The UK government obligations under the Fourth Money Laundering Directive (4MLD) came into effect in June 2017.
In the past, HMRC required completion of paper Form 41G (Trust) to register a new trust. This captured important information such as the names and addresses of the trustees, details of any professional agent acting, the governing law, lifetime trust or will trust, and so on. However, if there is no income arising, and no likelihood of income or gains in the future, you did not need to complete this form. This was a useful exclusion in situations where the trust fund simply comprised a non-income producing protection policy, endowment or whole of life policy or investment bond.
Form 41G (Trust) was subsequently withdrawn and, in recognition of the UK government obligations under 4MLD, trusts required to register, now do so through the TRS. Trusts in place before the introduction of the TRS are also required to be registered because the new legislation expands the scope of information previously collected.
The TRS now provides a single online route for trusts to comply with their registration obligations and to obtain their Self-Assessment (SA) Unique Taxpayer Reference (UTR). Trusts require a UTR in order to submit the SA tax return.
An ‘express trust’ where the trustees have incurred a liability, in a given tax year, to pay any of these UK taxes:
The term ‘express trust’ means a trust deliberately created by a settlor expressly transferring property to a trustee for a valid purpose, as opposed to a statutory, resulting or constructive trust.
Trusts which do not need to register include those falling under these circumstances:
A discretionary trust holding a non-income producing life policy would fall within the first bullet point (assuming also no IHT liabilities). Remember, however, UK resident trustees may become taxable if a chargeable event gain subsequently arises and the settlor cannot be taxed because he/she died in an earlier tax year or is non UK resident. For example, if the policy is held in a discretionary will trust then the trustees will need to register if a chargeable event gain occurs. If a UK resident settlor is taxable albeit that he/she may recover the tax from the trustees, then that situation seems to fall under the second bullet point.
The legal responsibility for registration lies with the trustees. Where there are multiple trustees, it is for the trustees to appoint a lead trustee to complete the registration process. All trustees are equally legally responsible for the trust, and therefore the lead trustee is simply the main point of contact for HMRC. If, for example, there are four trustees, this would be recorded as one lead trustee and three additional trustees. The trustees can appoint an agent to complete the registration process if they wish. With regard to professional advisers, the TRS requires the details of the agent (if one exists) registering on behalf of the trustees. No further information on other advisers is required.
When a trust is registered for the first time, that is a new registration process. In later years the trustees will either just update the details of the existing registration or confirm that the details remain up to date and accurate.
Note that the data on the Register is not available to the public. It can only be shared by HMRC with law enforcement authorities in the UK or in another EEA member state if requested.
The guidance is very detailed and therefore the following simply reflects some of the points that may be particularly relevant for advisers.
This depends on whether the trust is already registered for Self-Assessment (SA) for Income Tax or Capital Gains Tax.
Where the trustees incur a UK tax liability in a given tax year, then the registration deadline is 31 January after the end of that tax year.
Details of the trust assets, including addresses of UK properties, and a market valuation of assets held at the date the assets were settled. The TRS only collects information on the values at the initial registration.
In addition, the identity of the settlor, trustees, any person exercising effective control over the trust and the identities/names of all beneficiaries who are either actual or potential beneficiaries. It is possible to use a description of the class of persons to identify (actual or potential) beneficiaries. Where a beneficiary is un-named, being only part of a class of beneficiaries, a trustee will only need to disclose the identity of the beneficiary when they receive a financial or non-financial benefit from the trust.
The information required will include:
Updates to the TRS are required by 31 January after the end of the tax year in which the change occurred if the trustees incurred a UK tax liability in the previous tax year. However, in practice HMRC will expect trustees to ensure details of their trust are accurate and up to date at any point in time they make changes on the Register. Where no relevant changes have taken place since the end of the previous tax year, the update can be limited to confirmation that no such changes have occurred.
If the trustees have no UK tax liability (in respect of any given tax year) there is no requirement to update the Register. An update will then need to be provided by 31 January after the end of tax year in which the trustees do have a UK tax liability. However, changes can be made on a voluntary basis, even if the trustees had no UK tax liability.
Changes can be made to the trust’s correspondence address, the lead trustee can be changed, and it is possible to add or remove the details of the people who are associated with the trust at any time. For example, it is possible to add a new beneficiary or remove from the Register altogether a trustee or even an existing beneficiary if they are no longer deemed to be either an actual or potential beneficiary. It is also possible to close a trust or estate if it ceases to exist. These changes can be made at any time, and it is possible to update the information held on the Trust Register (in relation to any individual trust) on multiple occasions in the course of any given tax year.
The details of trust assets are only provided once at the first point of registration and if this changes over time there is no need to update information about the trust assets on the Register.
HMRC expects the trustees of all UK express trusts regardless of incurring a tax liability in a given tax year need to maintain accurate and up to date written records of all the actual and potential beneficial owners of the trust as set out under regulation 44(1) of the legislation.
This information should be held because under the legislation any law enforcement authority can request information about the beneficial owners of the trust including from a trust which does not incur a liability to any of the relevant UK taxes.
TRS was introduced to fulfil the requirements of 4MLD, registering UK express trusts with a taxable consequence. 5MLD removes this link with taxation, widening the definition of those trusts required to register and changing the registration deadline requirement. Amendments to Regulations implementing 5MLD came into force on 10 January 2020. However, so as to allow for further consultation, this did not include changes required to the TRS. A government consultation was launched on 24 January 2020, running to 21 February 2020 to consider the knock on changes necessary to the TRS. On 15 July 2020, the government published the main responses received and the next steps. These next steps are important. Out of the six questions posed in the consultation, questions one and two are related and are particularly important in the context of mainstream financial planning.
Are there other express trusts that should be out of scope? Please provide examples and evidence of why they meet the criteria of being low risk for money laundering and terrorist financing purposes or supervised elsewhere.
The government advises that it has taken respondents views into consideration (further details are contained in the draft legislation and forthcoming guidance). In general, the following types of trusts will be exempt from registration.
There is therefore no exemption for bare trusts. There is also no carve out for trusts (bare and non-bare) holding a non-income producing endowment policy, whole of life policy or investment bond. There are also still some complications for pure protection menu plans that include income protection as these provide benefits following temporary disablement not just permanent disablement. And split trusts commonly used with life or critical illness policies will need to register following a critical illness payment.
The exemption for “Existing trusts holding assets valued at less than £100 unless or until further assets are added” is welcome. That reflects the views that pilot trusts should be excluded. These are often settled with a nominal sum such as £10 and are not intended to receive more substantive funds until after the settlor’s death (e.g. a bypass trust for pension death benefits).
Do the proposed definitions and descriptions give enough clarity on those trusts not required to register? What additional areas would you expect to see covered in guidance?
The Government has acknowledged that trustees, professionals and other stakeholders will need clarity on the registration requirements of the trusts they are responsible for. This will be available via legislation and guidance.
Proposed legislation has been laid for consideration, and in the meantime, guidance will be developed.
For those concerned about privacy, a 'legitimate interest' criterion for public access to the register is being adopted. Each request will be reviewed on its own merits and access given only where there is evidence of counter money laundering or terrorist financing activity.
It’s important to be aware that the Government has agreed that it would not be appropriate to require will trusts to be registered within 30 days of the date of death, and it has therefore been decided that these trusts will not be required to register on the TRS provided they only receive assets from the deceased’s estate and are wound up within two years of death.
The current TRS has a dual purpose: it is a central register containing beneficial ownership details for taxpaying express trusts to meet the requirements of 4MLD and it also serves to notify HMRC of a tax liability. The information collected enables HMRC to set up a tax record for the trust, provide a Unique Taxpayer Reference and issue a trust tax return where required. Where a trust is already registered on TRS under 4MLD some additional information will be required to fulfil the requirements of 5MLD. Trustees will be required to access the updated TRS system, once launched, to do so. Where a newly registered trust has no liability to tax, the trustees will only need to provide information about the beneficial owners of the trust - settlors, trustees and beneficiaries - in line with 5MLD requirements.
The government proposes that:
Until 10 March 2022, all trusts that incur a tax liability for the first time should register on TRS under the current process in place for 4MLD and tax registration purposes. Communications will be issued to keep trustees informed of progress on updating the TRS system.
5MLD requires that, when entering into a new business relationship with a trust, ‘obliged entities’ must collect either proof of registration on the trust register, or an excerpt of the register. The government proposes that the onus will be on the trustee to provide this information rather than the obliged entity having direct access to the register. This means the trustee has control over who sees the information. An insurance company accepting a trustee investment application would seem to be an ‘obliged entity’.
4MLD requires access to the trust register for law enforcement agencies to aid their work in countering money laundering and terrorist financing. 5MLD broadens this access to third parties in certain instances.
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.
All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.