The new rules, transposing the Fifth Money Laundering Directive (5MLD) into UK law took effect on 10 January 2020. You can read more about 5MLD here. One aspect of 5MLD that is likely to be of particular interest to adviser firms is the expansion of the scope of the Trust Registration Service. We summarise the new requirements below.
4 MLD placed a requirement on the UK to create a register for all express trusts that incur a UK tax consequence. As a result, HMRC set up the Trust Registration Service (TRS), which went live in 2017.
5MLD expands the scope of this register by requiring trustees or agents of ALL UK and some non-EU resident express trusts to register those trusts with the TRS, whether or not the trust has incurred a UK tax consequence. It also requires the government to share data from the register with a range of persons under certain circumstances.
The following trusts will have to be registered:
- All UK resident ‘express trusts’ – as opposed to only those express trusts with UK tax liabilities as previously applied. (UK resident for this purpose is where (a) all trustees are UK resident or (b) where there is a mixture of UK and non-UK trustees and the settlor is a UK resident);
- Non-EU resident express trusts that acquire UK land or property either on or after 10 March 2020;
- Non-EU resident express trusts that enter into a new business relationship with an obliged entity on or after 10 March 2020.
Under 5 MLD, the government is required to disclose specific data about a trust and the ‘beneficial owners’ of it held on the register to law enforcement agencies in line with previous requirements. In addition, data on specific trusts will be shared under three circumstances:
- With obliged entities that enter a business relationship with a trust.
- With persons who can demonstrate a ‘legitimate interest’ in access to information on the beneficial ownership of a specified trust.
- With persons who want to know about trusts with a controlling interest in a non-EEA company.
There are no changes to any of the existing registration requirements on trusts which incur UK tax consequences – the additional requirements apply to trusts which are not already subject to a registration obligation.
5 MLD requires the UK to register all UK resident ‘express trusts’ and does not provide scope for exemptions, or de minimis thresholds. The term ‘express trust’ is generally defined as a trust that was expressly (i.e. deliberately) created by a settlor, as opposed to being created in other ways – for example, through a court order or through statute. It arises through the settlor’s declaration of an intention to enter into a transaction and can be created, for example, by a written trust deed or under a Will.
The rules do not specify a full list of types of express trust within the scope of the legislation, which is reasonable given the very wide range of ways in which trusts are used. The onus is on trustees and their agents to determine whether a trust is an express trust or not, based on the above description (and, in due course, through more detailed guidance).
Data collection will include information on the settlor, the trustees, the protector(s) (if any), the beneficiaries or class of beneficiaries and any other natural person exercising effective control of the trust. The UK will be required to share certain information on each of these individuals as follows:
- In relation to an individual – their full name, date of birth, nationality, country of residence and nature of the individual’s role in relation to the trust;
- In relation to a corporate entity – the legal entity’s corporate or firm name, the registered office of the legal entity and the nature of the entity’s role in relation to the trust.
The current TRS registration deadline of 31 January was based on the link to submitting a tax return. The deadlines for existing and new trusts are now:
- For unregistered trusts already in existence on 10 March 2020, the deadline is 31 March 2021;
- For trusts created on or after 1 April 2020, the trust should be registered within 30 days of its creation;
- The 30 day deadline also applies for any amendments.
The current late registration penalties are considered an unsuitable basis for any future TRS penalty framework. A replacement penalty framework will be introduced but details are not yet clear.
5 MLD allows data sharing in the specified circumstances to combat money laundering and terrorist financing. The government intend to have a definition of legitimate interest that is closely linked to this work and it will be the Government that considers whether a request for data meets the definition.
There will be fees proportionate to the cost involved in checking and compiling the information.
Information on non-EEA companies
5 MLD provides the right for any legal person to access data on any express trust that ‘holds or owns a controlling interest in any corporate or other legal entity’ that is not registered on any EEA Member State’s corporate beneficial ownership register. That is any trust that owns or controls a corporate structure based outside the EEA.
The definition of ‘controlling interest’ is in line with the previous register of People with Significant Control. 5 MLD includes public listed companies within the scope of ‘corporate entity’.