Since 26 June 2017, trustees of UK trusts and of non-UK trusts with UK tax liabilities have been required to maintain accurate and up-to-date records of all the beneficial owners of the trust. They are also required to report beneficial ownership information annually to HM Revenue & Customs (HMRC) to be kept on a UK register of trusts. The register of trust beneficial ownership was introduced to comply with the UK's obligations under the EU's Fourth Anti-Money Laundering Directive (4AMLD).
Under current law the register is only accessible by tax and law enforcement authorities. However, the European Commission is proposing that the 4AMLD should be amended to require trust beneficial ownership information to also be available to those with a 'legitimate interest'. If the 4AMLD is amended whether the UK would have to amend its regulations would depend upon the Brexit arrangements.
The new registration requirements apply to all UK express trusts and to non-UK trusts which receive income from a source in the UK or have assets in the UK on which they are liable to pay income tax, capital gains tax, inheritance tax, stamp duty land tax or stamp duty reserve tax. This will exclude most bare trusts.
An express trust is a trust that was deliberately created by a settlor expressly transferring property to a trustee for a valid purpose, rather than a statutory, resulting or constructive trust. Contracts, wills and testaments will only be registrable if they create an express trust which generates a UK tax consequence. Investment trusts will not be covered as they do not involve a transfer of legal ownership of property from the settlor to the trustee.
A trust will be regarded as a UK trust if:
- all the trustees are established in the UK, or
- at least one trustee is established in the UK and the settlor was established in the UK at the time when the trust was set up, or when funds were added to the trust.
Non-UK trusts which directly own UK real estate will be subject to the rules because they should have a UK tax liability in respect of the property. Non-UK trusts which own UK real estate through a non-UK company should not be within the rules simply as a result of the real estate investment as any UK tax liability should fall on the intermediate company. However, these trusts could be affected by the proposal mentioned at the end of this guide to introduce a new publicly accessible beneficial ownership register of overseas companies that own UK property.
The new online registration service replaces the previous requirement to file a paper form notifying HMRC of the creation of a trust in order for income tax or capital gains tax to be paid. The paper form was withdrawn from April 2017. However, the new registration service requires more information about the trust and its beneficiaries than HMRC obtained under the old notification system.
Trustees are required to provide information on the identities of the settlors, other trustees, beneficiaries, all other natural or legal persons exercising effective control over the trust, and all other persons identified in a document or instrument relating to the trust, including a letter or memorandum of wishes. The details to be supplied about individuals include name and address and if that address is not in the UK, the individual’s passport number or identification card number, the individual’s date of birth and the individual’s national insurance number and unique taxpayer reference, if any.
If a trust has a class of beneficiaries, not all of whom have been determined, then trustees will simply need to provide a description of the class of persons who are entitled to benefit from the trust, rather than individual names and addresses.
Trustees will also be required to provide general information on the nature of the trust. These include its name, the date on which it was established, a statement of accounts describing the assets identifying the value of each category of the trust assets (including the address of any property held by the trust), the country where it is resident for tax purposes, the place where it is administered and a contact address. Trustees will also need to provide the name of any advisers who are being paid to provide legal, financial, tax or other advice to the trustees.
HMRC published frequently asked questions in October 2017 on the trust registration service.
For trusts which already exist, the first filing deadline will be on or before 31 January 2018. However, HMRC has confirmed that for the first year they will not impose penalties on trustees of existing trusts so long as they have registered the trust by 5 March 2018.
For new trusts the first filing deadline will depend upon the UK tax liabilities of the trust.
If the trust is not already registered with HMRC and has an income tax or CGT liability for the first time, trustees must register using by 5 October after the end of the relevant tax year. For trusts with a first time income tax or CGT liability for 2016–17, this deadline is extended from 5 October 2017 to 5 January 2018.
If the trust is not already registered under the old rules and has an inheritance tax or stamp tax liability or where a trust is already registered under the old rules and the trustees incur any relevant tax liability, the deadline for registration is 31 January after the tax year in which the trustees first become liable to pay UK taxes.
There will be an annual requirement on or before 31 January each year to notify any changes that have occurred in the previous tax year or to confirm that there have been no changes. There will be no need to notify a change in the value of trust assets. If the trust is not liable to pay any UK tax in the tax year in which the change occurs, the notification requirement does not arise until 31 January after the next tax year in which the trust is liable to UK tax.
Who can access the information?
The current regulations only allow HMRC and law enforcement bodies to access the information on the register. However, the European Commission is proposing that the 4AMLD should be amended so that access to information about the beneficial owners of trusts will be freely accessible to the authorities and professionals subject to anti-money laundering rules, such as banks and lawyers. It also proposes that trust beneficiary information will also be accessible to others who can 'demonstrate a legitimate interest'. It is not clear how this will be defined.
If the 4AMLD is amended whether the UK would have to amend its regulations would depend upon the Brexit arrangements.
Other obligations of trustees
In order to comply with their obligations, the trustees of all affected trusts will need to maintain accurate and up-to-date records of all the beneficial owners of the trust.
Trustees entering into certain business transactions in their capacity as trustees will have to disclose that they are acting as trustees and on request provide information about the beneficial owners of the trust. The transactions affected will be with those who are required to perform customer due diligence such as financial institutions, accountants, law firms, trust or company service providers and estate agents.
Trustees must also provide information about the beneficial owners of the trust if they are requested to do so by any law enforcement authority.
Professional trustees must keep records for a period of five years after the date on which the final distribution is made under the trust.
Failure to comply
Failing to comply with their obligations exposes trustees to HMRC penalties and possibly the publishing of a statement about the failure. Breaches can also be a criminal offence with a maximum prison sentence of two years.
Since 6 April 2016, most UK companies have been required to formally identify and keep a register of the individuals who are ‘persons with significant control’ (PSC) over them and to include this information in an annual return. The information on PSCs is available for public inspection. The PSC register makes it possible to trace the true owners of UK properties, where a UK company is listed at the Land Registry as the owner of the property. However, this is not currently possible where the property is owned by an offshore company.
In order to introduce transparency of ownership of UK property by non-UK companies, the government intends to introduce a new publicly accessible beneficial ownership register of overseas companies that own UK property or participate in UK government procurement. Details were set out in a consultation document published in April 2017.
Jason Collins and Paul Noble are tax experts at Pinsent Masons, the law firm behind Out-Law.com.