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The key trust and estate issues from 2019 – Part II

Technical Article

Publication date:

11 February 2020

Last updated:

12 February 2020


Barbara Gardener

Following up on The key trust and estate issues from 2019 part 1, We continue to catch up and summarise the important developments from the past year.

We will continue to look at the latest on the Trust Registration Service (TRS), and then we will consider a few important topics selected from the author’s inbox.

As promised, this month we will continue with some interesting topics from 2019. But before we do, we have just had a couple of interesting developments, namely an announcement of the Consultation on the Trust Registration Service (TRS), and the release of the proposals for the reform of inheritance tax. As both of these are most relevant to trust practitioners, we need to consider them first.


Trust Registration Service

As reported last month, the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 came into effect on 10 January 2020. These were necessary in order to comply with the EU's Fifth Money Laundering Directive (5MLD). Although the UK has left the EU, it has nevertheless agreed to transpose the Directive.

The provisions relating to trust registration have been delayed until later in 2020, following a more detailed technical consultation on its implementation.  On 24 January the Government published its consultation on proposed changes to the Trust Registration Service. The consultation runs until 21 February 2020.

The consultation deals with the types of express trust that will be required to register, data collection and sharing, and penalties.

The Government is interested in views on whether the draft regulations adequately reflect the Directive in terms of the scope of registration, the information to be collected and the framework for making data sharing requests.

These are the key points of relevance to financial advisers:

  • The existing TRS will be expanded to include UK express trusts and some non-EU resident express trusts irrespective of whether the trust has incurred a tax liability.
  • It is proposed that all express trusts that are not included in a category designated as “Out of scope” will be required to be registered.

The “Out of scope” trusts are to include the following:

  • Statutory trusts, such as those arising on intestacy or necessary solely for the purpose of jointly owning a home
  • Trusts arising by virtue of ownership of an asset such as a joint bank account
  • Bare trusts
  • Maintenance fund trusts for historic buildings
  • Approved share option and profit-sharing schemes
  • Vulnerable beneficiary trusts
  • Personal injury trusts
  • Trusts consisting solely of a life assurance policy which is a pure protection policy and payment is not made until the death or terminal illness of the insured
  • Pension scheme trusts that are registered with HMRC on ‘Pension Schemes Online’ or ‘Manage and Register Pension Scheme’
  • Charitable trusts
  • Trusts already registered in a EU Member State.

The extent of the list is most welcome although it has to be remembered that some trusts, while falling into the “Out of scope” category (so no need to register them when created), will have to register if the trustees incur a tax liability, for example a life interest trust for a surviving spouse which arose under intestacy in England and the trustees receive income.

As for “Data sharing” (i.e. who can access the TRS) the proposals also do not go as far as had been feared.

There will be three distinct processes for the sharing of TRS data. These will be:

  • An application process for ‘legitimate interest’ and ‘third country entity’ (where a trust holds a controlling interest in a non-EEA legal entity) requests, for third parties to gain access to trust data;
  • A mechanism for obliged entities (those entering into a business relationship with the trust) to receive the required extract from the register, managed by trustees through the TRS;
  • The existing and continuing arrangements for law enforcement agencies.

The definition of legitimate interest will be set out in the regulations and this definition will aim to ensure that each request will be rigorously reviewed on its own merits, and access given only where there is evidence that it furthers work to counter money laundering or terrorist financing activity, i.e. there will be no open public access to the Register.


The proposals to reform inheritance tax (IHT)

When Sajid Javid, prior to the December General Election, announced his intention to abolish IHT, not many people took him seriously. Now it turns out it was not such a farfetched idea.  The All-Party Parliamentary Group for Inheritance & Intergenerational Fairness (APPG IIF) has published a report recommending the abolition of IHT in its current form, replacing it with an entirely different regime.

That inheritance tax is in serious need of review and reform has long been recognised by the Government. That was the reason why the Office for Tax Simplification (OTS) was tasked with its review in January 2018.  The subsequent consultation generated OTS reports in November 2018 and July 2019 and garnered more responses than any other OTS review. The two key recommendations from the OTS were: the removal of the CGT uplift on death and the  reform (resulting largely in reduction) of the agricultural property relief (APR) and business property relief (BPR). This would in effect lead to yet more piecemeal reform of the already hugely complex system which has already been under considerable criticism, especially following the introduction of the residence nil rate band (RNRB), which is considered not just extraordinarily complicated (especially the downsizing provisions) but also hugely unfair given that it discriminates against those who do not own a residence and/or have no children.

Given the above, the idea to replace the whole system with something much simpler can be understandably appealing. And so now we have the APPG proposals which are radical to say the least.

The key proposal is to replace the current system with a new tax on both lifetime and death transfers of wealth, at a low flat rate of 10%, increased to 20% for estates above £2M. The current nil rate band (NRB) would be scrapped and replaced by a 'death allowance,' set at a similar level to the current NRB of £325,000, available only on death, irrespective of previous lifetime giving.  Most of the reliefs, including the APR and BPR, would be abolished as well as the RNRB and the reduced rate currently available to those who leave at least 10% to charity (although the charity exemption would be retained as will the spouse exemption). Potentially exempt transfers (PETs) would also be abolished. Instead each individual will have an annual gift allowance of £30,000, with gifts above this level taxed at 10% immediately.

There would be no need for the reservation of benefit rules or the pre-owned assets tax (POAT) code, as all lifetime and death gifts in excess of the annual gift allowance would be taxed.

The taxation of trusts would also be simplified but the ability to give away £325,000 tax free every seven years to trusts would be removed.

Gifts into trust would be taxed in the same way as gifts to individuals, i.e. at 10% once the donor had exceeded his or her annual £30,000 gift allowance. The loss to estate, cumulation and grossing-up principles would be abolished. There would be no nil rate band available to trusts. Discretionary trusts would pay a fixed rate tax charge (yet to be determined) annually and when property comes out of the trust; and gifts to, say, a life tenant would be treated as a gift to an individual (and taxed on the gift into trust and on that life tenant’s death).

All pension funds left at death would be taxed at the flat rate of 10% (or added to the estate and excess taxed at 20% if the value was over £2 million) unless passing to the spouse.

The APPG also recommends that domicile is abolished as a connecting factor and instead residence becomes the main connecting factor.

Finally, the CGT death uplift would be abolished on all assets and they would pass on a no gain/ no loss basis; gains on all lifetime gifts of assets could also be held over.

According to the Chair of the APPG a flat-rate gift tax with fewer reliefs would be simpler, more broadly based, lead to less avoidance and ensure the UK’s competitiveness in attracting wealthy people to live (and die) in the UK. Of course, it might also (is likely to) result in a considerable reduction in the need for complex tax mitigation schemes. Therefore, certain sections of the profession may well oppose it. But just imagine not having to calculate periodic charges on discretionary trusts or work out a downsizing addition ever again!

So, how realistic is it that these new proposals will be taken forward? Hmm, on the one hand we are dealing with an undoubtedly complex matter, on the other we have the Prime Minister who apparently insists on getting things done, so there may well be a new slogan “Get IHT done!”

Realistically, it is unlikely that something of this magnitude can be ready in time for the Budget on 11 March. It is more likely that the Government will want to consult with a view to changing the legislation from April 2021 or later. However, if a consultation goes ahead it is also possible that some interim ‘reforms’ will be announced in Budget 2020.



As for the TRS, it appears that fortunately the Government does not propose to include absolutely all trusts in the expanded TRS which is a relief for all those concerned with trusts in the UK. Indeed, the list of the “Out of scope” trusts is considerable.  In particular, the relief for trusts of pure protection life policies, bare trusts and for statutory trusts is most welcome.

With regard to the proposed IHT reform, given the suggested demise of PETs as potentially the biggest threat to lifetime planning, clearly those who are planning to make such gifts should perhaps act sooner rather than later. In any event, we have a fantastic topic for starting a conversation with clients in need of estate planning.

Unfortunately, given the new developments covered above, we have no more space this month to cover the other interesting topics. More next month.

This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.


  • Mr Christopher Paul Bearfoot
  • 14 February 2020 02:23PM

It will be interesting to see whether the new Chancellor has a different perspective on this given the new 'pooled adviser' regime that Numbers 10 & 11 will be implementing.