Hundreds of thousands of trusts will be hit by sweeping new reporting rules that came into force this week as part of a money laundering crackdown. Trustees will need to give HM Revenue & Customs a detailed picture of the assets held in a trust, as well as the identities of trustees and beneficiaries.

The government expects the extra information to “deliver a marked change” in its ability to identify the misuse of trusts, as well as giving it a wider understanding of the tax liabilities of people connected to a trust.

KEY FACTS

1. The new rules introduced (JUNE 26TH 2017) will catch a big range of trusts — potentially including those set up in wills — but only if they incur tax liabilities.
2. HMRC says that 162,000 trusts made self-assessment returns for the 2014-15 tax year.
3. Trustees will need to update the register for each year that the trust generates a UK “tax consequence”.
4. The implementation of the new register has been delayed for a few weeks. Trustees will have until
   1. October 5 2017 to register new taxable trusts and
   2. January 31 2018 to provide information on existing trusts.

NO public access to trust registers

• Only law enforcement agencies are set to get access to the information, but the majority of EU states are pushing to make the registers public.
• The UK government and the wealth management industry have argued against public access to trust registers because of concerns over privacy, human rights and data protection as well as fears it could expose vulnerable beneficiaries to potential abuse.
• When France last year set up a public register of trusts, it was soon suspended following a legal challenge by an 89-year-old American woman who did not want the beneficiaries of her estate to learn the details of her intentions.
• The government sees trusts, which are often used to structure inheritances, as largely a private matter.

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Get ready for the UK’s Register of Beneficial Owners of Trusts.

The UK Trust Register has arrived and it will affect most, if not all, trustees and fund administrators in the Channel Islands.

On 26 June 2017, the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 were enacted in the UK. The regulations introduce the UK’s Register of Beneficial Owners of Trusts.

PLEASE NOTE these regulations have both civil and criminal penalties apply for non-compliance with any part of the regulations

The Register will apply to all express trusts and trust equivalents with a UK tax consequence. This includes

• complex death estates,
• foundations and
• collective investment schemes such as unit trusts.

Although the Register is not yet live, it is expected to be fully operational later in the summer, with first registration due by 31 January 2018.

MORE DETAILS

The new measures are extensive and introduce a significant additional compliance burden, as well as civil and criminal penalties for non-compliance and it is recommend trustees start to consider the practical and legal implications from now in order to be ready to comply when the Register goes live.

The new Trusts Registration Service is being introduced as part of HMRC’s “Making Tax Digital” agenda as well as to comply with the Fourth Money Laundering Directive (4MLD). It will result in the creation of a Trust Register which will be held by HMRC and will be available to parties with a “legitimate interest” (i.e. Law enforcement and tax authorities).

The Trust Register was introduced in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. These regulations were issued on 22 June 2017, and became effective on 26 June 2017 as required under 4MLD. Although this is UK law, as is becoming increasingly common, the law places obligations on businesses outside the UK.

Who is in scope?

• The register applies to all express trusts, including collective investment schemes such as unit trusts, with a UK tax consequence for a particular year. Complex estates and any other legal arrangement similar to a trust (such as foundations) are also covered, with very few exclusions. A UK tax
• consequence has now been clarified as a liability to pay UK income tax, capital gains tax, inheritance tax, stamp duty land tax or stamp duty reserve tax.
• The registration applies for trusts with an existing HMRC registration as well as any trusts that develop a UK tax consequence in the future. There is no de-minimis and so this is likely to have very wide scope.

What does the register entail?

1. The Trust Register will be a central register held by HMRC and updated annually by trustees. Information is required in respect of the trust, trust assets and any persons defined as beneficial owners, which is wider than applies in other circumstances. Potential beneficiaries named on documents provided by the settlor (e.g. letter of wishes) are also covered.
2. The information to be reported is extensive. In the case of the trust, trustees must provide:
   1. The name of the trust and date of creation
   2. The address of the trustees, place of administration and the tax residence of the trust
   3. A statement of account showing the category, value, and (for property only) address of trust
   4. assets on the date of first registration
   5. The full name of any legal, financial and tax advisors for the trust

For beneficial owners and potential beneficiaries, trustees must provide detailed identification information, some of which they are not currently required to obtain.

When can trusts be registered?

• First registrations under the new Trust Register are due by 31 January 2018 with annual updates required by each 31 January
• Any trusts with an existing UK tax consequence will be required to register by 31 January 2018.

Will the register be public?

• There is no intention for the register to be made public at this stage.
• The register will instead only be made available to law enforcement and other relevant authorities on request. 4MLD currently does not impose any obligation for the register to be made public and the UK Government has repeatedly rejected suggestions for the register, or parts of the register, to be made publicly available.
• Notwithstanding the above, there is interest within the EU to expand the scope of the 4MLD to introduce a public beneficial ownership register for trusts or structures similar to trusts.
• Whilst this does not yet mean that such public registers will be implemented, it is clear that there are strong views about this in Europe on both the pro- and anti- sides of the camp.

Implications for trustees

• The new Trust Register imposes yet another significant additional compliance burden on trustees and also raises the very significant question of sharing beneficiary data. The requirements of the Trust Register also impose additional information gathering obligations, which are more extensive than those currently required under local Anti-Money Laundering and Terrorism Financing regulations.

We would recommend that trustees start to consider:

• Whether the trust is required to be registered
• If it is possible to obtain closure letters from HMRC for any trusts which may no longer have a liability to UK tax
• The identities of reportable persons
• Informing beneficiaries and settlors of the new disclosure obligations on trustees