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Trust Registration Service – points to note for employers and pension trustees

  • United Kingdom
  • Pensions

30-11-2021

Overview

Back in 2017, new anti-money laundering regulations (the AML Regulations) were introduced which required information about certain tax-paying trusts to be registered with HMRC on a new “Trust Registration Service” (TRS). After initial confusion, however, HMRC confirmed that if an occupational pension scheme was already registered on HMRC’s existing online portal for registered pension schemes, additional registration on the TRS would not be required.

Amendments to the AML Regulations which came into force on 6 October 2020 require all express trusts to be registered (whether or not they pay taxes), but owing to significant delays with updating the TRS service to reflect these changes, HMRC substantially extended the time-limits for registration, with the earliest deadline for registration now being 1 September 2022. Although, there remains an exemption for registered pension schemes, employers and pension trustees will need to consider carefully whether they have created any other trusts which might need to be registered.   

Details about which trusts will need to register, when and how are set out in HMRC’s Trust Registration Service Manual.

Trust registration – the details

What’s happening? 

All express trusts, that is those which are deliberately created, must register with HMRC unless they are exempt, regardless of whether they pay tax or not. This is a change from the position in 2017 when only tax-paying trusts needed to register on the TRS. Where registration is required, a considerable amount of information will need to be provided to HMRC (see below), and additional information may be required where the trust is liable to pay tax.

Which trusts are exempt?

Any trust which is a registered pension scheme for the purposes of the pensions tax regime under the Finance Act 2004 is specifically exempt from the registration requirements. This is on the basis that HMRC already holds considerable information about them and they present minimal risks in relation to money laundering. 

In addition, trusts over insurance policies that pay out benefits on death, terminal or critical illness or permanent disability are also exempt. This will cover most stand-alone life assurance schemes, both those which are tax-registered and those which are not (such as excepted group life assurance schemes).  Similarly, where an employer meets the cost of healthcare benefits for its employees and their dependants via an insurance policy held under trust, the same exemption applies. 

Trusts which may need to register: death benefit trusts

Occupational pension schemes may provide under their rules that where a death benefit is not paid out within two years of a member’s death, the amount of the lump sum death benefit will be automatically held on a separate trust, with the monies being moved into an earmarked bank account. Such terms are relatively common to ensure that death benefits are paid out of the scheme prior to the expiry of the two-year period after which any payment of a death benefit lump sum will potentially be subject to less favourable tax treatment.

Scheme trustees may not even realise that these trusts exist (or may have multiple trusts created as a result of these rules), but it is important for them to consider the issue now, as it is highly likely that any such trust will need to be registered by them.

Similarly, care needs to be taken where pension scheme trustees use powers under their scheme rules to pay out lump sum death benefits which are to be held on trust – an approach commonly taken where the sums involved are substantial and the selected beneficiaries are children. Although the AML Regulations contain an exemption for trusts for bereaved minors, this exemption is very narrow, applying (in broad terms) only to trusts created by statute or under a will and meeting certain specific conditions. 

Because of this restricted scope for the exemption, where a lump sum death benefit is paid into a separate trust created by the pension scheme trustees for a member’s children, it is unlikely to fall within this exemption. A trust which only holds a lump sum death benefit for a disabled beneficiary (whether a minor or an adult) may qualify under a separate exemption.

If an express trust for death benefits needs to be registered, the obligation to register rests on the trustees of the death benefit trust, who may not be the same persons as the pension scheme trustees. Scheme trustees may wish to draw the need for registration to the attention of the third party trustees where it is the scheme trustees who have determined to pay the benefit on trust.

Trusts which will need to register: funded EFRBS and self-insured arrangements

Although these are much rarer now than used to be the case, any funded pension scheme which is set up under trust and which is not a registered pension scheme will also need to register.

Similarly, it is likely that any trust-based arrangement providing benefits on death, terminal or critical illness, permanent disability, or for the provision of healthcare will have to register if it is not fully insured against the costs of providing such benefits. Although the language of the AML Regulations is not wholly explicit on this point, the presence of any uninsured risk which would have to be met by direct financing from funds contributed by the employer is likely to mean that the exemption for trusts of insurance policies will not apply, and so registration will be required.

How to register

The detail of the information that will be required on registration is set out in the Trust Registration Service Manual. It includes the name of the trust and the date it was created, information about the trustees and the settlor (that is the person who paid the money into the trust – which may be the occupational pension scheme in the case of a death benefit trust) and information about the beneficiaries (which will vary depending on whether there are known individual beneficiaries or a class of beneficiaries).

Where there is a requirement to register, the TRS can be accessed via an on-line portal.

Timing for registration

HMRC confirmed the timings for registration in a recent announcement.  Express non-taxable trusts must register:

  • where they were in existence on or after 6 October 2020, by 1 September 2022
  • where they were created after 1 September 2022, within 90 days of creation

Although not explicitly mentioned in the HMRC announcement, based on the existing wording of the AML Regulations, it is anticipated that any trust created within the 90-day period before 1 September 2022 will be given the full 90-day window to register. It is also worth noting that it is irrelevant how long ago before 6 October 2020 an existing trust was created: provided the trust was in existence on that date, it will be within the scope of these provisions.

In addition, changes to registrable information will need to be supplied to HMRC within 90 days of the change, although details of this requirement have yet to be included in the manual.    

Action points

Employers and scheme trustees should check if they have created any trusts for members or employees which might be covered by the new requirements. If in doubt, they should seek advice. In the case of existing trusts of death benefits where the trustees are not the same persons as the pension scheme trustees, the scheme trustees will not be obliged to register, but may wish to ensure that the current trustees of the death benefit trust are aware of the obligation.

Where existing express trusts are identified which will require registration, these should be registered on the TRS by 1 September 2022.

Employers and scheme trustees should also pay attention to whether any trusts created in future will need to be registered, given the strict 90-day time limit for registration. If scheme rules provide for the automatic creation of a trust for lump sum death benefits at the two-year point after the member’s death, existing administration processes will need to be updated so that registration of the newly-created trust on the TRS is highlighted as a priority and is completed in time.