ICAS responds to proposed trust registration reforms
By Susan Cattell, Head of Tax Technical Policy
20 June 2024
ICAS has responded to a consultation that includes proposals for reforms to the Trust Registration Service.
In March, HM Treasury issued a consultation on improving the effectiveness of the Money Laundering Regulations. Chapter four set out proposals for reforming registration requirements for the Trust Registration Service (TRS).
ICAS has submitted a response covering three of the proposed changes:
- Aligning the registration requirements of some trusts required to register following the death of a settlor.
- Clarifying that Scottish survivorship destination trusts are not required to register.
- Introducing a de minimis level for trust registration.
Aligning registration requirements
Wills often create a trust upon an individual’s death, which frequently cease to exist once the administration of the estate has concluded. As these ‘will trusts’ are regarded as low risk for facilitating money laundering or terrorist financing, they are excluded from registering on TRS for two years from the date of death.
However, there are other types of trusts that become registrable on an individual’s death that have different deadlines for registration on TRS. Some of these are existing trusts that weren’t required to register on TRS when the individual was alive and some are trusts created as part of the estate administration, namely:
- Co-ownership property trusts currently must be registered on TRS within 90 days of a person’s death;
- Trusts created by deed of variation currently must be registered on TRS within 90 days of being created.
We agree with the proposal in the consultation that a common registration deadline of two years from the date of death would be sensible and make compliance easier.
Scottish survivorship destination trusts
In Scotland, property can be owned jointly where the title to the property contains a special destination, known as a ‘survivorship clause’ or ‘survivorship destination’. This clause directs that the property is held equally for the owners and the survivor. To revoke the survivorship destination after the property has been registered in the Land Register of Scotland, the property owners may either register a new deed in the land register (where they will incur registration fees) or create a trust that records that the survivorship destination has been revoked and sets out the new beneficiary of the property.
Where a trust is created to revoke a special destination, this is an express trust, and currently registrable on TRS. Under English and Welsh Law, achieving this outcome would not result in a registrable trust. The government indicates that it views these trusts as low risk for facilitating money laundering or terrorist financing.
We agree with the proposal to exclude Scottish survivorship destination trusts from TRS registration. Under English and Welsh law, a registrable trust wouldn’t arise in these circumstances - the Scottish approach to achieving the same outcome should be treated in the same way and excluded from the requirement to register on TRS.
Introduction of a de minimis level for trust registration
Currently, there isn’t any de minimis threshold for registration on TRS. If a trust is within the scope of the requirement to register, it must do so even if it is a small low-value trust, which is unlikely to present a high risk for money laundering. The consultation proposed to take a more risk-based approach, with the introduction of a de minimis exemption.
We support this proposal. There is currently widespread lack of awareness of TRS amongst small unincorporated bodies like sports clubs and other members’ clubs, often run by volunteers, leading to extensive inadvertent non-compliance. Imposing the administrative burden of registration on these bodies seems disproportionate, so an exemption would make sense.
However, our response sets out concerns that the proposed conditions for the de minimis exemption will exclude many small members’ clubs from falling within it.
Two of the conditions propose de minimis amounts of £5,000 (assets) and £2,000 (expenses), but these thresholds seem very low, and many small clubs are likely to exceed them. They may also struggle with asset valuations. We would like to see the amounts increased. This wouldn’t help all clubs but might mean that the smallest entities could avoid incurring costs for professional advice, particularly on valuations.
One of the other proposed conditions is that the trust must not own land or an interest in land. We understand, from a stakeholder discussion about the consultation with HMRC, that this condition is unlikely to change. This will inevitably mean that some members’ clubs (for example, sports clubs) will still be required to register on TRS.
Subject to the outcome of another 2024 consultation on transparency of land ownership involving trusts, it is possible that some small clubs could end up needing to register more than once – on TRS and on another land register. Scotland already has a Register of Persons Holding a Controlled Interest in Land, introduced in 2022.
Our response highlights the need for HMRC and HM Treasury to ensure that trusts that can’t benefit from the proposed de minimis exemption are not required to register more than once.
We specifically mention Community Amateur Sports Clubs (CASCs). Depending on their structure, some will be required to register on TRS. CASCs must meet strict eligibility criteria and are already required to register with HMRC, which holds detailed information about them - including details of the ‘authorised official’, at least two ‘responsible persons’ and bank details. We suggest that where a body is already required to register as a CASC with HMRC, any additional requirement to register on TRS or another land register should be avoided.
Let us know your views
ICAS responds to many tax calls for evidence and consultations, as well as producing tax policy papers and reports. We also regularly attend meetings with HMRC at which service levels, delays and other issues are discussed, and we raise problems being encountered by members. We welcome input from members to inform our work; email tax@icas.com to share your insights and feedback.
