The concept of the trust register was introduced by the Fourth Money Laundering Directive (‘4MLD’) to assist with the EU’s anti-money laundering objectives. The EU has since launched the Fifth Money Laundering Directive (‘5MLD’) to address some of the gaps in existing transparency rules.
As explained in our 2020 Insight Pieces (EU Money Laundering Directives and the UK Trust Register: where are we? and Trust Registration Service and Fifth Money Laundering Directive… are we nearly there?) 5MLD introduces significant changes for trust registers by (i) expanding registration requirements, (ii) removing links with taxation, (iii) bringing into scope non-EU resident trusts that own real estate within the EU or have a business relationship with an ‘obliged entity,’ and (iv) increasing accessibility.
Despite the publication of HMRC’s Technical Response Document last year, a number of areas of uncertainty remained in connection with the operation of the UK’s trust registration service (‘TRS’) under the 5MLD regime. We are pleased to report that HMRC has now provided further clarification on several issues. This Insight Piece gives a brief overview of two key developments: (i) the arrival of a dedicated TRS manual, and (ii) confirmation of reporting obligations for trustees holding pensions and life policies.
Publication of TRS manual
The publication of a dedicated TRS manual on 17 May 2021 was welcomed by practitioners and trustees alike. The HMRC manual provides guidance for ‘registrable taxable trusts’ (trusts with a UK tax liability which were already required to register under the 4MLD regime) and ‘registrable express trusts’ (trusts required to register as a result of the introduction of the 5MLD regime).
It sets out guidance on:
- The types of trusts that need to be registered;
- Trusts that are excluded from the requirement to register (for example, estates and trusts created on death, employee share scheme trusts, co-ownership trusts of jointly held property where the trustees and beneficiaries are the same persons, charitable trusts and UK registered pension schemes);
- The information required to complete TRS registration;
- Deadlines for registration and updating information held on the TRS;
- Trustee data retention obligations; and
- Third party access requests (including legitimate interest requests and third country entity requests).
Although further updates are expected, the manual already contains a series of helpful examples and clarifications. Indeed, the guidance now makes it clear that:
1. For non-UK express trusts, the acquisition of UK land by the trustees on or after 6 October 2020 triggers the requirement for registration.
2. Trustees of non-UK express trusts with at least one UK resident trustee are only required to register on the TRS if they enter into a new ‘business relationship’ on or after 6 October 2020. Business relationships that were already in existence before 6 October 2020 do not bring the trust into scope of registration. By way of reminder, ‘business relationship’ has a specific meaning for TRS purposes, namely a business, professional or commercial relationship between the trustees and a UK ‘relevant person’ (for example, legal advisers, financial institutions, accountants, tax advisers, trust or company service providers, estate and letting agents) that is expected, at the time the relationship commences, to have an element of duration (and therefore to go beyond a one-off, short lived transaction).
3. Information regarding the mental capacity of beneficial owners will be used to consider whether an exemption should apply if a third party requests access to the data held in relation to that trust (although capacity information will not be used for any other purpose, nor will it form part of the information that may be disclosed). It is not expected that trustees take additional steps outside their pre-existing commitments to consider whether a beneficial owner lacks mental capacity. Instead, an individual should be recorded as lacking capacity only when this has already been determined through factors arising elsewhere (for example, the use of a Lasting Power of Attorney).
Further clarification for trustees holding pensions or life policies
There had been much discussion as to whether trusts holding life insurance policies with a surrender value would be ‘excluded trusts’ for TRS purposes. As a result, many trustees were waiting with baited breath for further clarification on their 5MLD reporting obligations. Following consultation with the industry, HMRC has now confirmed that trusts holding policies which have surrender value would indeed qualify as ‘excluded trusts’ and therefore be exempt from registration. Furthermore, those trusts would remain excluded until such time as the policy is actually surrendered. It follows from this that trustees will have two years from the death of the person assured to distribute pay-outs received to the beneficiaries of the deceased’s estate before TRS registration is required. Further guidance on this point will be included in the next iteration of the TRS manual.
The widening scope of the TRS has significantly increased the regulatory burden on trustees. Trustees are expected to take all reasonable steps to comply with their new regulatory obligations, including registering appropriate trusts and notifying HMRC of relevant information. Sanctions will be imposed where obligations are not fulfilled. HMRC’s stated intention is that a first offence (or inadvertent failure) will not carry a financial penalty – trustees will simply receive a ‘nudge’ letter. Deliberate failures will, however, result in a fine.
Although many trustees will still have plenty of time in hand to get their ducks in a row, they should nevertheless ensure they have put in place arrangements to comply with their reporting obligations now that further clarity has been provided by HMRC. In particular, they should (i) consider their new registration obligations and availability of exemptions, (ii) review information to be collected and submitted to the TRS, and (iii) assess whether access to information can be restricted. Overseas trustees should also review (i) structures used for acquisition of UK land and (ii) business relationships with UK service providers.
Existing ‘registerable taxable trusts’ are required to register by 31 January (or 5 October in some cases) following the end of the tax year in which the trust had a liability to UK taxation; and existing ‘registerable express trusts’ are currently required to register on the TRS by 10 March 2022. HMRC has announced an intention to extend this deadline until later in 2022, to give trustees sufficient time to register. The precise date will be confirmed later this year and included in a future update of the TRS manual, as will deadlines for updating beneficial ownership information.
Note that a 30 day deadline applies for new trusts:
(i) ‘Registerable taxable trusts’ set up on or after 9 February 2022 must be registered within 30 days of the trustees becoming liable to pay UK taxes; and
(ii) ‘Registerable express trusts’ set up on or after 9 February 2022 must be registered within 30 days of being set up.
How can we help?
Withers has experts who can deal with registration requirements under both 4MLD and 5MLD. If you would like further advice or assistance in complying with these obligations, please contact us or your usual Withers contact.