Trusts, tax and training
Trusts have been a lifelong interest for me. I realise this is not a passion shared with many fellow practitioners. It is therefore of sadness that to most of the world outside the UK a trust is seen as something which shelters dodgy money and even enables terrorist financing. Trusts are not the only tool which is mis-used and other countries make more use of other tools. It is not only trusts which tax authorities want to know more about, individuals who have interests in more than one country will soon find all countries will share tax data about them. We are fast approaching world transparency in tax.
The fears and mis-use of trusts were highlighted by the Panama Papers scandal in 2016. The concerns over money laundering were not new, after all the Money Laundering Regulations first saw the light of day in 2007. In the last 10 years the Financial Action Task Force – an intergovernmental body – has continued to issue recommendations and the EU has brought in four anti-money laundering directives.
The latest of these (4AML) was brought into force in the UK on 26 June 2017 by a set of regulations: The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 which can be found here: http://www.legislation.gov.uk/uksi/2017/692/made.
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To comply with the 4AML Directive the legislation adopted by member states must oblige all trustees to gather information to identify the settlor, the trustees, the protector (if any), the beneficiaries or the class of beneficiaries, and of any other natural person expressing effective control over the trust.
Under the Directive, it is necessary to distinguish between two difference categories of trusts:
- Those where a trust generates tax consequences; and
- Those where a trust does not generate tax consequences
In the former case, it is necessary for the member state to ensure that the required information is held on a central register which will be accessible by competent authorities, including government agencies.
In the latter case, the trustees hold onto the required information and only pass it to competent authorities when required to do so. It will not be held on a central register.
This distinction was a concession when the 4AML Directive was debated as originally the European Commission had required that the central register would contain the beneficial ownership details of all trusts and that the register would be more widely accessible. This is still the desire of the EU Parliament and an amendment to the 4AML is in the process of becoming law.
New Trusts Registration Service
HMRC, as the ‘competent authority’ in the UK, has developed the new online Trusts Registration Service for reporting which went live eventually on 10 July 2017. It is mandatory rather than voluntary (i.e. not like the now withdrawn Form 41G).
The new registration system is intended to:
- Replace old paper registration system by the online one
- Roll out in two tranches October 2017 & January 2018:
- Trustees will have until 5 October 2017 for registering new trusts.
- Trustees will have until 31 January 2018 to make online amendments to existing trusts
It is likely the new service will require:
- Trustees to update the register each year as a trust generates UK tax consequences
- ALL trusts with UK tax consequences will need to be registered
- Trustees to ensure and confirm that the Trust Register is up to date, guaranteeing obligations under 4AML complied with. This includes trusts that have already been registered using Form 41G
- No registration of trusts that have closed, where trustee or agent has received a letter from HMRC confirming their records show the trust has ended
- Any new trust with UK tax consequences to obtain a unique taxpayer reference
- Details of assets, including addresses and values
- Identities of settlor, trustees, (any) protector, all (if any) others exercising any control over the trust, beneficiaries, including names, dates of birth, national insurance numbers of UK residents, addresses, and passport or ID numbers for non UK residents in default of a national insurance number
For the time being new trusts are in limbo unable to register for self-assessment until the new online system commences. With the changes to the tax treatment of interest and dividends many thousands of so far unregistered trusts will need to register for self-assessment.
If you are new to the world of Trusts then you need to be fully prepped as to how they work before embarking on submitting data to the new Trusts Registration Service. I am running my well-received introductory courses on 11 and 12 July 2017 and there are only a couple of places remaining. If you would like to know more contact us or look on the LawSkills’ website:
- on the 10th July 2018 we take an overview of trusts https://www.lawskills.co.uk/2019/trusts-for-beginners/
- and on the 11th July 2018 we focus on the taxation of trusts: https://www.lawskills.co.uk/2019/taxation-of-trusts-for-beginners/
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