​Trustees of occupational pension schemes will be subject to additional compliance duties under new money laundering regulations which come into effect on 26 June 2017. The most immediate duties relate to record-keeping and to provision of information when entering into a transaction/business relationship with parties (such as banks/some advisers) that are required to carry out money laundering checks. Additional HMRC reporting requirements could be more burdensome, but require further clarification.

Background

Under the current regime, money laundering compliance rules have limited impact on trustees of occupational pension schemes. Professional trustees may fall within the definition of a ‘trust or company service provider’ (TCSP), but HMRC guidance provides that a TCSP does not have to register where it acts only in relation to occupational pension schemes (more general purpose trustee service providers would have to register).

This position appears to be unchanged under the new regulations – HMRC guidance (last updated in early May) maintains the same position. However, the regulations introduce additional requirements for trusts – including occupational pension schemes – to maintain records of, and in some circumstances disclose, details of the beneficial ownership of the trust. Broadly, this means details of the settlor, the trustees and the beneficiaries.

What are the new duties?

1. Duty to maintain records

The trustees must maintain accurate and up-to-date written records of all the beneficial owners of the trust including, in relation to each of the beneficiaries, their name, national insurance number/taxpayer reference, date of birth, and role in relation to the trust. The records must also include 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.

2. Duty to disclose beneficial ownership

Where a trustee enters into a relevant transaction or business relationship on behalf of the trust with a ‘relevant person’ such as a financial institution, auditor, tax adviser or lawyer, or a TCSP (subject to the comments above) – that is, an entity which is required to carry out due diligence checks in relation to money laundering – further obligations apply. The trustee must inform the relevant person that he is acting as a trustee and, on request, provide information about the beneficial owners of the trust – though in this case, it is sufficient to describe the class of persons who are beneficiaries or potential beneficiaries under the trust. If this information is requested and given, there is a duty to update the relevant person on any subsequent changes. More detailed beneficial ownership information must be provided on request to specified law enforcement authorities.

3. Provision of information to HMRC

Finally, there is a requirement to supply information about the trust and each of its beneficiaries (not merely the class of beneficiaries) to HMRC in relation to any tax year in which there is a UK tax consequence in relation to the assets or income of the trust. The information must be provided on or before 31 January 2018 (or a subsequent 31 January after the tax year in which the trustees first become liable to pay any of these taxes). Subsequently, on or before 31 January after any tax year in which the trustees were liable to pay any of the listed taxes, they must update the information or confirm that there has been no change.

The relevant taxes for this purpose, when payable in relation to assets or income of the trust, are:

  • income tax, capital gains tax and inheritance tax – these will not normally apply to trustees of registered occupational pension schemes, unless they have income from trading or investment in property investment LLPs;

  • stamp duty land tax, land and buildings transaction tax and stamp duty reserve tax – the reference to stamp duties will catch any scheme which invests directly in shares or property (but not a scheme that invests via unit-linked funds or via a collective investment scheme (CIS); in the case of a CIS, the responsibility falls on the manager or operator of the CIS).

Outstanding issues and your views

We have engaged with HM Treasury, alongside the Association of Pension Lawyers and other law firms, to iron out significant difficulties with the earlier draft of the regulations. Although the final version is a substantial improvement, some issues remain. In particular, it seems anomalous for trustees to be required to provide large volumes of information to HMRC, based purely on the structure of a particular scheme investment, and despite the fact that HMRC regards pension schemes as low risk.

It’s worth noting that we assume that income tax items such as payment of a member’s annual allowance charge under ‘scheme pays’, or liability for special lump sum death benefit charges, would not count for this purpose, since these relate to payments out of the trust rather than the assets and income of the trust, but we will seek confirmation on this point.

We will continue to engage with HM Treasury on the regulations to seek further guidance and clarification. If you would like to add your comments on practical implications of the new requirements, please get in touch with the contacts below or with your usual Allen & Overy adviser.

Action points

For now, trustees should be aware of the requirements and ensure that they maintain records including the information outlined in numbered paragraph 1 above, in a form that can be disclosed if required. This duty applies from 26 June 2017.

Trustees should also be aware of the (more limited) disclosure requirement where they enter into a transaction or business relationship from that date with a ‘relevant person’ as described above.