How Trustee Registration Rules Affect Investment Bonds

The onshore investment bond market continues to go from strength to strength as advisors and their clients focus on the fundamental considerations of the three Is of investing, income and inheritance that drive the market.

There is a growing appreciation of the place and importance of this tax-efficient packaging in delivering solutions to customers. It has been further strengthened this year with the freezing of personal tax allowances to include the lifetime retirement allowance and no increase in pension levels or Isa contribution.

Bonds are a particularly effective vehicle for estate tax planning when held in a trust.

Major rule changes are on the way for trustees, in the form of the government’s new trust registration service, which introduces new rules on registering trusts and covers trusts that use an onshore bond.

This article examines the implications of TRS for advisors and their clients and examines the specific impact for onshore bonds.

TRS requirements en route

The new rules cover express trusts, which are deliberately created by a settlor or settlors and would be formed by entering those details into a document called a trust deed. These can be created during a person’s lifetime or through their will.

Onshore bonds will generally be used as an investment in a discounted gift trust, loan trust, or gift trust. These are all express trusts and are therefore subject to the TRS rules.

The TRS, which was created in 2017, initially only required trustees to register if the trust was liable to pay UK tax, including income tax, capital gains tax and the IHT.

But that changed in 2020 because of the Fifth Money Laundering Directive.

New rules now require administrators of any UK express trust to record key information, as follows:

  • The trust: name of the trust and date of its creation.
  • Settlor: full name of trustee, date of birth, date of death (if applicable), country of nationality and country of residence.
  • Trustees: if they are natural persons, their surname, first name, date of birth, country of nationality, country of residence; and if he is the primary administrator, his social security number, mailing address, email address, and phone number.
  • Named Beneficiaries: For bare trusts, the full name, date of birth, country of nationality and country of residence of the beneficiaries will be required.
  • Class of Beneficiaries: For discretionary trusts, a description of the class of beneficiaries taken from the trust deed, e.g. children of the settlor, and the name of any person specifically named in a discretionary trust.
  • Mental Capacity of Persons: The mental capacity of a person – whether settlor, trustees or beneficiaries – is assumed to exist unless proven otherwise. HM Revenue & Customs needs to know an individual’s capacity as they cannot disclose information about those who lack mental capacity to third parties.

The need to act now: changes in practice

Trustees have the legal responsibility to register the trust and provide the information described above, and must appoint a lead trustee who will be the main point of contact with HMRC.

Advisors have most of the information trustees need to register, and their support will be invaluable in helping clients update their files and meet the registration deadline.

HMRC has set specific deadlines for the registration of trusts, which trustees must act on, and which cover both existing and new trusts:

  • Trusts existing on or after October 6, 2020 must be registered by September 1, 2022.
  • Trusts created immediately before September 1, 2022 must be registered within 90 days of the date of creation.
  • Trusts created after September 1, 2022 must be registered within 90 days of the date of creation

It is important to understand that HMRC has the power to impose a fine for late registration or for not keeping trust details up to date. Administrators will be responsible for any fines imposed by HMRC.

The role of advisors

The TRS registration deadline provides an ideal opportunity for advisors to help their clients register their trust, as well as the opportunity to review a client’s overall wealth and tax planning strategy.

For older clients of an advisor, this could be the time to seek permission to develop a relationship with the client’s children and intended future beneficiaries.

In cases where the client’s children are already trustees, these clients can take the opportunity to ask one of them to be the primary trustee and take over the registration actions.

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