I have looked, I promise!
A trust is registrable as a taxable trust as it had an SDLT liability in 2019/20 and nobody knew at the time that it had to be registered.
It is now non-taxable.
Once registered (late) as taxable, is it possible/desirable/necessary to update it to non-taxable?
Andrew Goodman
Osborne Clarke LLP
In an earlier post I said (for what itâs worth):
âIf my conclusion is correct that the two sections [ss45 and 45ZA] are mutually exclusive (ie. that at any point in time a trust cannot fall within. s45 and s45ZA) then a taxable relevant trust on ceasing to be such may fall within
s45ZA and thus require re-registration would it not?â
Malcolm Finney
Thanks. I donât like that answer but that doesnât mean you are wrong (youâre probably right). I was hoping there might be a mechanism to switch within the âportalâ rather than re-register but that was pure pre-weekend optimism.
I may try to find a volunteer to sacrifice an hour of their life on hold to HMRC
The new Reg 45(3) came into force on 6 April 2021. The SDLT liability was in 2019/20 when Reg 45(3) required an existing taxable trust to register for such a first time liability by 31 January 2012. It seems the trust was registered late.
Reg 45ZA came into force on 6 October 2020 and SI 2022/137 changed the deadlines so a non-taxable trust in existence on or before 4 June 2022 had to register by 1 September 2022. Now 45ZA only applies to trusts âother than taxable relevant trustsâ which this trust is (and, I think, would be even if it had still not yet been registered as a taxable trust).
The Regs provide no clear answer to the interaction between the two categories. Taxable trusts emerged first but that seems to give them no overt priority. TRSM25040 just adds to the confusion. The whole of TRSM25000 assumes that a registered non-taxable trust may have to register as taxable if a tax liability is triggered. Indeed TRSM31010 says: âWhen a trust previously registered on TRS as a non-taxable trust subsequently incurs a tax liability TRS provides a mechanism for the trust to provide the relevant information requiredâ.
Nothing is said in the Regs about the possibility of a taxable trust that has registered ceasing to be registrable because it has no current tax liability or having to thereupon be registered as non-taxable.TRSM32020 says a trust will be asked for its UTR if it has one (the Regs do not seem to require this!) and goes on the introduce the concept of a UTR ânot in current useâ or âdormantâ like the one in the question. In such a case the trustees are told to answer âNoâ, an untruth expedient to outwit the system. But this is contained in a section of the Manual that applies to all trusts and itself says âTrustees of all trusts registering on TRS must provide the following information on the trust:â So the UTR workround can only be suggested by HMRC for a trust trying to register as non-taxable which has been given a UTR in the past and may even have been registered on TRS. The rules are not permissive. They are compulsory. The trustees of a âdormantâ taxable trust are entitled to know whether they must register.
HMRC have also invented the concept of âclosingâ a non-taxable trust if it is fully distributed. But apparently not if it becomes taxable. This is important in the context of Trust Data Requests. These can only be made about non-taxable trusts of Type A or B⌠Can they be made about a such trust which was non-taxable and now is not?
While Regs 45 and 45ZA are largely mutually exclusive Reg 45(10) and (10J)-(13) can apply to non-taxable trusts.
It seems the migration of trusts between the two categories was not foreseen and HMRC have in consequence just been plugging gaps and not very skilfully. If I were a trustee in the case of this trust I would have a legitimate expectation that HMRC would tell me on request whether in their view it was a legal obligation to register as non-taxable and why.
Jack Harper
So Jack, is the short version you agree with me (ignoring the lack of mutual exclusivity re. data/information aspects)??
Andrew, itâs just my view. I have difficulty seing how the two sections are not. mutually exclusive.
Malcolm Finney
I agree that with the one exception I mention they seem mutually exclusive. This works well with first registration but not afterwards. The problems that throws up should not be resolved unilaterally by HMRC but by changing the Regs. That would be due respect for the rule of law.
I am awaiting a reply from HMRC to my request for an explanation as to their legal authority for registering any estate on TRS. Their tax powers under s1 TMA 1970 and Commissioners of Revenue and Customs Act 2005 are not in point and their AML functions under the enabling legislation are separate and self-contained and do not require estates to be registered, as they themselves admit. I shall follow that up with a similar request about their authority to ask non-taxable trusts to provide the information in Reg 45(5).
Jack Harper
For what itâs worth, the original requirements to register as taxable clearly included SDLT and IHT in addition to IT and CGT, and resulted in the issuance of many redundant UTRs since these are not required for the first two. There has been other correspondence on this forum about what to do with redundant UTRs for non-registered trusts. Now the Trust Registration wording has changed to only include IT & CGT. I was also advised in June by HMRC Trusts & Estates that I did not need to register an overseas trust for the sole purpose of submitting an IHT exit charge return, when the trust had no other UK tax liabilities, nor was it ever likely to do so, rather I used form IHT122 to apply for an IHT reference (snail mail, but it worked).
Assuming the trust has successfully dealt with its historic SDLT liability, but is not yet registered, I would register it as a non-taxable trust. If already registered as taxable, I would ask HMRC to stop issuing TR filing notices, but would not be unduly concerned about trying to reregister it as non-taxable unless the ongoing annual compliance obligations were considered to be unduly onerous.
Maxine Higgins
Citroen Wells
Maxine, I donât follow âNow the Trust Registration wording has changed to only include IT & CGT.â
Reg 45(14) still refers to other taxes and HMRCâs âRegister a trust as trusteeâ does so too. Ditto TRSM25030.
Jack Harper
Registration is not voluntary. If a trust that has ceased to be taxable is obliged to re-register as non-taxable that should have been made clear in Regs and guidance beyond peradventure. It is unacceptable that HMRC do not respond to questions touching on whether or not a person is obliged to fulfil a requirement with a penalty sanction for non-compliance; and I am encountering similar reluctance with BEIS and Companies House about registration of overseas entities.
And in the new penalty section TRSM80000 I note cynically that nowhere is it mentioned that a penalty cannot be imposed if a person took all reasonable steps and exercised all due diligence to comply: Reg 76(4). Or that the Regs provide for a review and appeal of HMRC decisions including a penalty: Reg 99(1)(c). No doubt this information is not considered to be of general interest.
Jack Harper
Jack, I agree that the initial guidance wording states that but when you use the HMRC portal to register a trust for the first time this is one of the questions you are asked:
whereas previously it also used to mention IHT and SDLT - now you are not given that option and the process leads you towards non-taxable registration, unless you actually need a UTR. I make no comment as to whether or not this is correct, but it seems to be another example of HMRC moving the goalposts for their administrative convenience.
Maxine Higgins
Someone somewhere is sitting in a room making this up as they go along!
This is what Philip Hardman would have called âA National Disgraceâ. If a trust is liable to SDLT or SDRT it is required by law to register but cannot do so online and must what? File a paper SA403? Oh dear, yet another letter to send to Bristol. These people could not be trusted with the archetypal festivity in a brewery.
Jack Harper
Dear Maxine
I have also realised this issue.
Foreign trust with IHT in 2020 or 2021 but only being registered for the first time now.
IHT return is being dealt with separately.
For TRS, as you point out, when selecting that the trust is not taxable for Income tax and CGT then this leads to a non-taxable trust registration.
So I registered the trust first as a non-taxable trust, and then IMMEDIATELY convert the trust into a taxable trust, which then takes me to the old TRS questions, where there is an option to say that the trust is taxable however not for income tax and CGT, and then I can add the information on assets and non-EEC company information.
So yes, the trust will have both a URN and a UTR, and I hope HMRC will not issue ânotice to fileâ letters, but if they do, then I will just have to call them and stop these.
The Trust Registration Service is not complying with the Regulations SI.2017/692 as amended.
A taxable relevant trust is defined in regulation45(14) as âa relevant trust in any year in which its trustees are liable to pay any of [seven taxes] in the UK in relation to assets or income of the trustâ. Note that it is the calendar year, not the tax year (which would only be relevant to income and gains). So a trust that had an SDLT liability in 2019 and otherwise has not been liable to pay any of the taxes was clearly not a taxable trust earlier this year, when so many trusts were required to register by regulation 45ZA. That fits in with the words at the end of regulation 45ZA(3) - âapart from any information already provided to the Commissioners under regulation 45 (at a time when the trust was a taxable relevant trust within the meaning of that regulation).â
From this, I conclude that a trust such as the one described lost its status at the end of 2019, and the trustees should have provided HMRC with the information referred to in regulation 45ZA(3) by 1 September. However, what if the trust were to have a tax liability later in 2022? That would certainly be an interesting argument against any penalty for not complying timeously with regulation 45ZA(3).
One other aspect of the wording was discussed back in 2017, I believe. The regulation refers to âany year in which the trustees are liable to payâ any taxes. Should one look at the occasion when income or gains arise or only recognise a liability once the results of a tax year are known? Or when that tax is payable. The argument becomes clearer when considering the other taxes. For SDLT is it the completion date of the purchase or the date by which the tax is payable? The two dates could fall in two calendar years.
Ray Magill
More conundra stemming from sloppy drafting based on poor anticipation. The word âyearâ in Reg 45(14) is not defined in the Regs or in the parent Act FSMA 2000. IA 1978 does not define it though it does define âmonthâ as calendar month. This has not stopped controversy in practical applications such as commencement dates/time periods e.g. is 9 months 252 or 279 days or a figure in between?
I could envisage a judge deciding that for income tax and CGT the word must mean a year ended 5 April: s4 ITA 2007, s288(1) TCGA 1992. Even though that could mean holding the word to have a different meaning, calendar year, for the other taxes. For a judge all things are possible: âredâ means blue except when it means red.
But it is another illustration of the problem that (mostly) Regs 45 and 45ZA are apparently mutually exclusive except for those words in 45ZA(3) which Ray quotes. Or at least there are no substantive provisions dealing with the possible gravitation of a trust from one category to another and its consequences, which those words hint at (for taxable to non-taxable). There is a corresponding hint at the reverse possibility in Regs 45(10A) and(10D), only inserted at the same time as Reg 45ZA.
A taxable relevant trust is only such under Reg 45(14) in a year, whatever that means, when it has a prescribed liability so that it is not in any such year when it doesnât. In a year when it doesnât it would seem to be capable of falling within 45ZA. So as Ray says a trust which had an SDLT liability in 2019 had to register as non-taxable by 1 September 2022 and, if it has another SDLT liability in 2022, re-register as taxable by 31 January after (WAIT FOR IT) the TAX YEAR (not defined): Reg 45(3)(a). âTax yearâ also crops up as regards notifying changes in Reg45(9)(a)! A tax year in relation to SDLT, IHT and SDRT is a complete misnomer but a judge will surely take this nonsense in his or her stride.
A new trust must register within 90 days of becoming liable to pay any Reg 45 para (14) UK taxes. For SDLT IHT and SDRT this must surely mean when the charge is triggered but with IT and CGT the charge relates to a tax year and surely can only become a liability for that year once it has ended.
Another anomaly is that Reg 45ZA does not authorise HMRC to ask for the (absolutely crucial) information in Reg 45(5) if the trust has never been taxable. It is one thing for a judge to interpret an existing word in a casuistic manner but quite different to assert that Reg 45ZA (3) should be construed as including a reference to the information required by Reg 45(5).
Jack Harper
Like Jack, I searched in vain in the Regulations for definitions of âyearâ and âtax yearâ. I concluded that the dictionary definition of YEAR should be adopted. The most concise, from Chambers, is âthe period beginning with 1st January and ending with 31st December, consisting of 365 days except in âleap-yearâ, when one day is added to February.â This is clearly preferable to the first Chambers definition, âa period of time determined by the revolution of the earth in its orbitâ, as that would be meaningless in the context of regulation 45(14).
As for âTAX YEARâ, the best I could find is s.4 ITA 2007, but that is only in the context of an income tax charge. For capital gains, TCGA 1992 sees no reason to define âtax yearâ, which is used in sections 1, 1E, 1G, 1H, 1I, 1J, 1K, 1L, and 1M TCGA 1992. Instead, s.288 says that âyear of assessmentâ means tax yearâ.
Jack suggests that (mostly) Regs 45 and 45ZA are apparently mutually exclusive. He mentions the words at the end of regulation 45(10A) & (10D). They emphasise that a trust could be registered pursuant to regulation 45ZA and subsequently become taxable. The conclusion seems clear: registrations under regulations 45 and 45ZA are indeed mutually exclusive. What is puzzling is why the information to be provided should differ.
In my previous posting I said at the outset that âThe Trust Registration Service is not complying with the Regulations SI.2017/692 as amended.â I had intended to give examples of this.
A âDeclared copy of the trustâs registrationâ that I saw recently, required the following information in relation to individual beneficial ownersâ that is not mentioned in regulation 45ZA(3)(a)&(b) â
When was the trust created?
Is the trust governed by UK law[sic]?,
Is the trustâs general administration done in the UK?,
How many of the trustees are based in the UK?,
Is the trust established under Scots law?,
What is the [the lead trusteeâs]
date of birth (the regulations only seek the month and year of birth)?
national insurance number?,
address?
email address,
telephone number?
The same questions are asked for the second trustee and in addition, âDoes [he or she] have mental capacity at the time of registration?â.
Similar questions are asked about individual beneficiaries, with the addition of a request for passport details and, for no obvious reason as the beneficiary does have mental capacity, âHas a vulnerable person election form (VPE1) been submitted to HMRC for [the beneficiary]?â.
The form also asked âHas the trust acquired land or property in the UK since 6 October 2020?â This poorly-worded question wasnât relevant to the trust being registered, as it is a type A trust. I am not sure what is meant by âother propertyâ.
Ray Magill
There is usually no point in arguing with HMRC about what information their tax returns and other forms should be at liberty require, or not, because the enabling legislation is either vague or breathtakingly discretionary. That is not the case in TRS. (Nor in PSC or ROE). Instead the law is signally prescriptive. If it does not say that HMRC can have a particular item of information then they canât. I find it hard to believe that the most flexibly minded judge would disagree. In practice HMRC are only too aware that they are going to be unchallenged unless a representative or altruistic body takes it up.
They were sensitive to an early challenge on mental capacity questions, so they modified their approach, but to be fair the law expected them to censor such information without having the specific power to ask the registering trustee for it. There is still no specific power to ask but if they are to be able to evaluate an exemption under Reg 45ZA (5)(c) they can hardly do so without having an implied power to seek it. I am not sufficient of an administrative law specialist to be sure whether a judge would make such a determination.
What however is blindingly obvious is that:
1 an express power to ask should have been and should still now be conferred; and
2 there could not have been even an implied power to ask before 1 September 2022 because that was when Reg 45ZB came into force.
Jack Harper