The introduction of Money Laundering Directive 5 (MLD5) in January 2020 signaled that there would need to be a widening of the scope of the Trust Registration Service (TRS) first introduced in 2018. Due to much discussion about exactly how wide that scope would be, a consultation was held this year and the results were announced in July 2020.
This brought both good and bad news. For example, we now have a definitive list of those trusts that will be excluded. The bad news is, the list does not include Bare Trusts and so it is likely that many individuals who hold assets or money on trust for others may simply not realise and fail to register for the “service”, risking potential penalties.
Which Trusts must register?
Previously, only trusts with a UK “tax consequence” needed to register. Going forward this is extended to:
- All UK Trusts, unless specifically exempt, and even if they do not pay UK taxes
- All non-UK Trusts which acquire UK property after March 2020
- All non-UK Trusts which have at least one UK resident trustee and which forms a “business relationship” in the UK – i.e. they use a UK based lawyer, accountant or other professional
The legislation refers to Express Trusts – i.e. those which have been intentionally formed. As this will apply to the vast majority of trusts of all types, there are some specific exclusions to be aware of.
Which Trusts are excluded?
The full list of trusts that do not have to register (as published by the Government to date) is:
- Trusts imposed by statute, where these do not result from the clear intention of the settlor. For example, the statutory trust arising on intestacy
- UK registered pension trusts
- Charitable trusts regulated in the UK
- Pure protection life insurance policies and those paying out on critical illness or disablement, including group policies
- Trusts used by Government and other UK public authorities
- Trusts for vulnerable beneficiaries or bereaved minors
- Personal injury trusts
- Save as you earn schemes and share incentive plans
- Maintenance fund trusts
- Certain trusts incidental to commercial transactions
- Certain trusts used as part of financial markets infrastructure
- Authorised unit trusts 7
- Co-ownership trusts, where the trustees and beneficiaries are the same persons
- Will trusts created on death that only receive assets from the estate and trusts that only receive death benefits from a life insurance policy and are wound up within 2 years of death
- Existing trusts holding assets valued at less than £100 unless or until further assets are added
More Good News
Overseas trusts which are only registering because they have acquired UK property will not be subject to the same third party data provisions and will therefore be able to preserve greater confidentiality still, providing they are not required to register under any of the other categories.
In addition, trusts which are already registered on another European MLD5 approved register will not need to be registered again but must provide proof that they are registered on that. At present, it is not clear how easy it will be to obtain that information and so it may be necessary to register again in the UK, but time will tell.
The Bad News
From March 2022 it will be virtually impossible for UK based professionals to act for any trust which it does not register, or that does not have evidence of already having been registered so it will be necessary for all trusts to make sure they register or meet at least one of the criteria for not registering. To date it has been difficult to extract proof that a trust has registered from HMRC unless a copy of the confirmation was saved at the time, but we believe that has recently been rectified and are hopeful that that will become easier, given the importance of being able to show this.
When is this all happening?
Trusts in existence on or before 9 February 2022 will need to register by 10 March 2022.
New trusts created after that date and trusts that need to update the register for changes will need to do so within 30 days of the event. As above, Will trusts will have longer and may not need to register if all the assets are distributed within 2 years.
What happens if the deadline is missed?
So far HMRC have adopted a light touch approach to penalties, and the contents of the consultation show that they accept that not all trustees will be aware of the need to register. Initially when the TRS was introduced, it came with the threat of criminal prosecution for those who failed to register. This threat still looms where HMRC believe there are wider Money Laundering motives for not registering. For most, the penalty regime is expected to be similar to that for self-assessment, starting at £100 and increasing the longer the failure continues.
What do YOU need to do?
If you are a trustee of a trust that has not yet registered for the TRS you should carefully consider whether you meet any of the exemptions. If not, you will have until 10 March 2022 to make sure you register the trust. As HMRC ask for a lot of information that may not be readily available (especially for trusts that have been in existence a long time), give yourself time to do this and to collect the information needed. We expect HMRC and accountants alike to be very busy approaching the deadline!
How can CBW help?
If you need assistance with either deciding whether your trust should be registered and if so, getting the trust registered, CBW offers a range of services to suit. Please contact Michaela Lamb or Amanda Revell who would be delighted to help.