Last week HMRC published their long-awaited Draft Regulations to expand the Trust Register Service (TRS) accompanied by their responses to the Consultation they hosted in January and February this year. We last commented on the expansion of the TRS under the EU’s 5th Anti-Money Laundering Directive (5AMLD) at the beginning of the year, at which point there was significant confusion and concern about who it would apply to and who would be able to access it from the EU implementation date of 10 March 2020.
Thankfully, last week’s update has clarified many of the areas of confusion and contention. Some of the answers will be welcomed by trustees and their advisors, whilst others will prompt a review of existing structures and a discussion for what registration will mean for them.
Who will now also be required to register?
Under the Draft Regulations, the following trusts now need to register on the TRS:
- All UK “express trusts” (even if they do not have UK tax exposure);
- Non-UK trustees of express trusts which acquire UK real estate (after March 2020); and
- Non-UK express trusts, with at least one UK resident trustee, which form a “business relationship” in the UK.
UK express trusts
“Express trust” is a term that has the potential to be interpreted very widely, and this was a point which some 80% of the responses to the Consultation commented on. In response to this widespread concern the Draft Regulations now set out a list of types of trusts which are excluded from registration, including (but not limited to): co-ownership trusts, UK charitable trusts, registered pension funds, and life policy trusts. These are all common sense and practical exclusions, which mean that the TRS will not be overwhelmed with registrations for simply having a joint bank account or owning a property with a partner.
We are also pleased to see that certain will trusts and life insurance policy trusts wound up within 2 years of death are excluded from registration. Individuals often use trusts in these scenarios to help preserve some confidentiality and provide flexibility to their families without the intention for the trusts to continue after their death for a long period of time, so it is right that the additional burden of complying with the trust register is not applied here.
Despite numerous submissions campaigning for the exclusion of bare trusts from the TRS, this is a notable absentee from the list of Excluded Trusts in the updated regulations. Without HMRC guidance to the contrary, it appears that bare trusts that meet any of the above registration requirements will be required to register on the TRS.
UK business relationship
The latest response from the government will be welcome news to the UK legal, accounting and financial services, who feared the previously proposed requirement to register all non-UK trusts with a UK business relationship on the trust register would have a disastrous effect on those sectors. The Government has adopted, in its own words, a “measured approach” so that only non-UK resident trusts which have at least one UK trustee will be required to register if they have a business relationship in the UK. This is of great reassurance to many trustees and families, who were concerned by the thought of having to lose a trusted and valued relationship in the UK. A “Business relationship” is defined as being a business, professional or commercial relationship with an obliged entity that is expected to endure for a period of at least 12 months. The requirement does also not apply to non-UK trusts which are already registered on another EEA country’s AMLD register.
Acquisition of UK property
The Government response also confirmed that all trusts which acquire UK real estate will be required to register on the trust register. Interestingly, this is only trustees who acquire property at trust level and are the registered owners of the legal title at the land registry. These changes are aligned with the proposed overseas entities register (also due to come into force later this year) which will require non-UK companies owning UK real estate to disclose their beneficial ownership on a fully public register at companies house.
Thankfully, non-UK trustees that fall under this TRS registration requirement alone will not be subject to the same third party data provisions as other trusts required to register on the TRS. This means that confidentiality is still preserved for many offshore trustees wishing to purchase UK real estate, provided they do not fall within the other categories (both new and existing) requiring registration.
Updates on public access to the register (Legitimate Requests and Third Country Entity Request)
We applaud the government’s attempt to balance the conflicting demands of transparency and privacy by suggesting a system whereby each request for information on a trust on the trust register will be reviewed on its own merits, and access given only where there is evidence that it furthers work to counter money laundering or terrorist financing activity.
There is still concern that the ability to make such requests will be abused, particularly as information pertaining to wealthy families is in demand from a number of people ranging from investigative journalists to fraudsters and kidnappers. Whilst the reassurances from the government that it will consider such risks are welcome, it is difficult to see how a government body will be able to devote sufficient time and resources to properly assess the merits of each request.
The third country entity request is of more concern to non-UK trustees as this process provides a more direct route for information to be accessed on trusts holding a controlling interest in a non-EEA legal entity. This is a fairly typical offshore trust structure (for example a Jersey trust that is required to register on the trust register, which wholly owns a Jersey company falls into this category) and so it will be important for those trustees to assess the importance of retaining the company against the potential loss of confidentiality. A request under this category does not require any evidence of money laundering or terrorist financing activity.
Trustees will be dismayed that the Government has not confirmed that they will be informed when a request for information is made about their trust or have the ability to provide information about any particular risks faced by beneficiaries of fraud, kidnapping, blackmail, extortion, harassment, violence or intimidation. It is difficult to see how the Government might be able to assess such risk without involving the trustees in the process, and we hope the Government will update the guidance and regulations accordingly.
Dates and Deadlines
The 10 March 2022 deadline should be sufficient time for trustees not previously required to register to comply with these new requirements. The 30 days registration deadline for new trusts, however, may prove challenging and we hope HMRC will publicise the need to register and comply within this short timeframe.