The changing landscape of UK trust administration

Whilst a trust is a separate legal structure recognised in UK law, reporting requirements are more limited than those placed on limited company structures. This can mean that whilst annual reporting is more streamlined, if questions are raised about the nature of the trust, obtaining and providing sufficient evidence to the tax authorities can be much harder. 

There is no statutory requirement for a trust to maintain accounts, however annual income must be reported on a tax return. Furthermore, depending on the type of trust, distributions may be made from both capital and income to a mix of beneficiaries, not necessarily equally. 

This can leave trustees open to enquiry from HM Revenue & Customs (HMRC) about the nature of distributions made. Often capital distributions come with an inheritance tax exit charge, whilst income distributions are paid with a tax credit. 

In addition to enquiries by the tax authority, challenges can come from trust beneficiaries if they don’t feel they are receiving their entitlement under the trust deed. Such queries can be quickly answered with trust accounts and beneficiary current and capital accounts, but can be difficult to reconcile after the fact. 

Trusts are now required to report the identity of trustees, settlors, and beneficiaries – as well as relevant facts about trust property and the associated individuals – as part of an annual declaration to the Trust Registration Service. This database is not available for public viewing, so trustees are required to maintain records of what has been submitted, to ensure they’re meeting requirements. It’s not possible to easily check what information has been submitted. 

Similarly, where trust funds are managed by a discretionary fund manager, additional reporting under the automatic exchange of information (AEOI) under the Common Reporting Standard (CRS) and the US Foreign Account Tax Compliance Act (FATCA) is required. There are potential significant penalties for failure to register and maintain annual submissions. 

Starting and continuing administration of a trust as the trustees wish to go on is often the difference between a wealth preservation tool that works for the family and achieves the settlor’s intention and one that, in contrast, is poorly managed and often enough to put a family off for generations.

Across the Sumer network there’s a wealth of experience working with trust cases, both with UK domestic and international structures. Our experienced advisers are at the disposal of one another should there be a query to check. 

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Paul Harris is a private client tax partner based in Bury St Edmunds, advising high-net-worth individuals, families, businesses, and trusts on capital taxes and wealth preservation. He specialises in agriculture and landed estates.