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As we have highlighted in earlier articles, as part of the 5th Anti-Money Laundering Directive (5AMLD), the types of trusts that now need to be digitally registered with HMRC have been extended. All taxable trusts have been required to register and submit annual declarations since 2018. The 5AMLD broadens the scope of the trust register by removing the link to UK tax liabilities, and although there are some limited exceptions, most trusts will now be required to register with HMRC.

With the registration deadline looming, HMRC has only recently provided important clarification to its guidance on penalties should trustees miss the 1 September deadline. HMRC can charge a fixed penalty of £100 where registrations are up to three months late, however HMRC recognises that the registration requirement is a new and unfamiliar obligation for many. As a result, HMRC has confirmed that it will not levy a penalty for a first offence of failure to register or late registration of a trust, unless that failure is shown to be deliberate.

Where failures are due to deliberate behaviour, HMRC can charge a penalty of up to £5,000 per offence. HMRC goes on to say that if a trust has not registered by the relevant deadline, a warning letter may be issued to prompt the trustees to take action. Penalties for deliberate non-compliance will be assessed on a case-by-case basis, and are behaviour based.

Contrary to general understanding, there are several very common estate planning and investment arrangements that are trusts and are therefore within the scope of the trust registration requirements. Trusts which hold life insurance policy-based products, for example, discounted gift trusts or loan trusts, are potentially within the scope to register with HMRC by 1 September.

While there are a number of exclusions to the registration requirements, there is no specific exclusion for bare trusts, which include investment accounts held under a nominee arrangement. The position for registration of jointly held property is not straight forward either. This shows that there are a number of common situations that many people will not realise are subject to the registration requirements.

Most people would not want to find themselves with a tap on the shoulder from HMRC, and while many investment providers, lawyers and accountants have been raising awareness on the registration requirements, not all potentially affected trustees might have been reached, and if they have, they may not have fully understood what this means for them in practice.

If in any doubt, many individuals are deciding to register with HMRC anyway, but this could cause issues if there is no requirement to register, potentially bringing them within the scope of penalties should they fail to maintain the register as required. We urge anyone who is in any doubt of the registration requirements for that long lost policy in the back of the cupboard to seek advice. Seeking professional advice could support a defence against penalties, and the register will still accept registrations after 1 September, so better late than never.