Fines waived for a million families caught up in HMRC trust clampdown

The taxman will waive fines for a million families who unwittingly faced being caught up in a clampdown on trusts. 

Couples who have basic trust arrangements written into their wills, to manage their properties after they die, are among those who will be caught out by new HM Revenue & Customs red tape in five months' time. 

HMRC brought in a rule in October 2020 to make all so-called “express” trusts declared on an anti-money laundering database, which will be public to parties such as financial firms. Previously only trusts which paid tax had to be registered. 

The new rule is thought to catch out more than a million people who have carried out basic estate planning. These include couples who have trust arrangements written into their wills allowing their spouse a lifetime interest in their home before the property is passed onto their children. 

They were told to declare their affairs by September or face fines.

But HMRC has been forced to announce there would be a grace period, as it emerged just 150,000 people have declared their affairs since 2017, when the trust register was first launched. An estimated one million people who need to declare have yet to do so, according to estimates from financial advisers Canada Life. 

This is because many people are simply unaware their assets are even involved in a trust, according to Gary Rycroft of law firm Joseph A Jones & Co, and author of the Telegraph's Ask A Lawyer column. He said that “many normal law abiding families will be impacted”, and that the true figure caught could be even higher. 

He added: “It is a very basic estate planning strategy for couples, whether married or unmarried, who own a house together. They provide in their wills that when one of them dies, the survivor will be able to stay in the family home. 

"Then, on the second death, the part of the house ‘in trust’ after the first death should pass on to chosen beneficiaries, who are often children. This arrangement protects the survivor who may carry on living in the home and also protects the capital of the deceased owner.

“These types of trust do not usually generate income or capital gains so have never had to be registered before.”

Grandparents who have money tied up in an investment account via bare trusts or discretionary trusts for their grandchildren must also register their details, although cash held in bank and building society accounts are exempt from the rules, Stacey Love of Canada Life said.

Other exemptions apply to pension trusts, as well as those used to house life insurance policy payouts. So-called “pilot trusts” – those set up with the intention of being used in later years – containing less than £100 are also exempt.  

Fines will kick in eventually when the new register rules become more common knowledge, although the tax office did not confirm when this will be.

An HMRC spokesman said: “The requirement to register with the Trust Registration Service is a new one for many trustees, and we anticipate some trustees will remain unaware of the obligation to register once the deadline has passed.  

"Penalties for not registering or late registration will only be charged where it can be shown the failure was deliberate.”