Trust compliance - what do trustees need to do?

Whether you’re considering setting up a trust, maintaining an existing one or bringing a trust to an end, trustees need to be aware of the trust compliance duties that they must adhere to, for both taxable and non-taxable trusts.

Responsibilities and potential penalties:

It is the responsibility of the trustees to ensure that a trust is compliant with the increasing number of regulations in place, which focus on combating money laundering and tax evasion.

Failure to comply with the regulations can result in significant penalties. Failure to submit an Automatic Exchange of Information ("AEOI") report, where one is required, will incur a penalty of £300 and an incorrect filing can incur a £3,000 penalty. Failure to comply with the requirements of HMRC’s Trust Registration Service ("TRS") or Register of Person Holding a Controlling Interest in Land ("RCI") can incur a £5,000 penalty.

Your checklist for trust compliance

1) TRS

When the TRS was first introduced, only trusts with a tax liability needed to register with HMRC.

Since the implementation of the Fifth Money Laundering Directive in 2020, trustees must register both taxable and non-taxable trusts with HMRC. Almost all trusts are caught by the requirement to register. Some trusts are exempt from registration on the TRS if they fall within certain categories, but the exemptions are limited. However, trustees need to monitor the trust's activities, as a change of assets or the happening of certain events could bring a previously exempt trust into scope for registration.

Non-taxable trusts that were in existence on or after 6 October 2020 must have registered with HMRC by 1 September 2022 (including trusts that have since been wound up).

Trusts created after this date need to be registered with HMRC within 90 days of creation.

Trustees also have an obligation to maintain the trust register. This means that the trust register must be kept up to date, notifying any changes within 90 days (such as a change of trustee or payment to a new beneficiary) and the register must be updated once a trust has been wound up to record its cessation.

Taxable trusts must complete an annual declaration, confirming that the details of the persons associated with the trust are accurate and up to date (this must be done whether or not there are any changes to report).

Though all trustees are legally responsible for ensuring the trust is registered and kept up to date, the trustees can nominate one of their number as "lead trustee" to access the online TRS on their behalf and be the main point of contact with HMRC. There is also the option to authorise agents (e.g. lawyers, tax advisers) to assist the trustees in maintaining the register, with authorisation completed through the TRS.

2) AEOI

AEOI refers to the agreements in place to increase tax transparency between different jurisdictions. AEOI complies with the Foreign Account Tax Compliance Act (US legislation) and the Common Reporting Standard (global legislation). The applicable regulations mean that a person holding a financial account in the UK, who has non-UK connections, may be reportable within the AEOI framework.

Entities, including trusts, are subject to the AEOI regime and reportable persons can include the trusters / settlors (i.e. the person who set up the trust), trustees and certain beneficiaries. The AEOI regime categorises entities and applies certain classifications to them (based on the type of trust, what the trust holds, the activities of the trust etc). The classification will determine the compliance requirements and if official reporting may be required.

It is prudent for trustees to review their trusts on an annual basis, to check whether the trust's activities and persons associated with the trust affect the trust's AEOI classification and therefore the trustees' duties under AEOI.

Reporting is in respect of calendar years and where a return is required in respect of a given year, this will be due by 31 May of the following year.

3) RCI

The RCI came into effect in April 2022 to improve transparency over who has control/influence over land or property in Scotland.

Trusts may be subject to the RCI where Scottish land or property is held in a trust, as trustees are considered to be persons with a controlling interest over the land/property.

Trustees may be required to report if the current trustees are not named on the title deeds, or if someone who is not a trustee exerts control over the trust's land. Different forms of reporting are required depending on the information provided in the title deeds, and some exemptions apply. For trusts in the scope of reporting, the RCI submission must be made within 60 days and the register must be kept updated.

To summarise

Trust compliance duties have expanded over the years, increasing the level of administration, record-keeping and reporting that trustees must complete.

Ongoing monitoring of a trust is essential to ensure a trust is always compliant.

Brodies can help with trust compliance and assist trustees in keeping up to date with the different regimes. For more information on how we can help, please get in touch.