On June 26, 2017, the final version of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) came into effect in the United Kingdom. One of the effects of this legislation requires certain trustees to report to HM Revenue & Customs (HMRC) on, and maintain a register of, “beneficial ownership information” in relation to any relevant trusts which they administer.
Broadly speaking, all U.K. trusts (trusts that are treated as U.K. resident for income tax (IT) and capital gains tax (CGT)), and non-U.K. trusts which receive income from a source in the U.K. or have assets in the U.K. on which there is a U.K. tax liability (including IT, CGT, inheritance tax (IHT), Stamp Duty Land Tax (SDLT) or Stamp Duty Reserve Tax (SDRT)), are “relevant trusts” and are therefore affected. The respective trustees of such trusts are required to comply with the reporting regulations via an online Trust Register which is available through HMRC’s online Trust Registration Service (TRS). The Trust Register will not be open to the public, but will be made available to law enforcement bodies in the U.K. and European Economic Area states (if requested), and the U.K. Financial Intelligence Unit.
Who Must Register?
Currently, registration on the Trust Register is only required for deliberately created express trusts (a trust created intentionally by an act of the settlor). Statutory, resulting, constructive or unit trusts don’t currently need to be registered. Additionally, Employee Ownership Trusts are deemed to be relevant trusts as defined by the legislation and need to be registered, but only if the trustees incur a U.K. tax liability in the relevant year.
Non-U.K. trusts will be outside the registration and reporting requirements, provided they don’t become subject to any U.K. tax liabilities (such as IT, CGT, IHT, SDLT or SDRT). If U.K. tax obligations are incurred only at the level of a company underlying the trust, then the trust will not (currently) be subject to these requirements.
The term “beneficial owner” has been given a wide meaning, and trustees will be required to provide information on the identities of the settlors, other trustees, beneficiaries (including discretionary objects) and all other natural or legal persons exercising effective control over the trust. In this context “control” means power to deal with trust assets, to vary or terminate the trust, to add or remove a beneficiary, to appoint or remove trustees and to exercise consent or veto powers. On that basis a protector is also likely to be someone who exercises control. The information which trustees are required to report in relation to any beneficial owners includes:
- their name;
- their correspondence address and other contact details;
- their date of birth;
- if they are resident in the U.K., their National Insurance Number or their Unique Taxpayer Reference; and
- if they aren’t resident in the U.K., their passport or ID number with its country of issue and expiry date.
If a trust has a class of beneficiaries, not all of whom have been determined, then it will not be necessary to report all of the above information. Instead, trustees will need to provide a description of the class of persons who are entitled to benefit from the trust. Trustees will also be required to provide general information on the nature of the trust. This includes:
- its name;
- the date on which it was established;
- a statement of accounts describing the trust's assets (which includes addresses of any U.K. property it owns);
- the country where it’s resident for tax purposes;
- the place where it’s administered; and
- a contact address.
Trustees must take action to collate the necessary information to comply with these regulations, as a failure to comply could lead to criminal repercussions (however, at this stage it isn’t clear what the penalties are for non-compliance). HMRC has stated in its guidance that “[it] will set out [its] penalty framework in the near future, but the legislation requires that any civil penalty imposed must be proportionate to the offence committed.” It’s important to note that trustees' agents can also access the TRS and submit any reportable information, but must first create an Agent Service Account.
Trustees who have already reported their trust on the now-discontinued paper Form 41G must still register online. Originally, the first reporting deadline was set at Oct. 5, 2017, but this has now been postponed to Jan. 5, 2018 and looks unlikely to move. HMRC’s comments on the TRS state that new trusts must register by Oct. 5 of the tax year after the trust is set up or when it starts to become liable to IT or CGT. However, the regulations state that the relevant information must be provided on or before Jan. 31 following the end of the first tax year in which the trustee first became liable to pay the applicable U.K. taxes, the same as for online self-assessment income tax returns.
Actions to Take Immediately
Trustees and trustees’ agents need to take a careful look at some measures to ensure that current and future compliance with the new regulations is achieved:
- Review existing trusts and decide which are in scope.
- Ensure that the trusts’ accounts are up to date.
- Decide who the beneficial owners are in each case and review the information held on them. Note that the definition of “control” has a wide meaning and may include protectors (don’t assume that it’s the same as under the Foreign Account Tax Compliance Act, Common Reporting Standard or your local anti-money laundering regulations).
- Ensure that you have the necessary information on record that’s required to be reported on any beneficial owner.
- Ensure that appropriate systems are in place within your organization to satisfy the reporting obligations going forward.
- Check regularly for HMRC updates on the Trust Register and the TRS, as changes to deadlines and the reporting requirements are likely!