The much maligned Trust Registration Service (TRS) will undergo fundamental changes in 2020. The changes were outlined in the government's consultation on its implementation of the 5th Money Laundering Directive (5MLD) (see our article here for a look at the implications of 5MLD for crypto-assets).
The TRS was introduced in 2017 as part of the UK's implementation of the 4th Money Laundering Directive. Under the current regime, trustees of certain types of trust have to register beneficial ownership information about the trust with HMRC via an online portal - including information about the settlors, trustees, protector(s) (if any), beneficiaries and any other natural person exercising effective control of the trust. The register is private but the information is shared with law enforcement agencies.
Under 5MLD, changes will be made to the scope of the TRS, significantly expanding the type of trusts which will need to be registered. The categories of people who will be able to access the data on the register will be widened, although the register will not be made completely public. There will also be changes to the timing of notifications and to the late-filing penalty regime.
Currently, all express trusts that incur a UK tax consequence must register on the TRS. Under 5MLD, the following types of trust will also have to register, whether or not they incur a UK tax consequence:
all UK resident express trusts;
all non-EU resident express trusts that acquire UK land or property on or after 10 March 2020 (where that land or property needs to be registered under registration criteria set by each of the UK's constituent parts, for example, in England the Land Registry requires registration of freehold estates or leases of over seven years); and
all non-EU resident express trusts that enter into a new business relationship with an obliged entity (i.e. an entity that is supervised in the UK for compliance with 4MLD or 5MLD) on or after 10 March 2020.
Who can access the data?
Currently, HMRC shares data on the register with law enforcement agencies. Under 5MLD, the data will also be shared with:
obliged entities which are required to carry out client due diligence (CDD) when they enter into a business relationship with the trust (see here for further information about how 5MLD will link CDD with the UK's beneficial ownership registers);
persons who can demonstrate a "legitimate interest" in accessing the information ("legitimate interest" will be narrowly construed to mean relating to anti-money laundering or counter-terrorist financing); and
anyone who wants to know about trusts with a controlling interest in a non-EEA company. Requests for information about such trusts will be purpose blind: anyone who wants to have this information will be able to access it. In effect, there will be a public register for these types of trusts.
Notifications and late-filing penalties
Data about a trust and its beneficial owners will need to be registered within 30 days of creation of the trust and updates will need to be made within 30 days of any changes. The current deadline of 31 January (which was linked to submitting a tax return) will not apply. Unregistered trusts which are already in existence will have a long stop date of 31 March 2021 to make their first filing which will give some welcome breathing space. A new penalty system for late registration will be introduced as the current system based on the self-assessment penalty regime will no longer be appropriate.
Osborne Clarke comment
These changes will have considerable implications for trusts and service providers. For example:
the 30 day filing deadline could cause problems where trustees and their agents are simply not aware of changes to information because they are not in constant contact with beneficiaries. Similarly, it will become necessary to gather all the necessary information before a trust is established: in practice, it can take often take months to obtain the relevant information from individuals. Beneficiaries who are not expecting to benefit from the trust, or who simply fail to co-operate, may refuse to provide it at all.
the public nature of the register for trusts holding non-EEA companies could lead to offshore trustees shunning UK/EU service providers where using them would lead to first registration and a loss of confidentiality.
In addition, a number of details – particularly around the extended scope which is broad and insufficiently defined - will need to be clarified before the proposals are brought into effect. We hope these are addressed in the government's response to the consultation and HMRC's technical consultation expected later in the year. It is, however, worrying that the Consultation does not include any clear statement as to whether common uses of trusts such as joint ownership of property and trusts holding insurance policies will become registrable. The UK government may struggle to limit the wide definition of express trusts imposed by 5MLD.
Implementation of the TRS was fraught with difficulties – first subject to months of delay (long after the date trustees were required by law to register) and then implemented with numerous bugs, ambiguities and lack of functionality (such as access for agents outside the UK and the ability to update information). We can only hope that implementation of these changes will run more smoothly.
Please contact us if you would like to discuss the implications of the changes for you.