Help with Trust Registration - How to fill in the form

naive_investor

We wanted to invest some money when our child was born which would enable there to b a sum of money to fund his education, or whatever when he was older.

18 years have passed, and we now need to register the trust – we think.. Ther is a September deadline and potential penalties!!

The Trust is a “Flexible Trust” set up on AXA paperwork, and the paperwork form the IFA describes this as a type of “interest in Possession Trust”. H also explained in detail all the advantages and the tax treatment (which I didn’t fully understand then and don’t now). The Investment in the trust was a “Unit Linked Investment Bond” (non qualifying single premium).

We thought we should be able to register this online without the help of an accountant, and our IFA had already said they were not allowed to do it for us.

We duly opened a new Government Gateway for the Trust and then proceeded to the online form….

The first questions that floored us were the two about tax. Does the trust have any tax liability in 22/23? And has the trust had a tax liability in the last 4 years? We answered NO because we thought any tax is paid when the bond is cashed. But this sent us to a screen which told us we didn’t need to register it.

We were confident it did need registering so rethought it and concluded that there was a potential liability in the years, even though the actual liability was zero. So we answered YES

This then led us to have to register for a self assessment tax account, and after that the form started to look like what we expected to fill in and we duly did the easy bits until we were thrown again…

What kind of assts do you need to add. The likely options were Money, Shares, or Other.

We weren’t sure which route to go down and which information to add. The holding is a bond, the bond doesn’t hold shares, it holds units in a unit trust. Is this classified as a share?

So my questions are (and I cant be the only one who would benefit from help)

How do we answer the Tax Liability question?

What kind of Assett is our Bond?

What information does the Trust Registration need about the Bond (which only contains one fund but could have been dozens of individual holdings in unit trusts, shares etc.?

You may say we should pay an accountant, or ask our IIFA (which we will do but he’s on holiday) but if we are responsible for it, and also for updating it I think we should understand it.In fact \i'm surprised there are not other posts about Trust Registration. This has been known about for years but our IFA and the Investment Bond companies have only written to us in the last month or so.

xylophone

https://www.gov.uk/trusts-taxes/registering-a-trust#:~:text=You must usually register your,Capital Gains Tax


Is this a discounted gift trust?


I was looking at this

https://techzone.abrdn.com/public/iht-est-plan/Tech-guide-discounted-gift

Trust options

A discounted gift trust will typically offer three trust options. These are:

• Discretionary trust
• Flexible (interest in possession) trust
• Absolute trust.

The flexible trust names the beneficiaries who are entitled to any trust income. However, if the trust is invested in an investment bond, no income is produced. The trust includes an overriding power of appointment which allows the trustees, which will usually include the settlor, to alter the beneficiaries or their respective shares in the trust. This is especially useful where the settlor may want to alter the beneficiaries in the future. For example, where there are new beneficiaries born after the trust is created, such as grandchildren, or perhaps where the named beneficiary falls out of favour.

Does this describe your arrangement?

See also

https://techzone.abrdn.com/public/iht-est-plan/Taxation-of-Bonds-in-Trust

Reporting taxable gains from investment bonds in trust

Where an individual is responsible for reporting gains, they should enter these on their self-assessment return.

If the trustees are liable to tax on the gain they should complete a self-assessment form. The trust must have previously registered with HMRC by 5 October of the tax year following the year of the assessment. 

http://investment-bond-shop.co.uk/trusts-inheritance-tax-planning/interest-possession-trusts/

An Interest in Possession Trust provides flexibility and control because the trustees can decide who they wish to benefit and when. Notwithstanding this flexibility and control, any income generated from the trust assets must be paid to the beneficiary(ies) having the interest in possession, less any trustees’ expenses. Since an investment bond is a non income producing asset, Trustees can decide when to generate an income using the 5% cumulative tax deferred allowance. If the trust asset was an income generating asset, such as a high yielding unit trust, the income would need to be distributed as and when it arises.

Trustees are responsible for declaring and paying Income Tax on income received by the trust. Again this favours the use of an investment bond as the investment vehicle for the trust property since Trustees only need to submit tax returns when a Chargeable Event occurs, so avoiding the administrative burden of completing a yearly Trust and Estate Tax Return.

naive_investor

Thanks for this Xylophone. I have looked at some of these while trying to get my head round the issues.

The trust is, I beleive as stated a Flexible (interest in possession) trust.

In an investment bond as I understand it t and your last paragraph states here is no chargeable gain until money is withdrawn from the bond or it is cashed in.At that point Aviva will issue a certificate telling us what that chargeable gain is.

My problem is not understanding how trusts and investment bonds work (though I can't hand on heart say i do understand it!) it is how to answer the questions on the form - which is a legal requirement and threatens penalties if not completed.

I can't be the only one grappling with this!

xylophone

Looking at the above, I'm not sure that this type of trust needs to be registered.

Have a look at this. https://www.apexcb.com/latest/runway-to-retail-at-fashion-week-b2c-fulfilment-and-meeting-demand/

If you are a Trustee a new rule means that you may have to complete the new online HMRC trust register. 

............

Broadly, all trusts that have a UK tax liability will be required to provide significantly more information, and the register must be updated every year a tax liability arises.

But if the trust’s sole asset is an investment bond, it may not be required at all. A bond may relieve trustees from these extra responsibilities due to their unique tax deferral features.

Trustees who just hold an investment bond may never have any tax to pay on the income or growth on the trust assets. And that means that they may never need to complete the trust register. But remember that some larger trust funds may still need to report if there are IHT relevant property charges to pay.

Perhaps it would be best to check with HMRC?

Shedman

Does anything in the HMRC manual help?   https://www.gov.uk/hmrc-internal-manuals/trust-registration-service-manual

Not sure that the link Xylophone posted is that up to date as I understood that now most (all?) Express trusts now needed to be registered (with a very limited range of exceptions) and a lack of tax liability is no longer necessarily a criteria for not registering as we have had to register a whole raft of trusts (incl DGPs and a Life Interest IIP) that have no tax liability.

@naive_investor did you answer the question re is this an Express Trust as Yes (which I think an IIP is).  If you answered No that might be why it took you off to the questions re tax liability which if then were also answered No is likely to be why it then branched to saying it didnt need to be registered ?  The exceptions re non tax liability are not applicable to Express trusts 

naive_investor

Thanks Shedman and Xylophone.

I've got it sorted now, after further reading and a talk to the very helpful man at the Trust Registration Helpline.

As my IFA, the Investment bond companies, and my reading suggested our trust does need to be registered. Almost all trusts do.

My key error, which Shedman picked up, was that I didn't realise that the trust was "An express trust". Again most non-statutory trusts are - (Discretionary Trusts; Bare Trusts; et al). When you select that option on the form life becomes much simpler and the questions are straightforward because you don't need to deal with taxation until the point you are dealing with a taxable gain. In fact so little information is needed that you wonder why they are doing it. When tax is due you change the entry to reflect this. You don't need to do an annual report.

I think the Apex webpage must date from before the most recent changes made in 2020. When I read the word 'may' I responded in the way I do when I read 'up to x % discount. With great scepticism!

FT Adviser is a good read, and it brings out a benefit we have seen, in that an older relative has revealed previously unknown trusts and started discussing them and asking us to register them and become a 'lead trustee'

https://www.ftadviser.com/investments/2022/07/19/how-trustee-registration-rules-affect-investment-bonds/

The Pru has a longer discussion with some examples

https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/trust-registration-service-trs

Below is the Pru example which describes my trust.

'Margaret takes out an investment bond which she places in trust. Under the terms of the policy, Margaret is able to withdraw up to 5% of the funds invested per year in the form of a part-surrender of the policy. As these withdrawals are anticipated as an integral part of the design of the policy, they do constitute pay outs from that policy. The exclusion from registration on TRS does not apply'.

As a side note the person on the helpline was very good, there was no delay in answering (which suggests either everybody but me understands it, or most people with trusts haven't heard about it, or ignoring it). They also said that they thought the online form was particularly unhelpful (paraphrasing a more blunt statement) and that there was talk of the deadline being moved back.

I hope this helps others!

Shedman

Glad you got it sorted.  

Hopefully the information in this thread might help a few others.  I fear there are many others out there with in particular Life Interest / IIP trusts (especially those created via wills) that won't realise that a) they are really trusts and b) will need registering.  However, quite how HMRC / TRS will know about them to apply penalties I've no idea, especially as many trusts that require to have 10 year anniversary and exit charge returns submitted never have  (through trustee ignorance of such requirements) and I'm not aware that HMRC have picked up on many to apply penalties.