New legislation means that you may need to register some of your property-owning structures with HMRC or potentially face a penalty – and this can include those created as far back as 6 October 2020. The legislation is complex but we have set out a summary for you below.
What is the TRS and why is it relevant to property transactions?
The UK’s TRS is a register of the beneficial ownership of certain trusts and estates.
Trusts of property arise in the UK whenever the formal legal title to land is separated from its underlying ownership (ie the beneficial interest). Transaction or property-holding structures in which the legal owner of a property differs from the beneficial owners are used frequently in both the commercial and residential real estate contexts. As a result of the changes, the obligation to register with the TRS will likely bite on common commercial real estate property transactions and holding structures, in particular nominee/bare trustees that directly hold UK property under an express trust.
What changes have been made?
As originally introduced in 2017, the TRS only applied to taxable trusts. However, legislative changes have extended its scope in relation to both UK trusts and non-UK trusts.
Unless the trust falls within an exclusion (see below) the obligation to register on the TRS now extends to all express UK trusts in existence on or after 6 October 2020, not just those liable to pay UK tax. This is a significant extension in the scope of the TRS.
As before, non-UK trusts liable to pay UK tax on UK source income and/or UK assets must register. However, where an exclusion does not apply, the following are now also caught:
- non-UK trusts acquiring UK land on or after 6 October 2020; and
- non-UK trusts where there is at least one UK resident trustee and on or after 6 October 2020 the trustees establish a new business relationship with a UK relevant service provider (such as a professional adviser).
What are the exclusions?
There are several exclusions which might apply to property transactions, including for example:
- trusts of jointly held property where the trustees and beneficiaries are the same persons; and
- where the use of a trust is incidental or ancillary to the principal purpose of a commercial transaction.
However, generally, the exclusions are tightly drawn and the specific requirements need to be carefully considered before a conclusion can be reached as to whether an exclusion applies. Your usual Gateley contact would be pleased to assist you with this.
When does an affected trust need to register on the TRS?
Where the registration requirement arises, the trustees of a trust must register the trust with the TRS by the later of:
- 1 September 2022; and
- 90 days from the date the registration requirement is triggered.
There are also ongoing maintenance requirements with respect to the information kept on the TRS.
What happens if the trust fails to register in time?
The TRS rules are rooted in the Money Laundering Regulations meaning that, in theory, criminal sanctions could be imposed for failure to comply. However, the Government has made it clear that this will not happen. Financial penalties may, however, be imposed. When the TRS was first implemented in 2017, the penalty regime was initially imposed with a “soft touch” and it is anticipated that this will be the case again. However, it will be important not to ignore these new obligations and to respond to any relevant correspondence from HMRC.
What should I do next?
We recommend that you undertake a review of your portfolio of property transactions and holding structures where a trust will have been in existence on or after 6 October 2020, to ascertain whether it falls within the registration requirements of the TRS. The TRS rules are complex, and we would be happy to assist you with these reviews or particular aspects of them.
Where trusts need to register, we would also be pleased to assist you with the registration work. We have developed a suite of template forms to enable the right information to be collated for TRS registrations as efficiently and painlessly as possible.