Changes in the European Union’s Anti-Money Laundering Regulations (AML) are affecting the registration process of trusts and increasing reporting requirements, with the new Trust Registration Service becoming available over the ‘next few weeks’.
Here are the 5 Ws explaining what this means for you:
- What is the AML and what are the EU’s changes? The AML directive covers trusts and similar types of legal agreements that were previously excluded. Trusts are required to be fully transparent, specifically when identifying beneficial owners. The AML creates a preventative system of due diligence to check customer ID, to ensure ongoing monitoring, to identify beneficial ownership and politically exposed persons.
- What information will be required from trustees? Trustees will provide a statement of accounts, details of assets held in the trust and specify which jurisdiction the trust is to be administered for tax purposes.
- What kind of trusts have reporting requirements? The reporting obligations apply to trusts established by will or intestacy, deeds of variation or family agreement.
- Trustees – Anyone holding an asset for someone else through a trust. The trustees will have to report assets and the individuals they are holding said assets for (the beneficiaries).
- Beneficial owners – Where the use and title of an asset in equity belong to the beneficial owner, the trustee holds the legal title. The beneficial owner is the person/persons that the assets are being held for.
- Why are trusts registered? Trusts in England and Wales are registered with HMRC to ensure that assets owned by a trust as well as beneficial owners or controlling persons (any person with control over the trust such as a settlor, trustee, protector, a beneficiary, a class of beneficiaries (for example “my grandchildren”) and any person with control over the trust) are identifiable.
- Why does HMRC require more information? HMRC will now have more data on trusts than ever before and will be able to identify changes in the administration of a trust, connecting all parties linked to an asset in a trust. This system, HMRC believe, will help reduce tax evasion and money laundering.
- Why are reporting requirements increasing? This is part of a global effort to combat tax evasion and money laundering, an issue highlighted by the infamous Panama Papers. A law firm’s data was leaked online exposing high profile tax avoidance and money laundering. The issue is broadly discussed in the media and has become a international political problem.
- Will Brexit affect this change? No. Immediately after triggering Brexit, the UK government published a white paper on the Great Repeal Act, and what it means is that all EU Law will be adapted in the UK to ensure a smooth transition.
- What does this mean for non UK Trustees? – Remain outside the registration requirements until the trust becomes subject to UK tax liabilities (for example, when the non-UK trust purchases UK assets).
- 5 October 2017 – Deadline for lead trustees to register new trusts using the online system.
- 31 January 2018 – Deadline to report beneficial owners and assets of existing trusts.
- 5 April 2018 – End of tax year.
Data leaks such as the Panama Papers provided some transparency on the offshore activity of politicians, celebrities, businesspeople and criminals alike. The end result is a global shift towards increased reporting and transparency. Therefore, if you are a trustee and you’re looking for someone to blame for the increased bureaucracy, I would blame Jackie Chan, Vladimir Putin, David Cameron’s father and Simon Cowell for their suspect offshore dealings.
The system may well be going paperless but, rest assured, we should expect more paperwork.