Since 2017, trustees of UK and non-UK trusts which incur a UK tax liability have been obliged to register certain information with HMRC on the Trust Registration Service (TRS).
The Fifth Anti-Money Laundering Directive (5MLD), which is expected to be implemented by the UK on 10 January 2020, will significantly widen the scope of the TRS.
The government consultation on how 5MLD will be transposed into UK law closed on 10 June 2019 and the results will be published before 2 September 2019.
Key changes
- Registration requirements for all express trusts
The most significant reform will be that any express trust – irrespective of value or any UK tax liability – will need to be registered with the TRS. This appears to include trusts made in domestic situations (eg recording ownership of a holiday home or a family heirloom between members of the family), charitable trusts, bare trusts and trusts of life insurance policies.
- Broadened access to information
5MLD provides that any entity can access the information held by the TRS if they have a ‘legitimate interest’. This means the entity must have active involvement in anti-money laundering and evidence of money laundering activity by a particular trust. However, unlike the current law the entity does not need to be a law enforcement or public body.
- Establishing a new EU trust platform
The national register of beneficial owners in each Member State will be linked to a European central platform, with information being retained for five to 10 years after it ceases to be relevant. The government proposes that UK trust information held on the European platform will be subject to the same criteria of access as that held on the TRS.
- What needs to be reported to HM Revenue & Customs?
Details of the trust will need to be submitted to the TRS, including the date of trust, names and contact addresses of trustees, a statement of accounts for the trust and value of the property held.
Personal information on beneficiaries (and even potential beneficiaries) will also be required. This will include names and dates of birth, as well as information such as national insurance number and passport number. Non-UK residents who do not have these will need to submit equivalent information.
- Penalties
Failure to register a trust will incur penalties, though these will be reviewed on a case-by-case basis. If trustees do not register the trust or update the information, and cannot show HMRC that they took reasonable steps to do so, the penalty can be up to £300 ($377, €334) or 5% of the total tax liability for the relevant year.
Whole new world
The most concerning aspect of this legislation is the wide scope of express trusts which will be caught.
The current proposal encompasses trusts in informal or domestic arrangements and trusts of low-value or merely sentimental property.
Trusts that are for all practical purposes dormant, such as those holding life insurance policies, will also now be required to register.
Even a typical family home held jointly by spouses or civil partners, either as beneficial joint tenants or tenants in common, may technically constitute a trust and be caught by the regime.
Protecting the data
The expansion of TRS under 5MLD will hit a huge number of trusts, placing additional administrative burdens on non-professional and lay trustees – valuation of the trust property, preparing a statement of accounts and submitting information about both trustees and beneficiaries.
Trustees will need to consider (and possibly take advice on) the strict GDPR implications of gathering and holding sensitive information for the purposes of complying with their 5MLD reporting obligations.
There will also be understandable concerns about such data being leaked or hacked. Under the current proposals, penalties may be applicable to those who did not know they were trustees at all.
What is the value add?
While the intentions behind the directive are admirable, arguably such a registration system will be of little effect.
The TRS does not vet the information submitted, so those using trusts for illegitimate purposes can submit false information or not register at all.
Furthermore, the information stored in relation to the trust can only be accessed once there is already evidence of money laundering, so it is unclear what additional value is added by 5MLD, especially when information on beneficial ownership can already be requisitioned by law enforcement agencies in these circumstances.
5MLD introduces a significant – and arguably disproportionate – administrative burden on trusts and requires sensitive personal data to be submitted for trusts that demonstrably have no commercial purpose or tax avoidance motive.
It has even been suggested that the operation of the register could be subject to challenge when viewed in the light of the rights to privacy and enjoyment of property under the Human Rights Act 1998.
It is hoped that some of the uncertainty and concerns will be addressed in the coming months as part of the government’s consultation process, but this remains to be seen.
This article was written for International Adviser by Simon Malkiel, partner at law firm Howard Kennedy. He specialises in offshore structures, tax and trusts, powers of attorney, IHT planning, Wills and succession planning.
