Employee trusts – are you ready to register?

Certain Employee Benefit Trusts and Employee Ownership Trusts must register with HMRC by 1 September 2022.

Certain Employee Benefit Trusts and Employee Ownership Trusts must register with HMRC

Subject to limited exceptions, certain Employee Benefit Trusts (EBTs) and Employee Ownership Trusts (EOTs) without UK tax liabilities are required to register with HMRC’s Trust Registration Service (TRS) by 1 September 2022. Late registration may result in penalties. This article summarises key considerations to assist trustees of relevant employee trusts, and the employers that established them, to confirm whether registration is required.

Registering employee trusts with HMRC

Since June 2017, EBTs and EOTs with liabilities to UK income tax, Capital Gains Tax, Inheritance Tax, Stamp Duty Land Tax or an equivalent devolved tax, or Stamp Duty Reserve Tax have been required to register with the TRS.

However, an employee trust without a liability to any of those taxes might also be required to register with the TRS by 1 September 2022 if:

  • All its trustees are UK resident;
  • At least one of its trustees is UK resident and its settlor was either UK resident or domiciled when the trust was established, or when further funds were settled;
  • The trust acquires an interest in UK land; or
  • It has at least one UK resident trustee and establishes a business relationship with a ‘relevant person’ in the UK (which includes financial institutions, accountants, tax advisers, legal advisers and estate agents).

This article concentrates on ‘non-taxable’ employee trusts that might need to register with the TRS by 1 September 2022. More information on registering taxable employee trusts with the TRS – and when these obligations are often overlooked – is available in our earlier article.

Do all non-taxable employee trusts need to register?

Some non-taxable employee trusts, including trusts that hold certain life insurance or retirement policies, and statutory trusts established under a tax-advantaged all-employee Share Incentive Plan, or set up solely for the purposes of an all-employee Save As You Earn option scheme (‘mixed use’ trusts are treated differently), are excluded from registration.

However, the exclusions for tax-advantaged all-employee share plan trusts are likely to be of limited practical application, as many will incur Stamp Duty Reserve Tax liabilities when they acquire shares and be required to register as taxable trusts (see our earlier article for more details).

Additionally, trustees will be required to register with the TRS where they hold assets as nominee (e.g. where they hold legal title to senior executives’ shares for commercial confidentiality).

What are the time limits?

Non-taxable employee trusts that existed on 6 October 2020 which meet the registration conditions, must register with the TRS on or before 1 September 2022. Other non-taxable employee trusts that meet the registration conditions but were created after 6 October 2020 must register within 90 days of being created or otherwise becoming registerable or, if later, by 1 September 2022.

What information must be provided to HMRC?

On registration the trustees must provide HMRC with prescribed information relating to the employee trust and its settlor, trustees, beneficiaries, and assets.

What should trustees and employers consider?

The trustees are responsible for registering an employee trust under the TRS. However, the sponsoring employer will have an ongoing governance role – and reputational interest – in making sure that, where necessary, employee trusts are registered with the TRS and the information provided is complete and correct.

Trustees and sponsoring employers of non-taxable employee trusts should confirm whether they are required to register their trusts with the TRS by 1 September 2022.

Where trustees and employers establish there is no current obligation to register a non-taxable employee trust, they should implement arrangements to ensure that any events which trigger a future obligation are identified and, where relevant, the trust is registered on a timely basis.

Confirming an employee trust’s registration position can be difficult. KPMG in the UK’s trust tax specialists can assist trustees and employers to confirm their trust’s position and complete any registrations required.