The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) came into force on 26 June 2017.
Although the Regulations applied from June last year, we are only just hitting some of the relevant deadlines to provide information to HMRC which has highlighted that there is still some uncertainty regarding the obligations on pension scheme trustees. We set out below the two main duties of the MLR 2017 on trustees of a ‘relevant trust’:
- record-keeping and provision-of-information
- providing beneficial ownership information (i.e. about the trust and its beneficiaries) to HMRC if it is a ‘taxable’ relevant trust (if this duty applies, trusts are required to register with HMRC)
Under the MLR 2017 an occupational pension scheme (which is established by a trust deed) will fall within the definition of a ‘relevant trust’ and, as such trustees of an occupational pension scheme will need to comply with the MLR 2017. Broadly speaking, whilst the first duty (i.e. record-keeping and provision of information) will apply to pension schemes, the second duty (i.e. to register with HMRC) will only apply to schemes which have incurred a tax liability. We discuss this in more detail below.
The MLR 2017 duties may also be relevant for the trustees of discretionary trusts, which would also fall within the definition of a ‘relevant trust’, such as where a discretionary trust has been set up by a pension scheme for the children of members who have died in service. Whilst the pension scheme trustees will not need to take any action personally for MLR 2017 purposes in respect of these types of trust (unless they are also trustees for the discretionary trust), they may be approached for guidance in which case the below duties would apply in a similar way.
Duty 1 – record-keeping and provision of information
Trustees of a ‘relevant trust’ (which, as above, will apply to trustees of an occupational pension scheme) will be expected to maintain accurate and up to date written records of all ‘beneficial owners’ of the trust.
In brief, this means keeping records of the following:
- The original employer who set up the scheme along with the current employers
- The trustees
- The active, deferred and pensioner members
- Any other individuals benefiting from the trust. Where these individuals have not yet been identified (such as the future recipients of a death benefit), the class of persons who may receive a benefit from the trust
- Any individual who has control over the trust
Some trustees will need to exercise caution when identifying individuals who could be deemed to exercise ‘control’ over the trust. The definition of ‘control’ in the MLR 2017 includes (but is not limited to) a power under the trust instrument or by law to appoint or remove trustees, dispose of or invest trust property or to vary or terminate the trust. Given the wide definition of ‘control’, we recommend that trustees carefully consider the terms of the trust deed and the powers that employers or scheme advisers exert over the scheme as this could throw up odd results such as scheme advisers or prior employers being deemed to have control. Trustees should seek legal advice if they are unsure which individuals need to be included in this category.
Trustees should also be aware that when they form a business relationship with a ‘relevant person’ (which includes but is not limited to financial institutions; auditors; insolvency practitioners; accountants and tax advisers; independent legal professionals), the trustee must tell the ‘relevant person’ they are acting as trustee and, on request, provide information identifying all the ‘beneficial owners’ of the trust (see above). There is also a requirement to notify the ‘relevant person’ if there is any change in the information provided and the date on which said change occurred within fourteen days from the date on which any one of the trustees became aware of the change.
We recommend that the trustees keep the required records in a readily available and accessible document so that the information can be easily updated and provided to ‘relevant persons’ when requested.
Duty 2 – register with the trust registration service and provide beneficial ownership information (i.e. about the trust and each of its beneficiaries) to HMRC
Determining whether an occupational pension scheme (or discretionary trust) needs to be registered with HMRC for MLR 2017 purposes (via the online trust registration service) will depend on whether the trust is a ‘taxable relevant trust’.
A taxable relevant trust which will need to register on the trust registration service is one which has incurred a tax liability in the preceding tax year (for our current purposes, this means the 2016/2017 tax year) for any of the following:
- income tax
- capital gains tax
- inheritance tax
- stamp duty land tax
- stamp duty reserve tax
- land and buildings transaction tax (Scotland)
Generally, pension scheme trusts are exempt from income tax and capital gains tax although one of the other taxes may arise depending on the scheme’s investments. We recommend that trustees speak to their consultant or investment adviser to confirm if their scheme has incurred one of the above tax liabilities during 2016/2017.
If registration on the trust registration service is required, the current deadlines with HMRC vary, depending on whether the trust is already registered for self-assessment (which applies to trusts which incur income tax and capital gains tax).
We outline below several different scenarios to demonstrate if and when registration is required.
- A trust has not incurred a tax liability for any of the taxes listed above during 2016/2017. Registration is not required
- A trust has incurred a liability to income tax or capital gains tax for the first time during 2016-17. The deadline for registering with HMRC was 5 January 2018
- A trust is not registered with HMRC for self-assessment but it has incurred a tax liability for one of the taxes listed above other than income tax or capital gains tax during 2016/2017. The deadline for registering with HMRC is 5 March 2018*
- A trust is already registered with HMRC for self-assessment and has incurred a tax liability to any of the taxes listed above during 2016/2017. The deadline for registering with HMRC is 5 March 2018*
(* the deadline is normally 31 January, but HMRC has granted trustees some respite by allowing them to register before 5 March 2018 without incurring a penalty.)
Trustees must also be mindful that, if the trust incurs a tax liability in the 2017/2018 tax year, registration obligations will arise in January 2019. Trustees should therefore diarise a reminder to undertake a review annually.