UK Trust Register - final rules published
The good news is that, although there will still be a large number of trusts which will be required to register for the first time, the scope of the exemptions have been significantly expanded.
Some uncertainties remain. Hopefully these will be clarified in the HMRC guidance which we expect to be published late this year or early next year.
For further information on the impact for trustees, see our separate note. The key points which emerge from the final regulations published on 15 July are set out below.
Overseas trusts which engage UK service providers
Perhaps the most significant uncertainty was whether a non-UK trust which has no UK tax liabilities would be required to appear on the UK Trust Register simply because it engages a UK services provider (such as a lawyer, accountant, banker, investment manager etc.). The regulations confirm that this will not be the case and that 5MLD only requires a trust to be registered if it has some other connection with the UK. The connection which has been identified is whether the trust has at least one UK resident trustee.
A trust which has a UK resident trustee will still be non-UK resident for tax purposes if there is at least one non-UK resident trustee and the settlor was neither resident or domiciled in the UK when funds were contributed to the trust.
A non-UK resident trust which has at least one UK resident trustee will be required to register if it enters into a new business relationship with a UK service provider after the changes come into effect in the middle of next month unless the trust is resident (and therefore required to register) in any EU member state.
The earliest date for registration is 10 March 2022. After this, the trust will need to register within 30 days of satisfying the requirements for registration (which will normally be when the UK service provider is engaged).
The way the rules have been interpreted removes a significant potential burden from most overseas trustees. However, any overseas trust which has a UK trustee should be kept under review as any new UK business relationship will trigger a requirement to register.
Overseas trusts acquiring UK real estate
A non-UK resident trust which has a UK trustee will be required to register if it acquires real estate in the UK.
Although it is not required by 5MLD, the UK Government has decided that a non-UK resident trust which has no UK resident trustees will also be required to register if it acquires an interest in UK real estate. However, where there is no UK trustee, the information on the register will not be publicly available.
The requirement for non-UK trusts to register only applies where the trustees are registered at the Land Registry as the legal owners of the real estate. There is no requirement to register if the legal title is held by a nominee for the trustees. However, in these circumstances, it is likely that the nominee will need to register (see below).
In practice, it is likely that trustees who acquire UK real estate will, at some point, be subject to UK tax and will therefore become subject to the normal rules for registration (and for third party access to the beneficial ownership information of the trust).
If a non-UK trust already holds real estate and has not been required to register as a result of any current UK tax liabilities, it appears that there will be no requirement to register as a result of the introduction of the new rules. On the face of it, the registration requirement only comes into play if the trust acquires real estate after the changes take effect next month.
Nominees and bare trustees
It had been hoped that nominee/bare trust situations would be exempted from the requirement to register. However, there is no general exemption.
There are various specified exemptions for commercial activities and the normal custody arrangements for portfolio investments. However, in other situations, the nominee/bare trustee will be required to register.
This will include for example where real estate is held by a nominee for a beneficial owner or where assets are held by parents as bare trustee for their minor children.
Of course, the requirement to register only applies if the nominee/bare trustee is UK resident or the asset is UK real estate which is acquired after the rules come into force.
It is confirmed that trusts relating to joint ownership are not required to be registered as long as the legal and beneficial owners are the same people. This will exclude most joint ownership of land and other assets such as bank accounts.
There will however still be a requirement to register if there are beneficial owners who are not also legal owners. For example if parents hold a property jointly for themselves and their children or one spouse holds a property for the benefit of themselves and their spouse.
Pilot trusts/de minimis exemption
A trust which holds less than £100 and which is in existence when the new rules come into force will not be required to register.
However, a trust which is established after the new rules come into force will be required to register even if it holds less than £100 of assets. It is not at all clear what the logic is for this distinction but it will clearly impose an additional burden where pilot trusts are established in the future, for example to receive death benefits under a pension policy or to receive assets under a will.
Life policy trusts
It is confirmed that trusts holding the benefit of life policies which only pay out on death, illness or disability will not have to register. The trust will however have to register when the policy pays out unless this is on death and the trust is wound up within two years of the death.
Although it is not clear, it seems that a trust holding a policy which can be surrendered at any time would have to be registered. This would include for example a trust holding a single premium life bond.
A trust established under an individual’s will only has to be registered if it remains in existence for more than two years after the death of the individual.
A trust which arises under statute when somebody dies without a will does not have to be registered at all.
Third party access to beneficial ownership information
It is confirmed that, as explained in our previous note, third parties will generally have to provide quite detailed information about their suspicions that a trust is being used for money laundering or terrorist financing before beneficial ownership information will be released. There will however be no requirement that the trustees or beneficial owners are notified of any request for disclosure and they will have no right to appeal against any decision that disclosure should be given.
As mentioned above, third parties will have no ability to access information about a trust if the only reason the trust is registered is because it has acquired UK real estate and the trust has no UK resident trustees.
In addition, a third party cannot access beneficial ownership information in relation to a non-UK trust if the only reason that trust is registered is because it has UK tax liabilities.
In practice, this means that the only circumstances in which information about a non-UK trust will be available to the public is where the trust has at least one UK resident trustee and has either engaged a UK service provider or has acquired UK real estate after the regulations come into force.
Registration in EU Member States
It should not be forgotten that a trust which has trustees who are resident in an EU Member State or which engages a service provider or acquires real estate in an EU Member State is likely to be required to be registered on the trust register of that EU Member State. A trust which is registered elsewhere is not required to be registered in the UK unless the trust has UK tax liabilities or acquires UK real estate.
What should trustees be doing
For the time being, the rules requiring registration of trusts which have UK tax liabilities are the same as before. Registration is generally required either by 5 October or 31 January after the end of the tax year in which the tax liability arises.
For other trusts (i.e. those that do not have UK tax liabilities), the earliest date for registration is 10 March 2022. There is therefore plenty of time for trusts to work out whether they need to be registered, and, if so, to compile the necessary information.
The upgraded trust registration system will, in any event, only become available during the course of 2021 and so trustees cannot get ahead of the game by starting to register now even if they wanted to do so.
The good news is that there will be a very large number of trusts which pose little or no risk in relation to terrorist financing or money laundering and which will not therefore need to be registered at all. In addition, the impact on overseas trusts which do not have UK tax liabilities and do not have any UK resident trustees is limited only to those trusts which acquire UK real estate. Even in those circumstances, the information about the beneficial owners of the trust will not be publicly available.