On 26 June 2017, the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the Regulations) came into force, introducing new requirements for trustees. The Regulations implement the Fourth EU Money Laundering Directive in the United Kingdom.

For trustees of trusts within the scope of the Regulations, there are two separate requirements:

  • To collect, maintain and provide accurate information in relation to the trusts (the Information Requirement)
  • In certain circumstances, to register the trusts with the UK tax authorities (HMRC) (the Registration Requirement)

Trustees must act now to determine if they need to register with HMRC by the deadline of 5 December 2017. Failure to comply with these obligations may result in civil and criminal sanctions.

Which trusts are covered?

The Regulations apply to “relevant trusts”. These are as follows:

  • Most UK-resident express trusts where all trustees are resident in the United Kingdom, or at least one trustee is resident in the United Kingdom and the settlor was resident and domiciled in the United Kingdom at the time the trust was settled or at the time the funds were added to the trust (UK-resident trusts where the settlor was not both UK-resident and -domiciled will not be included in this category)
  • Non UK-resident express trusts where the trust either receives income from a UK source or has UK assets on which it is liable to pay one (or more) of the following UK taxes: income tax, capital gains tax, inheritance tax, stamp duty land tax, stamp duty reserve tax, and Scottish land and buildings transaction tax (together, Relevant Taxes)

The tax liability is that of the trustees. As a result, UK source income received in an underlying company would not be enough to make a trust a relevant trust. A trust that owns UK residential property, either directly or through an underlying holding company, would be a relevant trust.

Deceased estates, charitable trusts, collective investment schemes and pension schemes may also be relevant trusts for the purposes of the Regulations.

The Registration Requirement

A relevant trust will be required to register with HMRC in any year in which the trustees are liable to pay one (or more) of the Relevant Taxes in respect of the income or assets of the trust.

In practical terms, the trust will be required to register in the first year in which the trustees have a UK liability to any one or more of the Relevant Taxes.

The UK Trust Register will be maintained by HMRC. Although it is not publicly accessible, the European Commission proposes public access to beneficial ownership registers within the European Union.

The Trust Register replaces the previous trust information form 41G, under which trusts were registered for HMRC for reporting purposes. Any trusts which previously submitted the form 41G will be required to register and resubmit the required information.

Any trusts which have a UK tax liability in the current tax year (6 April 2017 – 5 April 2018) have until 5 December 2017 to register. In subsequent years, registration must be made by 5 October of the tax year after the tax liability arises.

If a trustee becomes aware of any changes to the information it has disclosed, it must notify HMRC of the changes by 31 January after the tax year in which the change occurred. If the trustee is not liable to any UK taxes in that year, it must notify HMRC by 31 January after the tax year in which the trustee is liable to pay any UK taxes. If trustees have a one-off UK tax liability and are required to provide the information for entry on the UK Trust Register, there will be no requirement to inform HMRC of any changes to the information provided unless and until the trustees have any further UK tax liability.

What information must be provided to HMRC?

The information that trustees must provide is extensive and includes the following:

  • The trust’s full name
  • The date on which the trust was settled
  • A statement of accounts for the trust
  • A description of the trust assets, including the value of each category of the trust assets at the date on which the information is provided
  • The address of any property held by the trust
  • The country of tax residence of the trust
  • The trust’s place of administration
  • A contact address for the trustees
  • The full names of any legal, financial or tax advisers to the trustees

In addition, the trustees must provide information on the beneficial owners of the trust. Beneficial owners include the settlor, trustees, beneficiaries and, where some or all of the individuals benefiting from the trust have not been determined, the class of person in whose main interest the trust is set up or operates. Beneficiary for this purpose includes any individual identified as a potential beneficiary in a document from the settlor relating to the trust (e.g., a letter of wishes).

Beneficial owners also include individuals who have control over the trust. Control has a wide-ranging definition in this context, and professional advice is recommended to identify such individuals.

For each individual beneficial owner, the trustees must provide that owner’s full name, date of birth, the nature of their role in relation to the trust, and their national insurance number or unique taxpayer reference. If neither of the latter is available, the trustees must provide the individual’s usual residential address. If the residential address is not in the United Kingdom, the trustees must provide the individual’s passport or identity card number, along with the country of issue and expiry date. If no passport or identity card is held, an equivalent form of identification must be provided.

The Information Requirement

A trust that is a relevant trust, but is not required to register with HMRC because the trustees have no UK tax liability, must maintain accurate and up-to-date records in writing of all the beneficial owners of the trust and any potential beneficiaries, even where such are not described in the trust deed but are referred to in a document from the settlor relating to the trust, such as a letter of wishes.

This information must be provided on request to relevant persons—such as financial institutions, accountants and lawyers—when applicable anti-money-laundering legislation requires those relevant persons to carry out customer due diligence measures. If any changes to the information occur during the business relationship with the relevant person, the trustees have a legal obligation to notify the change, and the date on which it occurred, within 14 days of becoming aware of the change.

This information must also be provided on request to any of the specified law enforcement authorities, namely HMRC, the Financial Conduct Authority, the National Crime Agency, the Serious Fraud Office and specified UK police services, within a reasonable period as specified by such authority.

Sanctions

Sanctions for failing to meet either the Information Requirement or the Registration Requirement can be severe. Civil sanctions include penalties and statements of censure.

Criminal sanctions include imprisonment for up to two years, a fine, or both. These may be applied for offences including contravening either requirement, prejudicing investigations, and providing false or misleading information.

Sanctions may be applied to individual officers of a trustee in certain circumstances.

Actions

Trustees must act now to determine if they are within the Registration Requirement for the current year. The deadline for registering with HMRC is 5 December 2017.

Trustees may also need advice to determine whether any individuals have control over a trust for the purposes of these requirements.

Trustees with UK source income or UK assets on which a UK tax liability may arise in subsequent tax years should take steps now to collect information on their beneficial owners and beneficiaries needed for the Information Requirement.