Protection plans and HMRC’s Trust Registration Service – briefing note

From 6 October 2020, The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 introduced a new requirement for certain express trusts to be registered on HMRC’s Trust Registration Service even where the trust does not have a current tax liability. Any trust that has a current tax liability already needs to be registered.
Key facts
  • Most trusts used with protection plans do not need to be registered immediately. 
  • Any trust that has a current tax liability already needs to be registered or will need to be registered within 90 days if a tax liability arises in future.
  • For more information on when a trust needs to be registered and how this is done see Register a trust as a trustee - GOV.UK (www.gov.uk)

There are however some exceptions to this. One of these is that most trusts used with protection plans do not need to be registered immediately. This is because of the exemption for trusts that only hold life policies that only pay out:

  • on the death, terminal, or critical illness or permanent or temporary disablement of the person assured, or
  • to meet the cost of healthcare services provided to the person assured

The exclusion can apply to trusts holding multiple policies so long as each policy within the trust meets the conditions above. The exclusion also applies to unit-linked protection plans. However, where a trust holds any other policy not meeting the above conditions, such as an endowment policy or capital investment bond, or any other non-insurance assets, the exclusion does not apply, and the trust must be registered.

This also means that following a claim being paid under the policy, or in the case of a unit-linked plan the policy being surrendered, the trust may become registerable as it may now be holding cash as well as or instead of the policy. However, there is a further exemption for trusts holding pay-outs from insurance policies received on the death of the person covered.

A trust holding a policy excluded from registration during the life of the person covered continues to be excluded from registration if, following the death of the person covered, the trust receives the pay-out from the policy. 

The exclusion applies for two years following the date of death. This gives the trustees two years from the death of the person covered to distribute the funds to the beneficiaries of the trust before registration on Trust Registration Service is required. If by the end of this period the funds have not yet been distributed to the beneficiaries, the trust is from that point required to register on Trust Registration Service.

For all other claims, for example on diagnosis of a critical illness, and if a policy is surrendered, HMRC has confirmed that if the benefit is paid to the trustees, the trust must be registered within 90 days of the claim being paid. But if the trustees direct the insurance company to pay the benefit direct to a beneficiary the trust doesn’t need to be registered. This is because, if benefits are paid direct to a beneficiary at no point has the trust held any asset other than the insurance policy and so it remains exempt from registration.

Any trust that has a current tax liability already needs to be registered or will need to be registered within 90 days if a tax liability arises in future.

There is more information on when a trust needs to be registered and how this is done on HMRC's website - Register a trust as a trustee - GOV.UK (www.gov.uk) 

Note

The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.

All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.

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The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.