As the number of trusts and estates have continued to fall, many trustees should be taking advice about the increasing scope of the trust register, writes Jonathan Burt
Last month saw HMRC release their annual statistical bulletin on trusts, reviewing information about trusts filing tax returns in the 2017/18 tax year. Total tax take for trusts and estates was £1.32bn, roughly split equally between income tax and capital gains tax, and the analysis concluded that ‘the number of trusts and estates completing self-assessment forms has continued to fall’ from a figure of 159,000 in 2016/17 to 149,000 in 2017/18.
The document also mentioned that the trust registration service (which started in 2017) had 107,500 registrations as of 5th March 2019, which represented an increase of 22,500 on the previous year.
It is a little difficult to know what to make of the statistics. It is confusing that the analysis conflates trusts with estates. The conclusion that the number of trusts paying tax is falling is not surprising, insofar as the major changes to the taxation of trusts in 2006 made it far less attractive for anyone domiciled in the UK for inheritance tax to set up a trust. Since then, there has been a big decline in people in the UK setting up trusts during their lifetime.
Given that there are nearly 150,000 trusts paying tax, it seems that not all of them are yet registered on the trust register. This may point to some level of non-compliance. The initial deadline for registering trusts was 31st January 2018. Hitherto, only trusts which are actually liable to pay UK tax have to register. One might therefore observe that some 41,500 trusts have not registered. This seems a high number given that the sanctions for non-compliance are potentially severe including fines and even the possibility of imprisonment for up to two years.
The trust register is being radically reformed as a result of the EU’s 5th Anti-Money Laundering (AML) Directive and the government have said they will implement the terms of the directive regardless of Brexit. Therefore, as from 10 March 2020, all UK resident express trusts will have to be registered regardless of whether they are subject to tax.
The Society of Trust and Estate Practitioners have suggested that 2 million trusts will have to register as a result. Quite apart from trusts which should register now, there must be hundreds of thousands of trusts which have not had to register yet (for instance trusts holding a life policy, investing through an offshore bond, owning UK land without rent).
Moreover, presently the trust register is not open to the public. However, as a result of the 5th AML Directive, anyone who can demonstrate a legitimate interest will be able to access the register. Given that the trust register contains a lot of sensitive information about the trustees and the beneficiaries, we can again see the consistent shift in balance between transparency and privacy.
The government is releasing guidance regarding the extension of the trust register and this should address some of the more controversial aspects. This includes the new requirement that non-EU resident trusts which establish a relationship with a UK service provider would have to register itself with HMRC.
There are, therefore, major changes ahead.
One might wonder whether it is really feasible that if there are two million trusts, less than 10% of that number should be paying tax. It seems a remarkable proposition and the extension of the trust register could flush that out.
It will be interesting to see the next round of statistics to see whether the numbers start to marry up. In the meantime, many trustees should be taking advice about the increasing scope of the trust register. Time is short before the new rules start in March.
Jonathan Burt is a partner in the Private Capital Team at Harbottle & Lewis LLP