All websters clients that have trusts should note the new disclosure rules relating to trusts and the reporting obligations for the new online HMRC Trusts Register. The new disclosure rules and the need to establish the Register stemmed from the EU’s Fourth Money Laundering Directive, which was implemented into UK law on 26 June 2017. Trustees are now obliged to compile and maintain records of a trust’s assets and its beneficiaries and to report the information to HMRC to be kept on the new Trust Register. For the time being, the Register will only be available to HMRC and UK law enforcement agencies and will not be publicly available. However, trustees may also be required to disclose some of the information to certain third parties, such as banks, accountants, lawyers and estate agents, on request.
Trusts caught by the new rules
Trusts caught by the new rules include both “UK trusts” (trusts with UK resident trustees) and “non-UK trusts” (trusts with non-UK resident trustees who are liable to UK tax on UK-source income or UK assets). Trustees of all UK and non-UK trusts must comply with the following due diligence, record keeping and (if requested) disclosure requirements while the HMRC registration and reporting requirements only apply to taxable UK and non-UK trusts.
Due diligence and record keeping
Trustees must maintain accurate and up-to-date written records of all “beneficial owners” and “potential beneficiaries” of the trust. For these purposes:
- “Beneficial owners” include the settlor, trustees, beneficiaries (or class of beneficiaries) and anyone else who has control over the trust.
- “Control” means a power under the trust instrument or by law to dispose of, advance, lend, invest, pay or apply trust property; vary or terminate the trust; add or remove a beneficiary; appoint or remove trustees; or direct, withhold consent to or veto the exercise of any of the powers mentioned above. This would include a protector of the trust.
- “Potential beneficiaries” are any other individuals referred to as potential beneficiaries in a document from the settlor relating to the trust, such as a letter of wishes.
The required information in respect of each individual beneficial owner and potential beneficiary is:
- full name and date of birth;
- national insurance number or unique taxpayer reference or, if none, their usual residential address;
- the nature of their role in relation to the trust;
- if the individual lives outside the UK, their passport or identification card number, country of issue and expiry date.
Where the beneficial owners include a class of beneficiaries, not all of whom have been determined, the trustees must simply provide a description of that class of persons.
Reporting obligations & the trust register
HMRC is obliged to maintain a register of beneficial owners of taxable relevant trusts which may be inspected by any law enforcement authority and the information shared with other EEA authorities. A taxable trust is any UK or non-UK trust which is liable to pay UK tax. Therefore, a trust may be obliged to carry out the due diligence (and to make disclosures described below) but may not need to appear on the Trusts Register until such time as the trust becomes taxable in the UK. All trusts and complex estates with a UK tax liability must now register online with HMRC, even if the trust has already been reported using the old paper form (41G). HMRC have confirmed to us however, that with regard to life interest or interest in possession trusts which had filed returns in the past, but as a result of mandating income to the life tenant beneficiary or beneficiaries are no longer required to do so, these trusts will NOT be required to register their details on the new Register.
Other disclosure obligations
Trustees must provide information about the beneficial owners and potential beneficiaries to any law enforcement authority (such as HMRC, the police, or the Serious Fraud Office) on request.
In addition, whenever trustees enter into a relevant transaction or form a business relationship with a person or organisation required to apply customer due diligence procedures, the trustee must inform the relevant person that they are acting as trustee and, if requested, provide them with information identifying all the beneficial owners of the trust (though not, in this case, any “potential beneficiaries” named in a letter of wishes). It is likely that banks will require this information and professionals such as lawyers, accountants and estate agents may also request this from trustees.
If there is any change in the information provided, trustees must notify the authorities or relevant person of the change and the date on which it occurred within fourteen days from the date on which the trustee became aware of it.
These obligations will not breach any restriction imposed on trustees on the disclosure of information or involve any civil liability for the trustees under UK law, although the position should be checked where there is a non-UK trust.
Current position relating to HMRC’s Trusts Register and the Trusts Registration Service (TRS).
Under existing self-assessment rules, trustees (or their agents) must register details of a new trust with HMRC by 5th October of the year after a liability to Income Tax or Capital Gains Tax (CGT) first arises. The registration process, which will need completing via TRS, will include providing the information set out above. In subsequent years, or where the trust is already registered for self-assessment, trustees (or their agent) of either a UK or non-UK (express) trust that incur a UK tax liability are required to provide the required information about the trust, using the TRS, by 31 January after the end of tax year. In effect, this means that for existing trusts their details need to be entered on the new Register by 31sT January 2018.
The TRS has been available to trustees since the summer, but agents have only be able to request access since 17th October 2017. Our plan is to contact all our clients who are affected by the new disclosure rules for trusts and to see whether they wish for us to undertake the service of registering their trust on the new Register if this is required. If in the meantime however, you have any queries regarding this matter, please contact Liz Hooley.