Catching up with developments on the Trusts Register
The government must ensure the UK is compliant with the EU 4th Anti-Money Laundering Directive (4AML). The upcoming negotiations on the terms under which the UK will leave the EU and on our future relationship with Europe do not affect the requirement to implement EU legislation meanwhile.
This means putting into place by June 2017 a register of Trusts. The waters have been muddied somewhat by a proposed amendment to the 4AML by the EU Commission even before the directive has come into effect. The UK EU AML team will be negotiating on the amendment and that will take its course but for now the plans to implement the 4AML Trust Register are being finalised by HMRC.
At a consultation meeting on 8 November 2016 representatives from various professional bodies including STEP and the Law Society, met with the representatives from HMRC and the EU AML team to discuss some of the issues.
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Online Trust Register
Article 31 of the directive requires trustees of any express trust governed under the law of the member state (whether it generates tax consequences or not) to obtain and hold adequate, accurate and up-to-date information on beneficial ownership of the trust and make this information available to competent authorities. There has to be a central register when the trust generates tax consequences.
The new register being set up by HMRC will be the UK’s central register for this purpose. It will require trusts which are taxable (including but not limited to income tax, capital gains tax or inheritance tax) to instigate an entry for each trust and keep the data up to date going forward. Trustees are responsible for keeping similar data on all trusts and to be able to supply data about those trusts which do not generate tax consequences on a self-certification basis when asked.
Although the new register will be online and the SA900 Trust & Estate tax return will be amended to ask ‘have you updated the register’ there will be no digital linkage between the two at the start, although it is hoped this will happen in due course.
Which trusts will need to register?
Only trusts which have to submit a tax return of some kind will need to register so it is unlikely an interest in possession trust will need to register if all the income of the trust is mandated to the life tenant and there are no current capital gains. If the trustees realise a chargeable gain or the assets vest in the remaindermen then a taxable event will occur which will necessitate registration.
Bare trusts are ‘see through’ for tax so will not need to be registered. Some other special situations, such as sub-funds which have elected to be separately taxed and tiered trusts from offshore will need further thought.
A number of the definitions are not clear such as which trusts are ‘governed’ in the UK. It is likely this will be brought into UK law as meaning trusts which are administered in the UK and non-resident trusts with a UK source income.
What information is likely to be required?
The UK register will ask for:
- Details of the trust assets
- The identification of the Settlor, trustees, protector (if any) and the beneficiaries
- The information required will be:
- Address (if a NI number is not available)
- Date of birth
- NI number – unless a minor
HMRC will migrate information they already hold about the trusts they are aware of onto the system so that the trustees will just need to fill in the gaps. Trustees will be able to input the data themselves or will be able to appoint agents to do this on their behalf.
It Is possible that a Bank may ask for proof that a trust has been registered but if the trust does not have to register difficulties could arise. It is hoped that greater clarification will be available by February 2017.
When do trustees have to update information?
The register is required to be adequate, accurate and up-to-date. HMRC are likely to ask trustees to update the register when tax consequences flow e.g. when making a distribution to a beneficiary. What is as yet unclear is whether the register will need to be updated when a new beneficiary is added to a class, say, in a discretionary trust (e.g. a new grandchild is born and the class is for all the settlor’s grandchildren).
Is it likely the trust register may become an open register?
The EU Commission is seeking a more openly transparent system but hopefully only for law enforcement agencies not the public at large. The EU AML team are working hard on this amendment to the EU Directive to demonstrate the risks of a more open register. In this work, they have been helped by a recent decision in the French Courts annulling the decision to make public the French trust register.
Matters are moving quickly with an EU Parliamentary vote in late January 2017 on the terms of the amendment. Watch this space!
What should trust administrators be doing now?
The focus at the moment is finalising the annual accounts and preparing tax returns for submission by 31 January 2017. It therefore makes sense to be checking the trust records to make sure your data about the settlor, trustees and beneficiaries is up to date in readiness for completing not just the new trust register but also any Common Reporting Standard reports in May – September 2017.
Trust administrators need to take a holiday between 31 January and 1 March 2017 ready to face the onslaught of the 2017/18 tax year and all the new compliance issues which will be coming your way from May.
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