Trustees must ensure they meet the 1 September 2022 deadline for trust registration
As trustees, being a trusted adviser is key. Yet it can be difficult to keep abreast of all the tax changes, particularly in cases where the trustees have no UK tax nexus. Sweeping changes to the inheritance tax regime introduced in April 2017 mean that all UK residential property held within offshore structures is now within the charge to inheritance tax. Not only does an offshore company no longer provide an inheritance tax shelter but tax can also be payable on the right to repayment of a loan relating to UK residential property and on assets used as collateral to secure a UK residential property loan. What this means for trustees is that, as of April 2017, UK residential property interests are subject to UK inheritance tax charges every ten years and on trust distributions, as well as potentially on the death of the settlor. The UK tax liability also triggers a mandatory requirement to register the trust with the UK authorities, under the new Trust Registration Service.
In addition to this, The Economic Crime Act, which received Royal Assent on 15 March 2022, will require overseas entities that are owners or leaseholders of land or property in the UK to register with Companies House and provide information about their beneficial owners. This may include trustees and in certain circumstances the settlor, protector and beneficiaries. The Land Registry will place a restriction on the title register to prevent sales, charges and most leases from being registered unless the overseas entity has registered with Companies House. Existing owners will have a six-month transition period to apply for registration.
Non-compliance with any of the above rules may not only give rise to interest and penalties but, worse still, professional embarrassment and reputational damage, not to mention potential negligence claims. There may also be criminal sanctions and consequences under the anti-money laundering rules. In most cases, the deadline for trust registration is 1 September 2022, so there is still a window to register the trust with HMRC.
We have extensive experience reviewing trusts that own UK properties and advising on possible historic tax or registration obligations including how to minimise penalties for non-compliance. If you would like to discuss a particular case, or a possible wider review, on a confidential basis, do get in touch with Andrew Goldstone, Katherine Forster or your usual Mishcon de Reya contact.