We live in an increasingly transparent world - as high earners at the BBC are all too keenly aware! Private trusts are now subject to new disclosure rules although the information will not, at present, be in the public domain.
The new requirements stem from the EU's Fourth Money Laundering Directive which was implemented into UK law on 26 June 2017. Trustees are now obliged to compile and maintain records of the trust assets and its beneficiaries and to report the information to HMRC to be kept on a new trust register. At present, the register will only be available to HMRC and UK law enforcement agencies and will not be publicly available. However, trustees may also be required to disclose some of the information to certain third parties, such as banks, accountants, lawyers and estate agents, on request.
Who does this apply to?
Trusts caught by the new rules include both "UK trusts" (trusts with UK resident trustees) and "non-UK trusts" (trusts with non-UK resident trustees who are liable to UK tax on UK-source income or UK assets). Trustees of all UK and non-UK trusts must comply with the following due diligence, record keeping and (if requested) disclosure requirements while the HMRC registration and reporting requirements only apply to taxable UK and non-UK trusts. Trusts which are collective investment schemes are within the ambit of the rules.
Due diligence and record keeping
Trustees must maintain accurate and up-to-date written records of all "beneficial owners" and "potential beneficiaries" of the trust. For these purposes:
- "Beneficial owners" include the settlor, trustees, beneficiaries (or class of beneficiaries) and anyone else who has control over the trust.
- "Control" means a power under the trust instrument or by law to dispose of, advance, lend, invest, pay or apply trust property; vary or terminate the trust; add or remove a beneficiary; appoint or remove trustees; or direct, withhold consent to or veto the exercise of any of the powers mentioned above. This would include a protector of the trust.
- "Potential beneficiaries" are any other individuals referred to as potential beneficiaries in a document from the settlor relating to the trust, such as a letter of wishes.
What information is required?
The required information in respect of each individual beneficial owner and potential beneficiary is:
- full name and date of birth;
- national insurance number or unique taxpayer reference or, if none, their usual residential address;
- the nature of their role in relation to the trust;
- if the individual lives outside the UK, their passport or identification card number, country of issue and expiry date.
Where the beneficial owners include a class of beneficiaries, not all of whom have been determined, the trustees must simply provide a description of that class of persons. This provision will need to be considered on a case by case basis for each trust and we hope to obtain further clarification of the meaning of "determined" but, meanwhile, trustees in any doubt about what to disclose should seek advice based on their specific facts.
Where a beneficial owner is a company, for instance a corporate trustee, the information required includes the corporate or firm name, registered or principal office, legal form and applicable governing law, company registration details, UTR and the nature of the entity’s role in relation to the trust.
Paid professional trustees must retain the records referred to above for a period of five years after the date of the final distribution of the trust funds and then delete the records unless there are specific reasons not to do so.
Reporting obligations & the trust register
HMRC is obliged to maintain a register of beneficial owners of taxable relevant trusts which may be inspected by any law enforcement authority and the information shared with other EEA authorities. A taxable trust is any UK or non-UK trust which is liable to pay UK tax. Therefore a trust may be obliged to carry out the due diligence (and to make disclosures described below) but may not need to appear on the trusts register until such time as the trust becomes taxable in the UK.
All trusts and complex estates with a UK tax liability must now therefore register online with HMRC, even if the trust has already been reported using the old paper form (41G). The online registration service is now up and running and the deadline for registration of new trusts is 5 October of the tax year after the trust/estate is set up or becomes taxable.
Trustees must provide all the information about beneficial owners and potential beneficiaries described above, plus the following:
- name of the trust;
- date on which it was set up;
- a statement of accounts, describing the trust assets and identifying the value of each category of trust assets at the date on which the information is first provided to HMRC (including the address of any property held by the trust);
- the country where the trust is considered to be tax resident;
- the place where the trust is administered;
- a contact address for the trustees; and
- the full name of any advisers who are being paid to provide legal, financial or tax advice to the trustees in relation to the trust.
The information must be supplied by 31 January 2018 or 31 January after the tax year in which the trustees are first liable to pay UK tax. Trustees have an ongoing obligation to keep HMRC updated of any changes or to confirm annually that no changes apply, but it is not necessary to update changes to the valuation of trust assets.
Application to estates of deceased individuals
Personal representatives of complex estates need to register with HMRC using the new online system. A "complex estate" is an estate with a value exceeding £2.5million or tax due during the administration of £10,000+; or if the value of assets sold in any tax year exceeds £500,000 for deaths after April 2016 (£250,000 for prior deaths). Information to be reported includes the name, date of birth, NI number etc of the deceased and personal representatives.
Other disclosure obligations
Trustees must provide information about the beneficial owners and potential beneficiaries to any law enforcement authority (such as HMRC, the police, or the Serious Fraud Office) on request.
In addition, whenever trustees enter into a relevant transaction or form a business relationship with a person or organisation required to apply customer due diligence procedures, the trustee must inform the relevant person that they are acting as trustee and, if requested, provide them with information identifying all the beneficial owners of the trust (though not, in this case, any "potential beneficiaries" named in a letter of wishes). It is likely that banks will require this information and professionals such as lawyers, accountants and estate agents may also request this from trustees.
If there is any change in the information provided, trustees must notify the authorities or relevant person of the change and the date on which it occurred within fourteen days from the date on which the trustee became aware of it.
These obligations will not breach any restriction imposed on trustees on the disclosure of information or involve any civil liability for the trustees under UK law, although the position should be checked where there is a non-UK trust.
What should trustees do now?
These new requirements are onerous and wide-reaching and trustees should now check that all beneficial owners and potential beneficiaries have been identified, obtain any missing information and keep this centrally located.
Trusts and complex estates with UK tax liabilities in tax year 2016/17 will need to register online with HMRC and new trusts should do so by 5 October 2017, prepare the information to be filed by 31 January 2018 and put systems in place to update their records if the beneficiaries or their details change.
While the information is not publicly accessible under current legislation, the European Parliament has proposed to expand the rules to make trust registers open to the public in some circumstances. This has not been fully legislated yet and any proposed amendments will be consulted upon. We will keep you updated on any further developments in this area.