In 2017 HMRC set up the Trust Registration Service, which is a register of the beneficial ownership of trusts.
Some clients are not aware that following recent legislative changes all trusts now need to be registered with HMRC, unless they are excluded.
Importantly, life interest trusts made by Will are affected by these changes, and hence need to be registered with HMRC, even if the life tenant receives all income from the trust and includes it on their own tax return, or if the trust produces no taxable income at all.
What is a life interest trust made by Will?
A life interest trust is a very common arrangement in a Will where an individual, e.g. a surviving spouse, is left a right to income, or to use or enjoy the benefit of their deceased’s spouse’s share of a property, for their lifetime, (such Wills are normally called property protection trust Wills). The surviving spouse is known as the life tenant under such a Will.
Upon the death of the life tenant, the underlying capital assets of the life interest trust pass to the ultimate beneficiaries under the Will of the first deceased spouse. These ultimate beneficiaries are known as remaindermen, and are commonly the children of the marriage.
Many of our clients have a Will arrangement which includes a life interest trust (property protection trust). If you have such an arrangement, there is nothing for you to do as regards trust registration, if you and your spouse are both still alive. This is because the trust only comes into being on the death of the first spouse.
However, if you are a surviving spouse, and are benefitting from your deceased’s spouse’s life interest trust, (even if this is only a benefit from living in his or her share of a property), then the life interest trust will need to be registered online with the Trust Registration Service by the deadline of 1st September 2022, or sooner if the trust is producing income.
Here are some examples of life interest trusts: –
- A Husband and Wife made Wills, and left a life interest in the matrimonial home to each other. The Husband died in 2015. The Trustees of the Will trust are the Wife and her daughter. The Husband’s half share of the matrimonial home was transferred into the names of his Will trustees following his death, thereby constituting his trust. The Wife is now downsizing and does not need all of the trust’s share of the proceeds of sale to purchase a new property for her. The Trustees will therefore need to invest the balance of the trusts proceeds of sale, and these will produce an income for the Wife as life tenant. The Wife will need to declare this income on her own tax return. The trustees will need to arrange to register the trust with the Trust Registration Service.
- A Husband and Wife made Wills, and left a life interest in the matrimonial home to each other. The Wife died in 2012. The Trustees of her Will trust are the Husband and a son. The Wife’s share of the matrimonial home was transferred into the names of her Will trustees following her death, thereby constituting her trust. The Husband remains living in the matrimonial home. Half of it belongs to him, and half to the Wife’s Will trust. There is no income produced for the trust as the Husband lives in the property. The trustees still need to arrange to register the trust with the Trust Registration Service.
All other types of trust also need to be registered with the Trust Registration Service, unless they are excluded. The exclusions are limited and importantly do not cover all Declarations of Trust in relation to the beneficial interests in property. Therefore if the Trustees of a property and the beneficiaries of the same, are not the same people, the trustees will need to arrange to register the trust with the Trust Registration Service.
The exclusions from registration of a trust can be checked on the government website https://www.gov.uk/guidance/register-a-trust-as-a-trustee and you can register a trust you are involved with yourself, by using this website link.
The dates for the deadline for registration can also be checked on this website, as they differ according to whether a trust is taxable or not, what type of tax is due, and when it is payable.
You may wish to speak to your legal advisor about the above, to ensure that you are meeting all requirements.