By now, we’re all probably familiar with the concept of the Trust Registration Service (TRS), what it’s for, the trusts it affects, the requirement to register trusts in existence on 6 October 2020 by the deadline on 1 September 2022, as well as the impact on new trust business after 1 September 2022, writes Stacey Love, technical manager for tax, trusts and estate planning at Canada Life UK.
As a result, most investment providers will require evidence of the registration of the trust as part of their due diligence procedures for any new trust investment after 1 September 2022.
But there are new rules coming into force on 1 April which mean providers will need evidence of TRS registration in many more situations and perhaps more importantly, the regulations mean most advisers, solicitors and accountants need to collect and check TRS registration irrespective of what a provider requires.
For the nerdy among us, the regulations I refer to are contained in the 5th AML Directive, but in essence, “relevant persons” entering a business relationship with the trustees of a trust or settlement after 1 September 2022, must obtain evidence of registration of the trust on TRS.
They are also required to check that the beneficial owners on the Trust record match the information held on the client file. Where it does not or where no registration has been completed in the first place, they are obliged by the regulations to report the discrepancy to HM Revenue & Customs (HMRC).
There are a few aspects to unpick in that statement.
Firstly, HMRC’s definition of a “relevant person” is: “Relevant persons’ include financial advisers, solicitors, accountants and others.
“These organisations are described as UK relevant persons if the registered or head office is located in the UK and the day-to-day management of the business is the responsibility of that office or another UK office; or the business in question is carried out in the UK.”
The obvious next question is what does a business relationship look like? Again, HMRC define this as “a business, professional or commercial relationship between the trustees and a UK ‘relevant person’. The relationship must be connected to the business of the relevant person.”
The TRS guidance goes on to say that this definition requires that there be an element of duration expected at the time the business relationship commences.
The guidance doesn’t define what the phrase “element of duration” means but it does suggest that as a rule, a business relationship is one that goes beyond a one-off, short-lived transaction. It offers up a number of indicators such as :where the nature of the relationship is such that an ongoing relationship would be assumed in the circumstances (for example an accountant preparing regular accounts on behalf of the trustees) or where the time reasonably required to complete the business activity necessitates the formation of an ongoing relationship, for example, the purchase of land, which may be expected to take many months to complete.
Finally, it confirms that “In practice, most professional relationships between a relevant person and trustees are likely to have the requisite element of duration, unless there are specific reasons to believe that the relationship will be limited to a single, short-lived transaction.”
Establishing where you stand as a relevant person for the purposes of the regulations becomes even more important once the further changes to the regulations are implemented on 1 April 2023.
From this date any relevant person, including investment providers and financial advisers, who either enter into a new business relationship or are servicing an ongoing relationship with the trustees of an express trust are required to collect and keep up to date evidence of the trust record on TRS on an ongoing basis. They also need to check for material discrepancies and report to HMRC where appropriate.
It’s not just UK trusts which may be caught by the new regulations. It’s possible for non-UK express trusts to fall within the scope of TRS registration where there is one or more UK resident trustee and the UK trustee is entering into a business relationship with the UK-based financial adviser to provide advisory services. Again, the adviser would need to collect evidence and report any discrepancies.
These further TRS requirements mean providers are likely to ask for TRS evidence in many more situations from 1 April. We need to remember many trustees are not finance professionals, often being the settlor, spouse, and/or other family members, so they will be looking to advisers for help.
But more fundamentally the rules require advisers to hold and check this information irrespective of provider requirements, which may mean changes to adviser processes are required.
This article was written for International Adviser by Stacey Love, technical manager for tax, trusts and estate planning at Canada Life UK.
