There is now limited time to review existing structures in light of changes that will come into effect shortly through the implementation of the 5th Anti Money-Laundering Directive (5AMLD).
The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 were enacted by Parliament on 20 December 2019, with most of the provisions resulting from 5AMLD coming into effect on 10 January 2020. However the provisions relating to the expansion of the trust register are yet to be finalised. HMRC has confirmed that there will be a further technical consultation in early 2020, which will share draft legislation for the trust registration elements of 5AMLD, before these are transposed into domestic law before 10 March 2020.
Whilst we do not yet have the text of the draft regulations, it is important that trustees and high net worth families are aware of the implications and possible steps they should be taking now.
Who will be required to register?
Currently offshore trusts are only caught by HMRC’s Trust Register if they have UK tax consequences. However the effect of 5AMLD will significantly broaden the number of offshore trusts required to register, as well as widen those who can access information on the Register.
The following categories of trusts will be required to register:
- all UK express trusts (even if they have no UK tax exposure);
- non-EU trustees of express trusts which acquire UK real estate (after March 2020); and
- non-EU trustees who form a business relationship in the UK (i.e. accountancy, investment management and banking services in the UK).
The individuals that trustees are required to disclose under the Trusts Register include:
- the settlor(s);
- beneficiaries; and
- those exercising effective control over the trust.
For these reportable individuals, the disclosable information includes (amongst other details):
- the person’s name;
- date of birth; and
- NI number and if they are non-UK resident, their passport or ID number.
The reporting trustee is also required to provide information about the trust’s assets, including:
- a statement of accounts;
- address of UK properties; and
- market value of the assets.
Who will have access to the UK Trust Register?
Currently, the Register is not public; access is limited to law enforcement authorities. However, from 10 March 2020 it is proposed access will be granted to:
- obliged entities (essentially advisors, trustees and financial institutions) for the purposes of confirming their customer due diligence;
- any person that can demonstrate a ‘legitimate interest‘; and
- any person that files a written request in relation to a trust which holds/owns a controlling interest in a non-EU company.
The last two categories of person will be able to access most, but not all of the information that will be held on the Register. This represents a disclosure of substantially more information about such structures than has ever been made available previously. For clients who are concerned about privacy and security, these developments are worrying.
What does legitimate interest mean?
The consultation document the government published in April 2019 stated there would be a requirement for a person relying on the legitimate interest ground (i.e. journalists and researchers) to present evidence of suspected money-laundering before being able to access the Register. However, there is no requirement to present any evidence
whatsoever where a person files a written request in relation to (for example) a Jersey trust on the Register which wholly owns a Jersey holding company. This new access to information would be of particular interest to creditors and potentially the UK family courts.
Next steps
Trustees and firms need to ensure their clients are up to date with what their new reporting obligations will be. The government in its consultation document proposed a long lead in time for existing trusts that will need to register as a result of 5AMLD, but for new trusts they proposed a short 30 day deadline to register.
There will be both civil (fine) and criminal (jail sentence) penalties for non-compliance, so trustees are urged to review existing structures and any business relationships in the UK. Any restructuring will need to be completed by 10 March 2020, and so it is imperative that clients are updated and made aware of their options now. The next steps will depend on the facts and circumstances of each structure. For some structures, it is clear that the historic privacy that offshore trusts were able to provide will be eroded. We note that there are still (for non-UK domiciled individuals) very significant tax benefits from establishing and retaining offshore structures.
It is important to be aware that there are further transparency initiatives that will also be introduced. For example, by 2021 the UK plans to introduce a public Overseas Entities register for offshore entities that own UK real estate. It is important when considering restructuring in light of the changes to the Trust Register that these future changes are also taken into account.