From today the UK will require most trustees to maintain a register of, and report to HMRC on, “beneficial owners” in relation to the trusts which they administer. The relevant legislative provisions are contained in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the “MLR 2017“) which come into effect today, in order to transpose the EU Fourth Money Laundering Directive ((EU) 2015/849) into UK law.
The final version of the MLR 2017 was published only late on 22 June 2017, giving limited opportunity for review before the regulations take effect. An earlier draft was published in March 2017, which has been amended in important respects.
The precise application of the MLR 2017 to non-UK professional trustees, or even to lay trustees resident in the UK, is not entirely clear at the time of writing. However, it is thought that all trustees with UK tax filing obligations will be affected, one way or another.
Who is in scope?
In broad terms, trusts will be caught by the registration/reporting requirements of the MLR 2017 if the trustees are UK resident or if the trustees, despite being non-UK resident, are or become liable to pay any UK tax. This includes not only UK income tax, but also capital gains tax, inheritance tax, land and buildings transaction tax, stamp duty land tax, and stamp duty reserve tax.
In other words, non-UK trustees will be outside the UK registration/reporting requirements until they become subject to UK tax liabilities in relation to the trust. If UK tax obligations are incurred only at the level of a company underlying the trust, then the trust will not (currently) be subject to the registration/reporting requirements.
Additionally, it is not entirely clear how the regulations would be enforced against trustees who are not acting in the course of a business and not exercising EEA passport rights.
Whilst the MLR 2017 include a definition of “beneficial owners” in relation to arrangements similar to trusts, such as foundations, it is, at the time of writing, unclear how the registration/reporting requirements apply to such arrangements.
What are the obligations (if in scope)?
Trustees must (a) maintain accurate and up-to-date records of the “beneficial owners” and “potential beneficiaries” of the trust (which they must then share, on request, with other bodies who have AML client due diligence obligations, e.g. banks and law firms); and (b) report the below information on the trust to HMRC by 31 January 2018 or (if not yet subject to UK taxes) by 31 January following the first tax year in which a UK tax charge arises. In other words, the reporting deadline aligns with the tax return deadline.
“Beneficial owners” in relation to a trust are defined to include the settlor, trustees, beneficiaries (even if only discretionary) and any individual with control over the trust (which includes any person with power to appoint or remove trustees or power to veto trust distributions). A “potential beneficiary” is someone “referred to as a potential beneficiary in a document from the settlor relating to the trust such as a letter of wishes”.
Information to be supplied
The information which trustees are required to report to HMRC includes: (a) the name of the trust, its creation date and a statement of accounts describing the trust assets and identifying the value of each category of assets; and
(b) the name and UK tax reference number, or National Insurance number, of the “beneficial owners” and “potential beneficiaries” (but where an individual has no UK tax reference nor NI number, their residential address will be reported, unless it is outside the UK, in which case their passport or ID card number will be reported).
However, if the trust beneficiaries or potential beneficiaries are defined as a class for which all members cannot be determined, it is only necessary to report a description of that class, and the above information does not need to be provided in relation to the beneficiaries (but is still required in relation to the settlor, trustees etc.).
HMRC will maintain a register containing the above information, but that register will only be available to UK law enforcement bodies and will not be available to the public.
Trustees will need to take action to collate the necessary information to comply with these regulations as a failure to comply can lead to criminal sanctions.