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How trustee registration rules affect investment bonds

How trustee registration rules affect investment bonds
(FT Money)

The onshore investment bond market is going from strength to strength, as advisers and their clients focus on the core considerations of the three I’s of investment, income and inheritance that drive the market.

There is a growing appreciation of the place and importance of this tax-effective wrapper in delivering client solutions. It has been further enhanced this year with the freezing of personal tax allowances to include the pension lifetime allowance and no increases in pension or Isa contribution levels.

Bonds are a particularly effective vehicle for inheritance tax planning when held in a trust. 

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Major rule changes are on their way for trustees, in the shape of the government’s new trust registration service, which introduces new rules on trust registration and covers trusts that use an onshore bond.

This article considers the implications of the TRS for advisers and their clients and looks at the specific impact for onshore bonds.

TRS requirements on their way

The new rules cover express trusts, which is deliberately created by a settlor(s) and would be constituted by capturing these details in a document called a trust deed. These can be created during a person’s lifetime or via their will.

Onshore bonds will typically be used as an investment within a discounted gift trust, loan trust or gift trust. They are all express trusts and therefore caught by the TRS rules.

The TRS, which was set up in 2017, initially only required trustees to register if the trust was liable to pay UK tax, including income tax, capital gains tax, and IHT.

But that changed in 2020 because of the fifth money laundering directive. 

New rules now require the trustees of any UK express trust to register key information, as follows:  

  • The trust: name of the trust and date when it was created.
  • The settlor: trustees’ full name, date of birth, date of death (if applicable), country of nationality, and country of residence. 
  • The trustees: if they are individuals then their full name, date of birth, country of nationality, country of residence; and if they are the lead trustee, their national insurance number, postal address, email address, and phone number.
  • Named beneficiaries: for bare trusts, the beneficiaries full name, date of birth, country of nationality and country of residence will be required.
  • Class of beneficiaries: for discretionary trusts, a description of the class of beneficiaries taken from the trust deed eg children of the settlor, and the name of anyone specifically named in a discretionary trust.
  • Mental capacity of individuals: the mental capacity of an individual – whether they are the settlor, trustees, or beneficiaries – is assumed to exist unless there is proof to the contrary. HM Revenue & Customs need to know about an individual’s capacity as it cannot disclose information about those who lack mental capacity to third parties. 

The need to act now: the changes in practice

Trustees have the legal responsibility for registering the trust and to provide the information described above, and must nominate a lead trustee to be the main point of contact with HMRC. 

Advisers will hold most of the information trustees need to register, and its support will be invaluable to help clients to update their records and meet the registration deadline.

HMRC has set out specific deadlines for the registration of trusts, which trustees must act upon, and which cover both existing and new trusts: 

  • Trusts in existence on or after October 6 2020 must register by September 1 2022.
  • Trusts set up immediately before September 1 2022 must register within 90 days of the date of creation.
  • Trusts set up after September 1 2022 must register within 90 days of the date of creation

It is important to understand that HMRC has the power to impose a fine for late registration or not keeping trust details up to date. The trustees will be liable for any fines that HMRC imposes. 

The role of advisers

The TRS registration deadline provides an ideal opportunity for advisers to support their clients to register their trust, as well as the opportunity to review a client’s overall wealth and tax planning strategy.

For an advisers’ older clients this could be the time to seek permission to develop a relationship with the client's children and future intended beneficiaries.

In cases where the client's children are already trustees these clients may well take the opportunity to ask one of them to be the lead trustee and pick up the registration actions.