We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
20 August 2020
The government has published its response to the technical consultation on the implementation of the EU Fifth Money Laundering Directive (5MLD) and the Trust Registration Service (TRS) (for further details please see "Trust Registration Service update"). The TRS consultation ran from 24 January 2020 until 21 February 2020 and responses were received from a range of stakeholders.
The TRS rules have required trustees to collect, maintain and file details about affected trusts (essentially, express trusts that are taxable in the United Kingdom) from 2018 onwards. 5MLD significantly broadens the scope of the TRS, potentially including all express trusts with a connection to the United Kingdom. It also provides for enhanced access to the register, opening it up to anyone with a 'legitimate interest' in the beneficial ownership of the trust or, in certain cases, to anyone who writes to Her Majesty's Revenue and Customs (HMRC) to request information with a justifiable reason.
The government appreciated that the broad scope of the changes to the TRS proposed in 5MLD raised concerns in the United Kingdom, and this understanding was reflected in its technical consultation. The published response indicates that the government took into account the legitimate concerns of stakeholders who responded to the consultation, and the amendments that it has made to its original proposals are welcome.
A particular concern had been the proposed requirement to register a trust where there is a business relationship with a UK-based adviser by anyone in the world, even in the absence of any other UK connection. A 'business relationship' in this context is defined as a business, professional or commercial relationship that arises out of the professional activities of the 'obliged entity' (eg, a lawyer or an accountant) that is expected, at the time that the relationship is established, to endure for a period of time – in the government's view, at least 12 months.
Given that UK-based advisers are subject to stringent regulatory requirements and are well versed in assisting clients with complex trust, tax and compliance-related queries, the potential scope of this requirement seemed particularly counterproductive. UK tax legislation is constantly evolving and the government should be encouraging those that may be affected to take appropriate advice so as to properly meet their obligations.
In response to concerns raised on this issue, the government has now confirmed that non-UK trusts will be required to register on entering into a UK business relationship only if the trust has one or more UK-resident trustees. A non-UK settlor or trustee merely appointing a UK-based adviser to act will not prompt registration. This is a sensible and welcome change which allows UK-based advisers to advise on overseas trusts without restriction.
A further concern was the proposal to grant increased access to information on the TRS, including to those with a 'legitimate interest' in the beneficial ownership of a trust or to anyone who writes to HMRC with a justifiable request to such access in circumstances where a trust holds a controlling interest in a non-EU entity.
A further welcome concession by the government is its confirmation that while non-UK trusts that acquire an interest in UK land will be required to register whether or not they have a UK-resident trustee, they will not be subject to the third-party data sharing provisions if they have no such trustee.
With regard to information to be provided by trustees with a controlling interest in a non-EEA entity, the provisions granting access remain unchanged from the original proposals, except that they will now also apply only to trusts that have a UK resident trustee.
These measures are significant as it should be rare (and avoidable) for a non-UK trust to have a UK-resident trustee.
Where the data sharing provisions apply, the response states that each request under the 'legitimate interest' process will be reviewed on its own merits and access will be provided only where there is evidence that this will help to counter money laundering or terrorist financing activity. It remains to be seen how this will operate in practice. The response notes that representations were received from those who felt that greater access should be given, as well as those who felt that the proposals unduly threatened privacy.
This remains an area of concern where it applies, and it is hoped that this will be handled carefully so that legitimate privacy concerns are addressed.
The government response notes concerns raised about the broad range of trusts that were initially proposed to be registered, especially where these presented low risks of being involved in money laundering or terrorist financing.
The response sets out a list of trusts that should generally be exempt from registration. Among others, the list includes:
This should reduce the compliance burden on numerous low-value family trust arrangements, where the compliance costs would have been disproportionate. Unfortunately, the list does not mention bare trusts for minors, even though these are said to have received more objections than other types of trust that have been exempted. Bare trusts are a commonly used method of holding assets for children or disabled persons and it is hard to see how they are a target of 5MLD.
The response states that a registration deadline of 10 March 2022 should provide sufficient time for trusts to register or update their details if they are already registered. A deadline of 30 days for new trusts set up on or after 10 March 2022 is also considered to be sufficient, although the government considers that this should not apply to will trusts, which should not require registration at all if they only receive assets from the deceased's estate and are wound up within two years of death.
These provisions should give trustees adequate time to register where required before March 2022. Registering new affected trusts within 30 days of establishment should become part of trustees' new trust checklists.
The response states the intention to proceed with the previously proposed penalty regime, where there is a failure to register on time or a failure to keep up-to-date and correct records. The proposals include the typical use of nudge letters for first failures to comply, in the absence of deliberate behaviour, and fines of £100 for second and third instances of a failure to update. This is unlikely to be an area of significant concern, although trustees should be concerned about possible penalties and reputational risks around non-compliance.
Proposed legislation has been prepared and is being considered by committees in the House of Commons and the House of Lords. The response states that there are some remaining policy issues that the government will continue to explore and that further input may be sought from the respondents to the consultation regarding guidance on the new rules.
The United Kingdom, along with a number of EU countries, has been served with an enforcement notice by the European Union for a failure to implement these rules by 10 January 2020. The United Kingdom was asked to provide a satisfactory response by mid-September 2020 and this indicates that it should be in a position to do so.
For further information on this topic please contact Nick Jacob, Kelly Noel-Smith, Julia Ramsden Gunduz or Robert Payne at Forsters LLP by telephone (+44 20 7863 8333) or email (firstname.lastname@example.org, email@example.com, firstname.lastname@example.org or email@example.com). The Forsters LLP website can be accessed at www.forsters.co.uk.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.