Withers LLP: 'Does a U.S. revocable trust need to be registered under the UK's Trust Registration Service?'

With that deadline now just a week away, however, tax experts are warning those Americans resident in the UK who've put in place estate plans involving a revocable trust that they may need to register these arrangements as a trust with HMRC – the UK's tax authority – by that date, or face penalties that could amount to up to £5,000 per offense. 

Here, Withers LLP's Lara Crompton, a partner in the firm's London-based private client team, and Georgie Moule, an associate on the team, explain what the new register means to American expats living in the UK, and what they should do if they haven't complied, but should have done...

Until now, a requirement to register certain trusts with HMRC's Trust Registration Service (TRS) has existed. (Express trusts with a UK tax liability, for example.) But as the deadline for registering a wider group of trusts than previously were required to be register fast approaches, it's important to understand what trust arrangements now also require registration, and to make sure that this is done.

Which trusts need to be
registered as of Sept. 1 

The main categories of UK trusts and non-UK trusts that, as of Sept. 1, also will be required to be registered with the TRS, regardless of whether or not they have a UK tax liability, are:

       *  All trusts that have a UK tax liability, even if they are not express trusts (which, as noted above, previously were required to be registered);

       *  All UK express trusts, unless excluded from registration under one of the exclusions listed in the legislation. (This may be found in HMRC's Trust Registration Service Manual, which may be viewed by clicking here.) 

These are a limited category of trusts that HMRC deems to be of little risk of being used for money-laundering and terrorist-financing purposes, or which are currently being supervised elsewhere (referred to as an ‘Excluded Trust’ – not to be confused with an Excluded Property Trust)which are a limited category of trusts deemed by HMRC as being low risk for money laundering and terrorist financing purposes or supervised elsewhere (referred to as an ‘Excluded Trust’ – not to be confused with an Excluded Property Trust).

      *   Non-UK resident express trusts, unless an Excluded Trust or an EEA registered trust, where there are connections to the UK, such as UK property or land is held or, for trusts with at least one UK resident trustee, the trustees enter into a business relationship with a UK relevant person, eg., financial institution, legal professional, accountant etc.

For trusts without a UK tax liability, the information that needs to be supplied to HMRC on registration includes information on the trust, the trustees, the settlor, the beneficiaries and any individual or company with control over the trust, such as a protector.

This includes each individual’s name, date of birth, nationality and country of residence. Further information is needed for trusts which incur a UK tax liability, including the value of the assets in the trust at the date of registration.

Also changing from Sept. 1 is the privacy position.  In addition to sharing information on the Register with law enforcement agencies, HMRC may also grant access to it to an individual who can show they are looking into a specific instance of money-laundering or terrorist-financing activity.

This relatively high bar does not need to be met in relation to requests for information relating to trusts which have both a controlling interest in a non-EEA company and a UK resident trustee; and HMRC may grant access to any individual requesting information on such a trust.

The ability of HMRC to grant access to beneficial ownership information on the Register is subject to the caveat that HMRC will not share information on specific individuals if doing so would lead to a disproportionate risk of harm.

The TRS and U.S. revocable trusts

The extended scope of the rules requiring trusts to register is of particular interest in the context of U.S. revocable trusts.

It is common for people with assets in the U.S. to establish a U.S. revocable trust as part of their estate plan. While there is a wider question as to whether such a revocable trust should be treated as a substantive trust or a bare trust for UK tax purposes, this analysis is not relevant for this article, because it is clear that under the expanded TRS rules, revocable trusts now need to be registered if:

      * They are UK trusts for TRS purposes (ie all the trustees are UK resident, or at least one trustee is UK resident and the settlor was resident and domiciled (under general law rather than deemed domiciled for tax purposes) in the UK at the time when the trust was set up, or when the settlor added funds to the trust); or

      *  They are non-UK trusts for TRS purposes, and there are connections to the UK.

While it may be unlikely that a revocable trust would own UK land, it is possible that the trust would need to be registered by virtue of having the other possible connection to the UK, which can only occur if there is at least one UK resident trustee.

A trust will also have the requisite connection if the trustees, in their capacity as trustees, enter into a business relationship, after 6 October 2020, that has an element of duration with a UK relevant person.

Despite lobbying for bare trusts and nominee arrangements to be exempted from the requirements, there is no general exemption which would exclude a revocable trust, although there are exemptions in certain other scenarios, such as a bare trust holding a child’s bank account.

A settlor of a U.S. revocable trust who is UK resident may fund the revocable trust with only a nominal amount (£10 or £100 perhaps), with the idea being that the will operates to transfer the assets held at death into the trust on death.

For established trusts that hold only a nominal amount, there is a low value exception, such that if the value of the assets in the trust was no more than £100, there was no registration requirement.

This only applies to trusts created before 6 October 2020, so these trusts only need to be registered on the TRS once the value exceeds the £100 limit, for example, when fully funded on the death of the settlor. However, for trusts created on or after 6 October 2020, there is no de minimis exception.

'Most common scenario'

By far the most common scenario that will trigger a registration requirement is where the settlor of a U.S. revocable trust is acting as the sole trustee during his lifetime and is (or becomes) UK resident.

Unless such a trust was established prior to 6 October 2020 and falls under the de minimis exception, this trust will need to be registered.

If a revocable trust which does fall under the de minimis exception is amended and restated, there is nothing to indicate that this would trigger a registration requirement.

For estate plans involving revocable trusts that are put in place from now on, the deadlines for registration and updating the information if there is a change, as set out below, should be noted.

If a US revocable trust has no UK resident trustees, a requirement to register would only be triggered if a UK tax liability arises or if the trust acquired UK land. Trusts with a UK tax liability are subject to different deadlines.

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This article first appeared on the Withers LLP website, where it may be read, along with other Withers articles on similar topics, by clicking here.

The above content is information of a general nature, and does not seek to address the circumstances of any particular individual or entity. Readers are urged therefore not construe any of the information or other material shared on the site as advice of any nature, be it legal, tax, investment or other.

Lara Crompton, pictured left and as noted above, is a partner in Withers' London-based private client team. She advises UK and international individuals, trustees and family offices on all aspects of tax and succession planning, often working alongside U.S.-qualified colleagues at Withers and lawyers around the world to provide integrated advice on the best approach from a practical, tax efficiency and family governance perspective. Advising high-net-worth individuals relocating to the UK on structuring their affairs in a tax efficient manner is another area she specializes in.

Georgina 'Georgie' Moule, pictured right and as noted above, is an associate on Withers' private client  team, advising UK-based and international individuals on a range of trust, tax and succession-planning matters. She trained at Withers, and has completed seats in the family, private client, corporate and employment departments there.  

London-based Withers is one of the best-known international law firms focusing on advising high-net-worth individuals on their business, tax, citizenship and personal issues. In addition to London and the U.S., it has offices across Europe and Asia, and currently employs more than 180 partners and more than 520 other lawyers.

More information may be found at withersworldwide.com.