A short history into trusts
Here’s something I bet you didn’t know – the earliest trusts date back to the Crusades.
Back in the 12th century, it was very much in vogue for knights and nobles to head abroad and get involved in the latest holy war. The only problem was that, as landowners, they needed someone to manage their estates in their absence – and collect and pay the all-important feudal dues.
To solve the problem, these warriors would convey ownership of their lands to someone else while they were away, on the understanding that ownership would be conveyed back on their return.
This would have been fine, but legally speaking the other person had no legal obligation to hand back the land. This led to growing numbers of angry crusaders petitioning the king, who would then ask his Lord Chancellor to adjudicate. Over time, the Court of Chancery consistently recognised the claims of any returning crusader – who became known as the ‘beneficiary’, while the person managing the land was dubbed the ‘trustee’. In this way, the first trusts were born in English law.
Modern day trusts
Fast-forward 900 years or so and trusts are still going strong. They have plenty of legitimate uses, such as for managing pension plans, safeguarding assets for children and so on. Unfortunately, trusts have also developed a slightly shady reputation as ways of avoiding tax and shifting dodgy money from one jurisdiction to another.
To counter this, EU Money Laundering regulations require trustees to keep specific data about all people with a beneficial interest in them, whether they are a settlor (person putting assets into a trust), a beneficiary or a trustee.
To comply, trusts with a UK income source or UK assets and which have ‘tax consequences’ must be registered with HMRC’s Trusts Registration Service (TRS). ‘Tax consequences’ mean trustees are liable for one or more of: Income Tax; Capital Gains Tax; Inheritance Tax; Stamp Duty Land Tax; Land and Buildings Transaction Tax and Stamp Duty Reserve Tax.
Register your new or existing trust by the registration deadline.
If you do not register by the deadline, you may have to pay a fine of up to £300 or 5% of your tax bill.
Registration deadline for new
Register by 5 October in the tax year after the trust starts to pay any of the following for the first time:
- Capital Gains Tax
- Capital Gains Tax with Inheritance Tax
- Income Tax
Your trust pays Income Tax or Capital Gains Tax for the first time in the 2020 to 2021 tax year. You need to register by 5 October in the 2021 to 2022 tax year.
You’ll get a Unique Taxpayer Reference (UTR) in the post within 15 working days (21 if you’re abroad) – you’ll need it to send a tax return.
Registration deadline for existing
Register by 31 January for the previous tax year if your trust paid either:
- Capital Gains Tax
- Income Tax
Secure professional advice about wills, trusts and legacy planning
However, as always with tax legislation, there are exemptions and different rules that may apply to your trust. So, even though trusts are very different from the days of the Crusades, do talk to one of THP’s accountants today to make sure your trust is properly drafted.