.
- Some non-taxable trusts, which don’t usually incur any liability for tax in the UK, may also need to be registered. This could include a charitable, pension or life insurance trust. If registration is needed, you may have 90 days to register it depending on when it was created. A financial planner will be able to confirm whether this is the case for yours.
- A non-UK trust when it becomes liable for tax on income coming from the UK or on UK assets.
Trustees are responsible for registering the trust and ensuring all details relating to it are up to date. If you don’t register with the TRS, HMRC will typically notify you so that you can rectify the situation. If you don’t act, penalties could be imposed.
Please note, this is not an extensive list of trusts that may or may not need to be registered. A financial planner can confirm whether yours needs to be or not, and how long you have to notify the TRS.
You will need to provide certain information when registering a trust
If you’re a trustee, you and your fellow trustees will typically need to nominate a “lead trustee”, who becomes the main point of contact for HMRC. You can register using the Government Gateway, which can also be used to keep details about the trust up to date.
You will need to provide information that you can find on the trust deeds and letters you may have received from HMRC, including:
- The name of the trust
- The date the trust was created
- Details about any UK land or property the trust has purchased
- The individuals or organisations involved in the trust, such as the settlor and beneficiaries.
Information about what’s held in the trust, from cash and shares to material assets, will also need to be provided. Once a trust is registered, you will receive a PDF copy of a report as proof of registration that you should keep in a safe place.
If the trust is taxable, you must declare that the register is up to date each year by 31 January.
Get in touch
If you have a trust and would like to discuss whether you might need to register it, or how to ensure it’s as tax-efficient as possible, we would be happy to help. Email admin@stonegatewealth.co.uk or call 01785 876222.
Please note
This blog is for general information only and does not constitute advice. It should not be seen as a substitute for financial advice, as everyone’s situation will be different. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.
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