Trust Registration
For those who have created trusts as part of their estate and inheritance tax planning, new trust registration rules became effective from 1 September 2022.
Previously, only trusts with a tax liability were required to register using HMRC's Trust Registration Service. However, all taxable and non-taxable trusts (subject to a list of exclusions) are now required to register with HMRC.
Non-taxable trusts that were created on or before 6 October 2020 had a registration deadline of 1 September 2022.
Non-taxable trusts created after 6 October 2020 must (generally) register within 90 days of the trust being created.
Taxable trusts that are created on or after 6 April 2021 must be registered within 90 days of the trust becoming liable for tax.
One example which might catch people out is if a trust has been created in a will. Under the new rules, will trusts do not need to be registered, as long as the assets are distributed within 2 years of death. If distribution has not taken place within 2 years, the will trust must be registered with HMRC.
We have assisted a number of families with navigating the Trust Registration legislation, therefore if you are a trustee or are unsure of the registration requirements, please call Aled on 07808 798 569.
Capital gains tax
There are numerous scenarios which can give rise to capital gains tax implications for Trusts and the associated beneficiaries. These include:
Life interest trusts
A life interest trust is a trust written into your will which gives security to particular individuals, such as your spouse or children. These trusts are also known as ‘interest in possession’ trusts.
A common example is for a will to state that although the ownership of the family home passes to a specific group of beneficiaries (such as children), the life interest trust allows an individual (such as their spouse), to reside in the home for the rest of their life. In this instance, the spouse is referred to as the ‘life tenant’, with full ownership of the property passing to the beneficiaries (referred to as the ‘remaindermen’), upon the death of the life tenant.
There are multiple potential capital gains tax scenarios for life interest trusts, including if the trust sells an asset whilst the life tenant is still alive, and the more common situation of what happens when the ‘remaindermen’ decide to sell the trust asset once the ‘life tenant’ has passed away.
Careful consideration is required whenever there is an asset disposal associated with a trust.
Discretionary trust
A discretionary trust gives the trustees a significant amount of control and flexibility when it comes to deciding who will benefit from the trust assets or income, from a list of named, potential beneficiaries, when the beneficiaries will receive the trust assets or income and how much the beneficiaries will receive.
Discretionary trusts can be created during a person’s lifetime as part of their inheritance tax and estate planning process, or be created in a person’s will upon their death.
When a discretionary trust disposes of a trust asset, if the trust disposed of chargeable assets worth more than £50,000, a Trust and Estate Capital Gains form will need to be submitted to HMRC, even if there is no capital gains tax payable.
Furthermore, if the disposed asset was a residential property and there is capital gains tax payable, a specific capital gains tax return needs to be submitted to HMRC within 60 days of the completion date of the sale, with the capital gains tax also payable within the same timeframe.
We can assist with reviewing the capital gains tax situation associated with the trust’s asset disposals, including assessing whether there are any capital gains tax reliefs available and with the preparation and submission of the capital gains tax returns required by HMRC.
Bare trust
A bare trust is often described as the simplest form of trust and is usually used to enable the transfer of assets to a small group of individuals.
A common example is when a minor (a child) is named as a beneficiary in a will. The trustees of a bare trust simply look after the trust assets until the minor beneficiary is old enough to take full ownership of the trust assets.
Usually, there is no capital gains tax payable from the passing of bare trust assets to the beneficiary when they reach a specific age (usually 18 or 21).
Unexpected capital gains tax implications can arise when the beneficiary disposes of the assets, because under section 71 of TCGA 1992, the base value for capital gains tax purposes of a trust asset when disposed of by a beneficiary is not the value of the asset when they became full owners, but rather the value of the asset when the bare trust was created. This can lead to significant capital gains tax amounts payable by the beneficiaries when the assets are sold and therefore early consultation is strongly advised to ensure that beneficiaries are aware of their capital gains tax exposure.
If you are unsure of the type of trust you have created or are a beneficiary of a trust and would like to discuss the Trust Registration requirements or the capital gains tax implications of the sale of a trust asset, please get in touch.
