After the trials and tribulations of the trust registration service (TRS) last year, many agents will be less than thrilled to learn that the scope of the existing Trust Register is due to be significantly extended in 2020 by a further EU directive.
The trust register was set up in 2017 to meet the requirements of the fourth EU money laundering directive. Under the current rules, all express trusts with a tax consequence must be registered using the TRS.
Broadly, an express trust is an arrangement where there is a clear and deliberate intention to create a trust, usually in writing. A tax consequence means that the trust has incurred a liability to pay one of the following taxes: income tax, CGT, IHT, SDLT/LBTT, or stamp duty reserve tax.
Details of the trust’s beneficial owners - including settlor(s), trustees, and beneficiaries – and the value of the assets at the start of the trust must be disclosed on the trust register.
Once registered, trustees must ensure that the trust’s details are updated by 31 January following any tax year that the trust incurs a further tax consequence. This means that a trust with an ongoing self assessment liability will be required to update its details annually, but a trust with only IHT principal charges might only update the register on a 10 year cycle.
The fifth EU money laundering directive (5MLD) extends various transparency measures, including the scope of the trust register. Under 5MLD, all UK resident express trusts and certain non-EU resident express trusts will be required to register and disclose details of their beneficial owners, regardless of whether or not they have a tax consequence.
This means that many trusts which were previously outside the scope of the rules will now find themselves having to deal with the TRS. This could include trusts connected with financial products such as life policies, shareholder protection policies, whole of life policies and discounted gift trusts. Potentially all property owned jointly (including land and bank accounts) could fall within scope.
Removing the tax consequence test is expected to significantly extend the number of trusts that need to be registered from around 200,000 to estimates in the region of one to two million. Extending the reach of the register will also increase the number of unrepresented trustees and the challenge is how to make them aware of their new responsibilities.
5MLD will also extend access to the trust register data beyond its current restriction to various law enforcement agencies to anyone with a legitimate interest. Each member state must define that term in a way which balances the public interest with respect for private life. Those who want access are likely to have to register online and pay a fee for access.
The UK has until 10 January 2020 to incorporate 5MLD into domestic law and then must implement the trust registration requirements by 10 March 2020. We understand that this will occur irrespective of Brexit. A consultation on the initial policy changes is expected in late 2018/early 2019, with a further consultation on the draft regulations in spring or summer 2019.
Faced with a potentially sizeable number of additional registrations, agents and trustees will be looking for improvements to the existing TRS process. Many readers will be familiar with the issues implementing the register and to be fair to HMRC, they have acknowledged those issues and promised to learn from the experience.
One major issue is that it is not yet possible to update the details of any trust currently on the register. Trustees and their agents should advise HMRC by letter of any changes to the lead trustee or their contact details, but are otherwise asked to wait until the TRS is upgraded to allow amendments before notifying HMRC of any further changes. Many trustees and their agents are uncomfortable with having out of date details on the register and this needs to be urgently addressed.
While there are still issues to resolve with the existing TRS process, agents should start to consider how many more of the trusts which they act for will be in scope by 2020, and how they will tackle this second round of registrations.
Helen Thornley has a focus on personal and capital taxes. Initially training as an accountant before moving to tax, she worked in practice until her appointment as a technical officer in 2017. She also has an interest in the history of tax.