UK trust register and 5MLD consultation

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The long awaited technical consultation on the extension of the UK trust register was published on 24 January 2020.

Key points of interest include:

  • It is proposed that certain UK trusts will be exempt from having to be registered - including charitable trusts, trusts to hold life insurance policies, jointly held property and registered pension scheme trusts.
  • The government is still considering whether bare trusts and nominee arrangements should be excluded from having to be registered.
  • Information on beneficial owners of registered trusts will, generally, only be accessible to people who can demonstrate a ‘legitimate interest’. People requesting access will have to provide information to support their suspicion that the trust has been used for money laundering or terrorist financing, and provide the name of and identify the specific trust.
  • Most trusts will have until 10 March 2022 to register.

Background

Currently, the trustees of certain trusts are obliged to collect and maintain information on the beneficial owners of the trust. If the trustees incur a liability to UK income tax, capital gains tax, inheritance tax, stamp duty land tax or stamp duty reserve tax (the “specified taxes”), the trust must also be registered on the UK trust register (Trust Registration Service (TRS)) and this beneficial ownership information, together with certain information on the trust itself, must be provided HMRC.

To comply with the EU Fifth Money Laundering Directive (5MLD) the scope of the TRS is to be extended. The government published a consultation on 5MLD and the TRS on 24 January 2020; this follows on from an earlier consultation on the transposition of 5MLD in April 2019 (“April 2019 consultation”).

However Brexit may be implemented it is expected that the UK will still fully comply with 5MLD.

Which trusts will have to be registered on the TRS?

From March 2020 the registration requirement will apply to:

  • all UK resident express trusts (unless the trust falls within one of the categories of excluded trusts – see below)
  • non-UK resident express trusts where the trustees
    • acquire an interest in UK land on or after 10 March 2020; or
    • enter into a new business relationship, on or after 10 March 2020, with an entity in the UK that is required to carry out customer due diligence checks in relation to the trust (e.g. a bank, lawyer, estate agent, accountant)

       

      unless the beneficial owner information in relation to the trust is held on a central register in another EEA country; or

    • are liable to one of the specified taxes on UK source income or UK assets.

    Will any UK trusts be excluded from having to be registered?

    5MLD does not provide for any carve outs, exemptions, or de minimis thresholds. However, the government recognises that there are certain categories of UK express trust that carry a low risk of being used for money laundering or terrorist financing and it would be disproportionate to require those types of trust to be registered on the TRS, unless and until the trustees incur a liability to UK tax.

    It is proposed that certain types of UK trust will not have to be registered on the TRS, including

    • charitable trusts
    • trusts that arise as a result of statutory requirements (e.g. statutory trusts arising on intestacy)
    • trusts created by, or to satisfy, a court order
    • co-ownership trusts that exist solely for the purpose of jointly owning UK land
    • trusts that exist where two or more people co-own an asset legally and beneficially for themselves with concurrent and not successive interests – e.g. a bank account or shareholding; and
    • trusts of life insurance policies, income protection policies or policies solely for the payment of retirement death benefits - which only pay out on the death, terminal illness of permanent disablement of the insured.

    If the trustees of a UK trust that falls within one of the above carve-outs, become liable for one for of the specified taxes the trust will need to be registered on the TRS in order for the required trust tax return to be issued.

    These exclusions are much needed and welcome, and will significantly reduce the number of trusts that have to be registered. However, the lack of any de minimis threshold means that, for example, most pilot trusts (trusts established with a nominal initial trust fund – often £10 – to receive funds on the happening of a later event typically the death of an individual) will still have to be registered.

    What about bare trusts/nominee arrangements?

    The government is still considering whether bare trusts and nominee arrangements should be excluded from having to be registered. Bare trusts often exist by way of a contract between a nominee and the person with the beneficial interest in the relevant assets(s). In many civil law jurisdictions similar nominee-type arrangements would be considered to be contractual (rather than ‘trusts-type’ arrangements) and so outside the scope of 5MLD.

    Trustees of non-UK trusts entering into a business relationship in the UK

    Considerable concern has been expressed that, if a literal approach is taken to this element of 5MLD, this would create a huge disincentive for non-UK resident trusts to use UK service providers (banks, accountants, lawyers, estate agents  etc.) as to do so would potentially result in the non-UK resident trust having to be registered on the TRS. The government is continuing to consult with stakeholders on how this element of 5LMD should be interpreted, and so no further details are provided in the current consultation. We will provide an update when further details are issued.

    It is worth noting that under 5MLD the requirement to collect and maintain beneficial ownership information is based on where a trust is administered – so only where a trust is administered in the UK can there be any question of it being subject to registration on the TRS. The question then arises as to when a trust should be treated as being administered in the UK. In the April 2019 consultation the government states that it envisages this element of the 5MLD will apply to non-UK resident trusts that are deemed to be administered in the UK by virtue of having one (or more) UK trustees (even if there is a non-UK settlor and there is no other connection with the UK). This would mean that a non-UK resident trust with all non-UK resident trustees will not have to register on the TRS even if it uses UK lawyers/accountants/bankers, unless (and until) the trustees incur a liability to one of the specified taxes. We will have to wait and see whether this remain the government’s position.

    What information has to be included on the TRS?

    Trustees liable to UK tax

    Where the trustees of the trust (UK or non-UK) are liable to one of the specified taxes (in the case of a non-UK resident trust on UK source income or UK assets), the information that must be provided to HMRC and will be held on the TRS on every beneficial owner who is an individual includes their name, date of birth, national insurance number and the nature of their role in relation to trust (e.g. settlor, beneficiary). If the trust is UK resident, their country of residence, nationality, and the extent of their beneficial interest in the trust will also be required. “Beneficial owners” for these purposes includes: settlor (even if dead), trustees, beneficiaries and any individual who has control over the trust.

    Certain information on the trust itself also has to be provided to HMRC when the trust is registered, and subsequently be kept up-to-date. This includes the name of the trust, the date it was established, the initial trust assets and where it is tax resident and where it is administered.

    Trustees not liable to UK tax

    In all other cases - that is, where the trustees of the trust (UK or non-UK) have no liability to one of the specified taxes – the trustees will only need to provide limited information on the beneficial owners of the trust. This information consists of their full name, month and year of birth, country of residence, nationality, and the nature and extent of their beneficial interest in the trust. Presumably, some information on the trust itself will also have to be provided in order to identify the trust in relation to which the beneficial owners are beneficial owners. However, it is not clear from the draft legislation what that information will be.

    Will the information on the TRS be publicly accessible?

    Under 5MLD, trust registers must be made accessible to any natural or legal person that can demonstrate a ‘legitimate interest’. ‘Legitimate interest’ is not defined in 5MLD; the government can, therefore, determine an appropriate definition for use within the UK.

    The government recognises the need to balance a beneficial owner’s right to privacy against the need for transparency. It proposes that any request for information must be in relation to a specified instance of suspected money laundering or terrorist financing activity and form part of an investigation into this instance. The person making the request will have to name the trust and provided any additional information required to identify the trust, and provide information to support the suspicion that the trust has been used for money laundering or terrorist financing. The draft regulations provide that anyone asserting a legitimate interest to information on the TRS may be required to provide standardised information. Currently, it is expected that this will include information on the applicant and any organisation they are requesting the information on behalf of and the intended use of the trust data.

    It seems that the government is trying to protect individuals whose data is held on the TRS from purely speculative queries, and from requests made for any inappropriate reason. However, concerns will remain about the potential risks to individuals of the information being accessible to the public.

    Where a person can demonstrate a ‘legitimate interest’ the information that will be provided is limited to the full name, month and year of birth, country of residence and nationality of each beneficial owner and the nature and extent of their beneficial interest in the trust. However, HMRC can withhold information in relation to a beneficial owner who is under the age of 18 or lacks mental capacity, or where making the information available would expose the beneficial owner to a disproportionate risk of fraud, kidnapping, blackmail, extortion, harassment, violence or intimidation.

    Trusts which hold controlling interests in non-EEA companies

    Where the trustees of a trust (UK or non-UK) that has to be registered on the TRS have a controlling interest in a non-EEA entity, information in relation to the entity must also be provided to HMRC to be held on the TRS. In addition, access to the information held on the beneficial owners of such a trust will be more widely accessible than in relation to other trusts. There is no ‘legitimate interest’ hurdle to overcome in order to gain access to the beneficial ownership information of such a trust; any person can, on making a written request, access the information.

    Trustees will be treated as having a controlling interest in a non-EEA entity if, in their capacity as trustees:

    • they hold, directly or indirectly, more than 50% of the shares or voting rights in the entity
    • are entitled, directly or indirectly, to appoint or remove directors holding a majority of the voting rights at board meetings on all or substantially all matters; or
    • have the right to exercise, or actually exercise, significant influence or control over the entity.

    One of the consequences of this is that the beneficial owner information of a non-UK trust established by a non-UK settlor holding only non-UK assets but which engages a UK service provider will potentially be available to the public, without any ‘legitimate interest’ safeguard. Whether this is the case will depend on what the government concludes in relation to which non-UK trusts entering into business relationships  in the UK should be within the scope of the rules. It is hoped that the government will not extend the scope beyond that envisaged in the April 2019 consultation.

    Penalty Regime

    There are two administrative offences in relation to the TRS – the failure to register a trust by the relevant registration deadline and the failure to keep the trust register up-to-date and correct. No financial penalty will be imposed for a first offence unless the failure is found to be deliberate. For a second, and each subsequent offence, of a failure to update details within the time limit, there is a proposed set penalty of £100 per offence.

    Registration Deadlines 

    Trusts set up before 6 April 2021

    If the trustees incur a liability to one of the specified taxes for the first time the trust must be registered by 31 January after the tax year in which the liability arose; otherwise the trust must by registered on or before 10 March 2022

    Trusts set up on or after 6 April 2021

    Trusts set up on or after 6 April 2021 but before 9 February 2022 must by registered on or before 10 March 2022. Trusts set up on or after 9 February 2022 must be registered within 30 days of being set up.

    Once a trust is registered on the TRS, trustees will have 30 days from when they are aware of any changes to update the details.

     

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