On 24th January 2020 HMRC published its technical consultation on the changes to Trust registration. These changes are part of the 5th Anti-Money Laundering Directive (5MLD) which builds on the Fourth Anti-Money Laundering Directive, which came into effect June 2017. The 5MLD aims to further combat financial crime by boosting existing transparency rules and to prevent money laundering and the financing of terrorist activity.
The key aims of the 5MLD include regulation of E-Money Products, Cryptocurrencies, giving the Financial Intelligence Unit more rights to access information and increased due diligence in high risk countries and access to beneficial ownership information.
As part of 5MLD, changes to Trust registration are to be implemented by 10th March 2020, although the legislation is still in draft form. Currently, only information relating to Trusts with a tax liability need to be registered on the Trusts Register. However, the 5MLD aims to expand this in two ways:
- Trustees of all UK express trusts must register them on the Trusts Register, even trusts that will not incur a UK tax liability, and
- The Trusts Register is to be available to view by anyone with a “legitimate interest”
What is an Express Trust?
For the purposes of the 5MLD an “express trust” is defined as a trust that was expressly (i.e. deliberately) created by a settlor, as opposed to being created in other ways (e.g. through a court order or through statute) and arising by a written trust deed or under a will. Although the draft legislation will not define this, HMRC have set out examples of UK trusts that are likely to fall within this definition:
- Discretionary Trusts
- Interest in Possession Trusts
- Many types of Bare Trusts
- Employee Ownership Trusts
According to the Association of Taxation Technicians, this could extend the number of registrable trusts from around 200,000 to as many as 2 million.
It has been suggested that the following types of Trusts will not be registrable:
- Statutory trusts
- Trust Deeds relating to co-ownership of land
- Co-ownership of assets such as bank accounts or shares
- Trust to hold life insurance policies, income protection policies, retirement, death or terminal illness
- Registered pension schemes
- Charitable Trusts
The closing date for comments on HMRC’s technical consultation ended on 21st February 2020. The Law Society has raised concerns that these proposals will require an enormous number of low risk trusts to be registered. They have urged the government to make the final legislation “….proportionate to the UK context where trusts arise in many different types of ordinary arrangements”.
Details of the final legislation will follow in Part 2.
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*Disclaimer: While everything has been done to ensure the accuracy of the contents of this article, it is a general guide only. It is not comprehensive and does not constitute legal advice. Specific legal advice should be sought in relation to the particular facts of a given situation.