TRUSTS CAN BE a very useful way to hold interests in land and property in the UK. One type of trust, called a bare trust, provides a simple and flexible way to manage and transfer property ownership and can be used in for basic tax planning. However, many people who have created such bare trusts are not aware of the HMRC registration requirements and the tax implications associated with them.
In today’s Shipleys Tax note we look at in particular what bare trusts are and the consequences of failure to register with HMRC.
What is a bare trust?
Bare trusts are often used for holding interests in land and property, as they provide a simple and flexible way to manage and transfer property ownership. A bare trust is created when a settlor transfers legal ownership of property or assets to a trustee, who holds the property or assets on behalf of the beneficiary. Unlike other types of trusts the trustee has no discretion over how the trust assets are distributed, and the beneficiary has an immediate and absolute right to the trust assets.
The UK government’s Trust Registration Service (TRS) requires trustees to register details of certain trusts with the government within certain deadlines. The registration requirements apply to all trusts that have UK tax consequences, including trusts that hold interests in land or property.
Despite this, many people who have created bare trusts may not be aware of the registration requirements and the potential consequences of failing to comply. (Surveys by YouGov in 2019 found that over half of UK adults were unaware of the TRS and the registration requirements for trusts; and NFU Mutual 2018 which found that more than a third of people with trusts were unaware of the registration requirements).
Failing to comply with the registration requirements for a bare trust in land or property can have serious consequences. Trustees who fail to register the trust with the TRS can face fines and penalties. In addition, failure to register the trust can result in delays and difficulties in transferring or selling the property.
Bare trusts exempt?
Some trusts, such as those that hold only cash or simple assets, bare trusts, and those already regulated, are exempt from registration.
However, the exemption does not cover trusts that hold interests in land or property. If you have a bare trust that holds interests in land or property, you will need to register the trust with the TRS if it meets certain criteria. The registration requirements apply if the trust has a UK tax liability, such as income tax, capital gains tax, or inheritance tax.
How do you register a bare trust?
The registration process involves providing detailed information about the trust, including the names and addresses of the settlor, trustee, and beneficiary, as well as information about the trust’s assets, income, and tax liabilities. The trustees must also keep accurate records of the trust’s transactions and be able to provide them to HM Revenue & Customs (HMRC) if requested.
What are consequences on non-registration?
Penalties for non-compliance with the registration requirements can be significant. Trustees who fail to register a registrable trust within the required timeframe can be subject to penalties of up to £5,000, as well as daily penalties of up to £10 per day for each day that the registration is overdue. In addition, failure to register a trust can result in criminal sanctions, including fines and imprisonment.
Another potential consequence of failing to register a bare trust in land or property is the possibility of a tax investigation by HM Revenue & Customs (HMRC). If the trust generates income or has assets that are subject to income tax, capital gains tax, or inheritance tax, the trustees may be liable for tax penalties and fines if they fail to comply with the tax requirements.
What are the tax implications?
In addition to the registration requirements, bare trusts that hold interests in land or property may be subject to additional taxes, such as stamp duty land tax (SDLT) and capital gains tax (CGT). The tax liabilities associated with bare trusts in land or property can be complex, and it is important to seek professional advice to ensure that the trust is set up and administered in a tax-efficient manner.
One potential advantage of using a bare trust for holding interests in land and property is that it can provide greater privacy and confidentiality than other types of trusts. However, it is important to note that the registration requirements and tax implications associated with bare trusts in land and property can be significant. Failure to comply with the registration requirements or pay the appropriate tax can result in penalties and fines.
In conclusion, failing to register a bare trust in land or property with the government’s Trust Registration Service can have serious consequences, including fines, penalties, and delays in transferring or selling the property. You may need to register the trust and comply with complex tax requirements. It is important to seek professional advice to ensure that the trust is set up and administered in a tax-efficient manner, and to avoid penalties and fines.
If you are affected by any of the issues above and would like more information, please call 0114 272 4984 or email email@example.com.
Please note that Shipleys Tax do not give free advice by email or telephone.