In June 2017, the HMRC Trust Register came into effect following the adoption of the 4th Anti-Money Laundering Directive.
This resulted in ‘express’ trusts with UK tax liabilities being required to register on the Trust Registration Service (TRS) if they incurred certain UK tax liabilities, namely capital gains tax, income tax, inheritance tax, stamp duty land tax, and stamp duty reserve tax. Trustees were required to register information including details of individuals with beneficial interests being settlor, trustees, beneficiaries and protectors, and persons with significant control.
In April 2018 the European Parliament adopted the 5th Anti-Money Laundering Directive as a continuation of their plan to tackle the use of the financial system for the funding of criminal activities and terrorist financing. UK legislation enacting these changes took effect from 10 January 2020. However, due to complexities which arose in the initial consultation process, the changes to the UK TRS were not included and a second consultation paper was published with the purpose of testing whether the draft legislation transposed the directive in a ‘proportionate’ way.
On 15 July 2020 HMRC published the summary of responses and the outcome of the consultation. The draft legislation was also laid before parliament on the same day.
Changes to the TRS
Trusts that have already registered
Trusts that have already registered will have to provide additional information about their beneficial owners. Information requirements will be more onerous for trusts with UK tax liabilities. For example they will be required to provide information about the trust assets, and information about potential beneficiaries.
Extension of UK Trusts within the scope of the TRS
All UK express trusts have to register regardless of whether the trustees incur one of the specified tax liabilities.
In the January consultation the government confirmed certain categories of trusts as excluded from registration. Broadly, this includes trusts that are already required to register in some other way, or are considered a low risk of being used for money laundering or terrorist financing. The government response clarifies and extends the types of trusts exempt from registration on TRS, including some of the following:
• Trusts imposed by statute, where these do not result from the clear intention of the settlor.
• UK-registered pension trusts
• UK regulated charitable trusts
• Pure protection life insurance policies and those paying out on critical illness or disablement
• Trusts for vulnerable beneficiaries or bereaved minors
• Existing trusts holding assets valued at less than £100, until further assets are added
• Will trusts created on death that receive assets only from the estate and trusts that receive death benefits only from a life insurance policy and are wound up within two years of death.
It appears the government have decided against suggestions to exempt bare trusts.
Extension of non-UK Trusts within the scope of the TRS
Non-UK express trusts with UK assets will continue to be required to register but only where they incur any of the specified UK tax liabilities. Any non-UK trust that acquires UK land or property will also be required to register.
The original draft legislation required a non-EEA trust with no other connection with the UK to register if it entered into a business relationship with a UK service provider which is within the scope of UK money laundering rules, for example banks, lawyers, accountants etc.
The government have clarified the term “business relationship” as a business, professional or commercial relationship that arises out of the professional activities of the obliged entity and that is expected, at the time the relationship is established, to endure for a period of time, which in the government’s view is at least 12 months.
However, the government have also confirmed that they will take a measured approach and only require non-UK trusts to register on entering a UK business relationship if the trust has at least one UK resident trustee. This means that the vast majority of non-UK trusts will not be required to register if their only link to the UK is through a business relationship with a UK based adviser.
These new rules will take effect from 5 August 2020, other than in certain limited circumstances.
There is a transitional period whereby the deadline for new registrations or providing the additional information required is 10 March 2022. After that, trusts that are not already on the register and fall into the reporting requirements to register on the TRS after 9 February 2020 will have 30 days to register.
Additionally, trustees of registered trusts which incur UK tax liabilities, must notify HMRC of any changes to registered information within 30 days from the date the trustees become aware of the change.
Access to TRS information
Access to TRS is currently restricted to government authorities but this will extended to anyone with a 'legitimate interest' under the new regulations. The government have confirmed that guidance will be provided as to how requests will be reviewed and access will only be given where there is evidence of counter money laundering or terrorist financing activity. The government have also confirmed that necessary safeguards will be in place to reduce the risk of information being released where it could lead to disproportionate harm.
We can help Trustees to understand their likely obligations under these rules and assist with the UK Trust registration process if required.