A non-UK resident trust that holds UK residential property through a non-UK company does not have to maintain a register of beneficial owners or register with or report to HMRC. We have today received confirmation from HMRC that, contrary to their previously expressed view, they accept this is correct.
Non-UK trusts are only subject to the UK rules requiring them to maintain a register of beneficial owners and register with, and provide information to, HMRC if the trust:
- receives UK source income; or
- holds UK assets
on which the trust is liable to UK income tax, capital gains tax (CGT), inheritance tax (IHT), stamp duty land tax (SDLT) or stamp duty reserve tax (SDRT).
Trustees of a non-UK resident trust that hold shares in a non-UK company that holds UK residential property are subject to IHT on those shares. The IHT liability is on non-UK assets not on assets in the UK. The trust will not receive income from a UK source (even if the property is let, as the rental income would be received by the non-UK company), and the trust will not be liable to capital gains tax (CGT), IHT or stamp duty land tax (SDLT) on UK assets. The company (not the trust) is liable to CGT on the UK residential property (and SDLT when it buys it).
HMRC had expressed the view that a non-UK trust that incurs an IHT liability in relation to shares in a non-UK company that holds UK residential property should register with HMRC. We challenged this view and have now received confirmation from HMRC that they accept our legal arguments that non-UK trusts that incur IHT as a result of holding shares in a non-UK company that holds UK residential property do not need to register on HMRC's Trust Registration Service.
Proposed register of beneficial owners of UK real estate
However, it should be remembered that, under current proposals, a publicly accessible register of beneficial owners of UK real estate will be available from 2021.
Non-UK companies and other non-UK legal entities that fail to make beneficial owner information available will not be able to transfer legal title to UK real estate held by them, or obtain unrestricted title to UK real estate they purchase; criminal sanctions could also be imposed for failure to comply. Non-UK entities that already own UK real estate will be given a set period to register their beneficial ownership information.
Non-UK trusts may be exempt from the requirements, but the extent of any exemption will not be clear until draft legislation is published later this year.
The UK Land Registry has already published the legal owners and addresses of all properties owned in the UK by foreign companies.
Impact of amendments to EU Fourth Money Laundering Directive
Changes to the text of the EU Fourth Money Laundering Directive which will require EU member states to grant public access to information on the register of trusts, subject to a “legitimate interest” test, have also been agreed. In addition, access to the register of trusts must be granted to any member of the public in relation to a trust which holds or owns a controlling interest in a company that is not incorporated in the EU (and is therefore not included in any member state’s register of beneficial ownership of companies). HMRC has suggested that as part of the changes to UK law to implement these amendments it will consider requiring non-UK trusts that own UK real estate (indirectly) to register. The UK government has confirmed that after the UK ceases to be an EU member state the legal basis for the register of trusts will be preserved. The government will consult on who should be considered to have a “legitimate interest” taking into account the fact that many trusts are established for personal and family reasons.