Extension of the Trust Registration Service (“TRS”)
HM Treasury published a consultation document in April 2019 on the Fifth Money Laundering Directive (“5MLD”) which will have an impact in due course on the TRS. An outline of the proposed extension to the rules is given below.
One of the main objectives of the 5MLD is to ensure that trust structures do not facilitate money laundering or terrorist financing. By way of background the fourth money-laundering directive contained a requirement which resulted in the UK register (i.e. the TRS) for all express trusts (UK and non-UK trusts) that incur a UK tax consequence.
The 5MLD requires trustees of all UK and some non-EU resident express trusts to register those trusts with the TRS, whether or not the trust has incurred a UK tax consequence. It is anticipated that this could extend the number of registrable trusts from around 200,000 to two million, many of which are likely to have been created to protect minors and vulnerable beneficiaries.
The 5MLD also contains requirements imposed on the government to share data.
The principal issues contained within the consultation document and specific to the TRS are:
- The scope of non-taxpaying express trusts required to register;
- The type of data that should be collected;
- How the government will deal with data sharing requests from relevant entities.
A more detailed technical consultation will be published by HMRC later this year containing further guidance.
Who is required to register?
The legislation currently requires a trustee of any express trust that is liable to pay one or more of six specified taxes to register the trust on the TRS. 5MLD expands the scope of the register, and the following trusts will have to be registered:
- All UK resident express trusts – there are presently no carveouts, exemptions or thresholds contained against this definition;
- Non-EU resident express trusts that acquire UK land or property either on or after the 10 March 2020;
- Non-EU resident express trusts that enter into a new business relationship with an obliged entity on or after the 10 March 2020 (a business relationship is defined as a business, professional or commercial relationship connected with professional activities and for further guidance on this please refer to the consultation document itself).
The consultation document also contains reference to trusts with a controlling interest in a non-EEA company and it seems apparent that the intention is to capture information on any such trust that owns or controls a corporate structure based outside of the EEA.
In relation to the term “all UK resident express trusts”, ‘expressly’ created means ‘deliberately’ created as opposed to having been created for example through a court order or statute.
The onus could be on the trustees or agents to determine whether an express trust exists, and basic trust law is used to establish this based upon the following:
- Certainty of words and intention
- Certainty of subject matter, i.e. the assets need to be clearly identified
- Certainty of beneficiaries, i.e. persons or classes of persons need to be defined.
HMRC‘s technical consultation which is to follow later this year will contain more detailed guidance on determining whether an express trust exists. In the meantime, the consultation document does provide examples of UK trusts which are likely to fall within the definition of an express trust and will have to register, as follows:
– Discretionary trusts
– Interest in possession trusts
– Bare trusts
– Charitable trusts
– Employee ownership trusts
HMRC recognise that the existing level of information requirements previously set for the TRS has been onerous and this should be reduced going forward.
- Unregistered trusts which are in existence on 10 March 2020 – the deadline for registering such trusts is proposed to be 31 March 2021.
- New trusts created on or after 1 April 2020. The deadline is proposed to be registration within 30 days of the trust’s creation. The rationale behind this is that the trust registration can be dealt with at the same time as the trust being set up.
- Future changes to trusts are to be notified to HMRC also within 30 days of the relevant change.
Currently the self-assessment penalty regime applies to the TRS. However, it is envisaged that this regime will not apply going forward as it is no longer appropriate since the TRS will no longer be aligned with the self-assessment regime.
Here is a link to the consultation document which closes on 10 June 2019. As mentioned above a further consultation is expected in summer 2019.
For more information