TRS and Tax implications of ending a trust

Good afternoon,

I have received an enquiry in relation to a trust created pre 2010 i.e. in 1995 which consists of property which is the main residence of the beneficiary, daughter. Unsurprisingly the lay Trustees have not registered the trust yet with the Trust Registration Service and are considering ending the trust. I would appreciate thoughts on the likely tax liability. Settlor is the mother and is still alive. Is there any point registering the Trust at this point if it is not to continue. Are TRS likely to enforce a penalty?

Many thanks in advance

We do not have sufficient details about the trust to provide a more definite answer on the highlighted aspects below


It is not clear what “ending the trust” might mean. Given its apparent primary purpose it seems likely that an appointment to the daughter outright might be envisaged. The trustees would need a specific power in a fixed trust or in a discretionary trust she would need to be an eligible object or eligible to be added.

PPR under s 223 TCGA should apply, to the whole gain arising if she has occupied all of the property as her main residence since the inception of the trust or if later since the trustees acquired it. If the property was given to the trust before 10 December 2003 PPR will be unaffected by any hold-over claim then made or by the trust being settlor-interested or becoming such later. If the trustees themselves acquired the property there would not have been such a claim.


It is not clear what kind of trust this was originally and whether it has remained the same. The daughter occupying a trust property as her main residence is consistent with either her having an interest in possession or not. If she had an IIP before March 22 2006 a distribution to her would terminate her IIP but as the property would come into her own free estate there is no charge to IHT. If the trust is now one subject to 10 year anniversary and interim distribution charges, IHT is chargeable on the value of the property at a maximum of 6% but if the trust has a substantial or full nil rate band the effective rate could be much lower and even nil. It is possible that the trust is an “excepted settlement” so that no IHT return is even required.


The trust is surely an express trust and should have been registered by September 1 2022. The law makes it a defence to both civil penalties and a criminal offence to have taken all reasonable steps and exercised due diligence; and in determining whether there has been any non-compliance it is a defence that official guidance was followed.

In TRSM80020 HMRC say: “In recognition of the fact that the registration requirement is a new and unfamiliar obligation for many trustees, there will be no penalty for a first offence of failure to register or late registration of a trust unless that failure is shown to be due to deliberate behaviour on the part of the trustees. Where failures to register are due to deliberate behaviour on the part of the trustees, a £5000 penalty may be charged per offence.Penalties for deliberate non-compliance will be applied on a case-by-case basis”

The date the trust was set up and the fact that it has been or is to be terminated are not justifications for non-registration. I suggest that registration now as a non-taxable trust so soon after the deadline is unlikely to be visited with a penalty, especially if the clients have only recently become aware of their obligations. That would not be surprising but it must also be true. HMRC may take a dim view if it becomes apparent that they have been aware for a long time. I think it will be some time yet before HMRC will want to be seen levying significant fines on lay trustees or taking their reasonable excuse defences to the Tribunal given the hinterland of their monumental incompetence to date in devising and admistering the system.

HMRC also have a duty to act reasonably in the way they treat different taxpayers whose situations are identical or very similar. For some time yet there will be many clients who find themselves in the position of having a family trust which has incurred no liability to tax (no income, capital gains, or IHT reportable events) and so no regular contact with professional advisers. They all have a legitimate expectation that HMRC will treat them even-handedly.

If a distribution is made triggering a gain the trustees will have to re-register as a taxable trust and in due course either have to notify chargeability under s7 TMA 1970 or file a trust and estates return (ss8 and 12D). Trustees have to claim PPR so this is a vital formality even if no CGT is payable.

A decision by clients to fly under the radar is unwise and if the PCRT applies to the adviser ceasing to act may be necessary for self-protection. The TRS compliance costs of advice and assistance are outrageous (however objectively fair and reasonable) but such costs in relation to management of the trust and distribution of assets are an inevitable consequence of the original decision to set it up. I had a lot of potential clients who thought (genuinely or otherwise) that my advice should be free but none who actually became clients.

Jack Harper

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Also worth mentioning that it is now an offence for a regulated person to act for a registrable trust (presumably meaning trustees of a trust) without first collecting proof of registration (regulation 30A of the 2017 regs) or, in practice, at least carrying out the registration as a first step.

Obliged, Andrew. The registration process allows the proof to be downloaded as a pdf.

Jack Harper