Trust Register: Latest (26 March 2020)
Before the first incarnation of the UK's Trust Register has fully bedded in, the government now has to implement changes required by the EU's Fifth Money Laundering Directive (5MLD). The necessary changes include extending the range of trusts required to register and introducing some limited public access to information on registers.
A technical consultation on draft legislation for the UK has recently closed (21 Feb 2020), and the key themes are as follows:
Limiting new UK trusts in scope
- Trusts are incredibly widespread in the UK. They are part of everyday life (forming the basis of jointly owned property, many bank accounts, pensions, life insurance and assets held for children) and also feature in a wide variety of commercial transactions.
- HMRC are trying to implement the rules proportionately and propose to exclude pension and life assurance trusts, charitable trusts, and some trusts specifically prescribed by legislation such as maintenance funds for historic buildings, approved share option and profit-sharing schemes, vulnerable beneficiary and personal injury trusts.
- No decision has yet been made on bare trusts, which are perhaps the most widely used in both personal and corporate contexts. However, while the exclusions will be key, these will not apply to taxable relevant trusts already required to register under current rules. This goes beyond the requirements of 5MLD, but HMRC wants to use the registration service for the dual purpose of anti-money laundering obligations and notification of taxable status.
Overseas trusts: business relationships
- Registration is to be extended to non-UK trusts forming business relationships in the UK or acquiring UK land, in addition to offshore trusts with UK income or assets liable to relevant UK taxes that are already required to register.
- The business relationships trigger is a contentious area of the proposals, potentially damaging to the UK's well-respected trust industry and the broader economy.
- Overseas trustees with little UK connection may be discouraged from instructing UK advisers and conducting business here with banks and other obliged entities required to comply with money laundering regulations. From 10 January, these now include letting agents and galleries, auction houses and other UK art intermediaries.
- It remains to be seen whether the registration requirement will be limited to overseas trusts administered in the UK and how HMRC interpret "business relationships". This is proposed to encompass those with an ongoing and repetitive nature expected at the outset to last more than 12 months, but only in respect of new relationships formed after 10 March 2020 or such later date that is prescribed and this could be put back until 2021.
Disclosure & timing
- There is quite a long lead-in time for new registrations (or reporting of additional information by UK relevant taxable trusts) which is not required until 10 March 2022 for trusts made before 9 February 2022 and otherwise within 30 days of the trust being set up.
- In addition to the information currently required about the trust and its beneficial owners, one new category of information is needed where registerable trusts have a controlling interest (broadly more than 50%) in a non-EU company, namely:
- the entity's name, governing law and registered office.
- This will be significant for offshore trustees and crucially may open up those trusts to a higher level of public exposure as explained below.
Legitimate interest requests
- For most trusts, HMRC only propose to make information on the register available to anyone with a legitimate interest in the investigation of money laundering or terrorist financing.
- Anyone requesting information will need to identify specifically the trust in question. HMRC will have wide discretion to refuse public access claims and this restricted approach is welcome.
Third party entity requests
- Disclosure of beneficial ownership information is to be more widely permitted for registrable trusts with a controlling interest in a non-EU company. In those circumstances, it will not be necessary to demonstrate a legitimate interest although anyone requesting access will have to specifically identify the trust, state what they intend to do with the data and how it will help prevent money laundering.
- HMRC may decline requests where this would expose the beneficial owner to a disproportionate risk of fraud, kidnapping, blackmail, extortion, harassment, violence or intimidation or where the beneficial owner is a minor or lacks mental capacity. It is worth noting that taxable relevant trusts are not subject to this wider disclosure, but other trusts are.
What next for trustees?
- Trustees need to be aware that these regulations are coming