Are you a trustee? Know your obligations

The last few years have seen a dramatic increase in trust regulation and the penalties for non-compliance can be onerous, requiring great care by trustees.

  • Trust Regulation Service (TRS)
  • Legal Entity Identifier (LEI)
  • Global Reporting Requirements

Here’s a quick recap of current regulation:

Trust Registration Service (TRS)

Trustees are responsible for reporting and paying tax on behalf of a trust. In April 2017, HMRC withdrew the former process for reporting trust tax liabilities and introduced the new TRS in its place. All trusts (and certain complex estates) with UK tax liabilities (income tax, capital gains tax, inheritance tax, stamp duty land tax, land and buildings transaction tax and stamp duty reserve tax) must now register with the TRS before 5 October following the tax year in which a liability arises.

Trustees will need to provide information about the trust and its ‘beneficial owners’. These include the settlor (even if deceased), trustees, all other natural or legal persons exercising control over the trust (e.g. protectors), beneficiaries and any individual referred to as a potential beneficiary in a document from the settlor relating to the trust.

Trustees also need to ensure that the register is kept up to date.

Legal Entity Identifier (LEI)

Since 3 January 2018, all legal entities invested in capital markets are required to obtain a unique reference code (or LEI) in order to trade. ‘Legal entities’ include trust funds directly invested in stocks and shares here in the UK and/or in foreign markets. Applying for an LEI is a straightforward process, but without it, any future transactions cannot be processed. This may interfere with your trust’s investment strategies. Bare trusts have been excluded from the requirement to obtain an LEI, but all other trusts will be obliged to obtain one if they are parties to financial transactions.

Global Reporting Requirements

The Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS) implement new global reporting standards allowing tax authorities to access financial data relating to their residents’ investments overseas. These impose the requirements for certain trustees to register trusts for international reporting purposes. Registration itself is not limited to trusts with a foreign element and so it is vital that all trustees consider whether registration is required to avoid hefty penalties.

Whilst many trusts will not currently fall under the scope of these regulations, the nature of a trust and the assets it holds can change over time. Therefore, trustees must be careful to carry out thorough due diligence of all parties to the trust and maintain and update their records to ensure they are complying with their obligations.

Depending on the complexity of the trust, the trustees should also consider preparing annual trust accounts to provide to the beneficiaries to demonstrate how the trust is being run. The trustees should also attend an annual meeting to consider whether or not to exercise their powers under the trust instrument, and if so, how. These meetings should also be minuted for future reference.

Next step

Putting a trust in place can be relatively straightforward in comparison to the obligations on the trustees in actually running the trust. Therefore, careful consideration should be given to your choice of trustees. If you need assistance with any of the issues mentioned above, please contact us.

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Willans LLP Solicitors

Susie Jones, Private client executive, Willans LLP

Willans LLP Solicitors

Willans LLP is a law firm noted for giving expert, practical and personal service to businesses, individuals and charities & not-for-profit organisations. We act for local, national and overseas clients and offer comprehensive legal services in residential property/conveyancing; divorce & family law; wills, probate & trusts; agriculture & estates; dispute resolution/litigation; employment law; commercial property; corporate & commercial; intellectual property; information technology & e-commerce; inheritance & probate disputes; property litigation; GDPR advisory and charity law. The firm has been part of the Gloucestershire community for…

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