Since January 2018, certain trusts have had to register with HM Revenue & Customs (HMRC) and provide background information, including details of certain individuals connected with the trust.
The government is now consulting on extending these registration requirements, as part of wider measures to implement the Fifth EU Anti-Money Laundering Directive (5MLD).
Currently, trusts are only required to register where they have a relevant UK tax consequence – that is, when they incur a liability for one of a range of taxes, including income tax, capital gains tax and inheritance tax. 5MLD removes the requirement for there to be a UK tax consequence, meaning that – in addition to those trusts already required to register, all trusts falling within the following groups will be caught:
- All UK resident express trusts;
- All non-EU resident express trusts which acquire an interest in UK real estate on or after 10 March 2020; and
- All non-EEA resident express trusts entering into a new business relationship with a UK entity which has to carry out anti-money laundering checks, again on or after 10 March 2020.
The first of these, in particular, could catch many trusts, including those linked to financial products (for example life assurance, or discounted gift trusts). The government is to produce guidance “in due course” to help trusts determine whether or not they fall within the rules.
It is expected that the changes will bring a significant number of additional trusts into the registration regime: around 200,000 trusts are within the current requirements, and estimates are that this could rise to somewhere between 1 and 2 million. The government acknowledges that there will need to be an adequate lead in time to allow existing trusts to register. It is, therefore, proposing that trusts in existence at 10 March 2020 will have until 31 March 2021 to register.
For trusts set up on or after 1 April 2020, the timings will be much tighter: the government is proposing a 30-day deadline for registration. The same 30-day deadline will ultimately apply to updates of information – although, as the consultation document notes, the facility to update trust registrations is not currently available.
It is likely that trusts brought within the rules by 5MLD will have to provide less information as part of their registration than those trusts caught by the current rules, although the government has stated that it is looking to reduce the amount of information it collects on trusts with a UK tax consequence as part of the changes.
The consultation also considers issues around widening access to the information held on the trust register. Whilst the EU has not mandated the creation of a public trust register, 5MLD does require Member States to allow access to data to those with a ‘legitimate interest’. The government is intending to link the UK’s definition of legitimate interest to the underlying objectives of the directive. This is likely to mean that access to information will only be given where a person can provide evidence to support their belief that a particular trust is involved in money laundering or terrorist financing.
Having reached this point, readers may well be asking what impact Brexit will have on these proposals. The consultation document explicitly states that if the UK leaves the EU with an ‘implementation period’ (as proposed in the Withdrawal Agreement) we will need to implement 5MLD, and is also clear that the UK shares the underlying goals of 5MLD. We would, therefore, recommend that trustees work on the assumption that these proposals will be implemented as planned from next year, although until HMRC issues its guidance there is little which can be done except identifying those trusts which are likely to be affected.