Trust registration service – round two!

The trust registration service (TRS) last year caused all sorts of issues. So, we’re disappointed that the scope of the existing Trust Register is to be extended in 2020 by yet another EU directive.

Background

The trust register was set up in 2017 in response to the fourth EU money laundering directive. Under the rules, all express trusts with a tax consequence must be registered using the TRS.

An express trust is an arrangement where there is a deliberate intention to create a trust, usually in writing.

A tax consequence means that the trust is liable to pay one of the following taxes: income tax, capital gains tax, inheritance tax, stamp duty land tax/land and buildings transaction tax, or stamp duty reserve tax)

Details of the trust’s beneficial owners, which includes settlor(s), trustees, and beneficiaries, and the value of the assets at the start of the trust, need to be disclosed on the trust register. Once registered, trustees must make sure the trust’s details are updated by 31 January following any tax year that the trust incurs another tax consequence.

A trust with a self-assessment liability will be need to update its details each year.  But a trust with only inheritance tax principal charges might only update the register on a 10 year cycle.

The new directive

The fifth EU money laundering directive (5MLD) extends the scope of the trust register. Under 5MLD, all UK resident express trusts and certain non-EU resident express trusts will have to register and disclose details of their beneficial owners. This is regardless of whether or not they have a tax consequence. This could include trusts connected with financial products such as life policies, shareholder protection policies, whole of life policies and discounted gift trusts. Potentially all property owned jointly (including land and bank accounts) could fall within scope. 

Taking away the tax consequence test is expected to increase the number of trusts that need to be registered from around 200,000 to 1-2 million. If the new rules covers all pension schemes written in trust, investment bonds written in trust, and bare trusts for children, then the number of extra registrations could be even higher.

5MLD will also extend access to the trust register data to anyone with a legitimate interest. Each member state must define that term in a way which balances the public interest with respect for private life. However, anyone who wants access will probably have to register online and pay a fee.

The UK has until 10 January 2020 to incorporate 5MLD into domestic law and then must apply the trust registration requirements by 10 March 2020. We understand that this will happen irrespective of Brexit. A consultation on the policy changes is expected in late 2018/early 2019, with a further consultation on the draft regulations in spring or summer 2019.

Faced with the potential increase in registrations, we can only hope (on behalf of our Trust clients) for improvements to the existing TRS process. To be fair to HMRC, they have acknowledged that there are  issues and promised to learn from the experience. We shall see!

One major issue at the moment, is that it isn’t possible to update the details of any trust on the register. So we recommend that Trustees advise HMRC by letter of any changes to the lead trustee or their contact details. We suggest waiting until the TRS is upgraded to allow amendments before notifying HMRC of any other changes.

If, as a Trustee, you have any questions about this, please contact our dedicated team of trust specialists on 0330 024 0888 or email enquiry@larking-gowen.co.uk.