Registration of trust beneficial ownership
From the end of January 2018, under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017), it is a legal requirement for trustees to register certain information about their trust with HMRC if the trust has incurred a liability to pay one or more of a range of taxes.
These regulations are the latest in a continuing stream of international regulatory provisions aimed at cracking down on money laundering and tax avoidance, and improving transparency.
The new Trusts Registration Service allows trustees to provide HMRC with the information required under the new filing requirements for beneficial ownership of a trust and initial registration for tax self-assessment.
Which trusts need to be registered?
A trust is caught by the requirement if it is a UK express trust, or is a non-UK express trust with income sourced from or assets within the UK upon which it is Iiable to pay UK Income Tax, Capital Gains Tax, Inheritance Tax, Stamp Duty Land Tax, Land and Building Transaction Tax (Scotland only), or Stamp Duty Reserve Trust. A trust is deemed to be a UK trust if: (a) all the trustees are resident in the UK; or (b) at least one trustee is resident in the UK, and the settlor was resident and domiciled in the UK when the trust was set up or s/he added funds to the trust. A wide range of trusts will be caught by these provisions.
When must trustees first report to HMRC?
There are two deadlines. If the trust was settled in the tax year 2016-2017 and has incurred a liability for income or capital gains tax, the deadline for registration is 5 January 2018.
If an existing trust has incurred a liability to pay one of the UK taxes above in the tax year 2016-2017, the deadline for registration is 31 January 2018.
If the trust is new, or has not yet incurred one of the tax liabilities above, the deadline for registration is 31 January after the tax year in which the trustees were first liable to incur one of those tax liabilities.
Can the trustees delegate their reporting obligations?
Trustees may use agents, such as accountants or lawyers, to register the trust. The service for trustees and agents to register the details is live now.
Are there consequences for failing to comply with the registration requirements?
A person who fails to comply with the registration requirements may be subject to civil penalties, or may be subject to criminal prosecution. There are no details as to the fine for a civil penalty, but conviction of a criminal charge can result in imprisonment for up to three months, a fine, or both.
What needs to be reported to HMRC?
As with similar reporting requirements, a wide range of information is required.
Trust details – including the name of the trust and the date of settlement, the tax and administration locations, a contact address for the trustees, and a statement of accounts for the trust, setting out the trust assets and the value of each category.
Details of those who are beneficial (or potential beneficial) owners of the trust – including name, date of birth, role in the trust, national insurance number or taxpayer reference (or usual residential address if neither are applicable), or for non-UK residents, the individual's passport number or ID card number, with the country of issue and date of expiry, or some other equivalent form of ID if the individual has neither a passport nor ID card.
Trustees should note that corporate entities still need to be reported but should check the MLR 2017 for the details required.
Who is a 'beneficial owner' of a trust for the purposes of the MLR 2017?
The concept of a beneficial owner for the purposes of the MLR 2017 is wider than expected. The details of the settlor, trustees, beneficiaries (or a class of persons if the beneficiaries are not known or are undetermined), and someone with control over the trust (namely, those able to exercise powers over the trust property, or powers over the addition or removal of trustees and beneficiaries) would need to be supplied.
All those beneficiaries identifiable from any trust documents must be registered. However, those who are deemed beneficiaries as part of a class need not be identified until they receive a distribution from the trust, and those whose interest is contingent on an event, for example on the death of a life tenant, need only be identified once that event has occurred.
Do charitable trusts need to register?
Charitable trusts are also subject to these requirements. However, trustees must only file information when there is a liability for the trustees to pay tax. Therefore, if charitable tax exemptions apply fully to the income or assets of the trust then the trustees are not liable to pay tax and need not file the information. Charitable trustees should note that the online service is not yet available for them to use and should contact HMRC for a paper form.
Is the register public?
The register is not a public register. However, this is not specified in the MLR 2017, so this may change in the future. HMRC is required to allow any law enforcement authority to inspect the register, and must also assist the National Crime Agency, if the agency receives a relevant request.
Do trustees need to update the information on the register?
Yes, the trustees are obliged to update the register if there is a change to any information other than to the value of the trust assets. The trustees must notify HMRC of the change and the date of the change on or before 31 January after the tax year in which the change occurred, or 31 January after the first tax year after the change in which the trustees are liable to pay the relevant UK taxes. The trustees must also make a confirmation statement to HMRC that there has been no change.
Trustees are obliged to keep their own register of the information for beneficiaries, potential or otherwise, as well as themselves and their advisers, so keeping this register up-to-date would assist trustees with their reporting obligations.
The registration of trusts with HMRC is yet another filing requirement for trustees to be mindful of, adding to their burdens under FATCA and CRS, and requires yet another different set of information. If you are not sure whether this applies to you, you should seek professional advice as soon as possible as 31 January 2018 will come around quicker than you think.
For more information or advice please contact Liz Palmer.