Corporate Law Update
- New regulations are published extending the deadline for trustees of express trusts to register their beneficiaries’ details with HMRC
- The FCA publishes new guidance on its approach to reviewing Part VII insurance business transfers
New regulations have been published to extend the deadline by which the trustees of certain express trusts must register details of their beneficiaries under the Trust Registration Services (TRS) maintained by HM Revenue & Customs (HMRC).
What is the TRS?
The TRS is a central database of taxable trusts and (from 10 March 2022) certain non-taxable trusts containing details of those trusts’ beneficiaries. The regime implements the Fifth European Union Money Laundering Directive (5MLD) in the UK and is designed to create transparency over the ownership of assets held in trust.
Trusts that fall within the regime are required by law to provide details of their beneficiaries to HMRC to store on the register. In certain circumstances, that information will be available to public bodies, supervised persons and the general public (see below).
Separately, the trustees of a trust that falls within the TRS must keep their own records of all beneficiaries of the trust.
Which trusts need to register?
Currently, only trusts that incur a mainstream tax liability in the UK (“taxable trusts”) need register with the TRS.
From 10 March 2022, however, the regime applies to certain express trusts that are not liable to pay tax in the UK (“non-taxable trusts”). These are:
- Type A trusts. A trust whose trustees are all resident in the UK. This also includes a trust with at least one UK-resident trustee if the settlor was resident and domiciled in the UK when the trust was set up or the settlor added funds to the trust.
- Type B trusts. A trust with at least one UK-resident trustee if the trust enters into a business relationship with a “relevant person” (such as a bank or a solicitor in the UK) or acquires an interest in land in the UK.
- Type C trusts. A trust with no UK-resident trustees if it acquires an interest in land in the UK.
Constructive trusts (which normally arise by order of the court) and resulting trusts (which normally arise where a transfer of property is not yet complete) are not subject to the regime.
The legislation contains numerous exemptions from registration (which are set out in Schedule 3A to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017). A non-taxable trust that falls within an exemption does not need to register with the TRS, but the trustees will still need to keep records of the trust’s beneficiaries.
The exemptions cover a wide range of trusts used to structure corporate and commercial transactions, rather than to obscure ownership of assets. These include trusts created when holding publicly traded shares (so-called “intermediated securities”) or pending completion of the sale of a business, escrow arrangements, and security trusts created in connection with debt financing.
The exemptions also extend to any trust created to facilitate a transaction for genuine commercial reasons, provided the trust is incidental to the purpose of the transaction. This should cover (for example) trusts created to deal with asset apportionments and third-party rights.
Outside the corporate context, the exemptions cover (among other things) registered pension schemes, life assurance and certain critical illness policies, trusts created in a will, charitable trusts, and certain residential property co-ownership trusts, share incentive plans, share option schemes and disabled persons’ trusts, and (now) bank accounts for minors and persons who lack mental capacity.
If using a trust structure or nominee arrangement, it is important to check whether it needs to be registered. The “genuine commercial transaction” exemption is particularly vague and parties will need to seek legal advice in each situation on whether a proposed trust would be required to register with the TRS.
What information needs to be provided and when?
Trusts that fall within the newly extended regime originally had until 10 March 2022 to register their details with HMRC. The new regulations extend this deadline to 1 September 2022. Trusts created within the 90 days before 1 September 2022 (that is, on or after 4 June 2022) instead have 90 days from creation to register.
Trustees must provide various pieces of information on the beneficiaries of the trust. These include each beneficiary’s name, month and year of birth, country of residence and nationality, and the nature and extent of the beneficiary’s interest in the trust. Different requirements apply to any corporate beneficiaries or where the trust specifies a class of beneficiaries who have not all been identified.
Who can access the information?
Information held in the TRS will be available to HMRC and can be provided to law enforcement agencies.
In addition, any member of the public will be able to access information if they can show a legitimate interest. However, applicants will need to provide quite detailed information about their suspicions that a trust is being used for money laundering or terrorist financing before HMRC will release any beneficial ownership information, which is an intentionally high bar.
What should I do now?
If you are setting up a new express trust with the assistance of a professional adviser, they should advise you on whether the trust needs to register with the TRS.
If you are a trustee of an existing express trust or you are acting as a nominee in relation to a client’s assets or shares, you should seek advice on whether your trust is within the scope of the extended regime (if you have not already done so).
The Financial Conduct Authority (FCA) has published updated guidance on its approach to reviewing transfers of insurance businesses under Part VII of the Financial Services and Markets Act 2000.
The updated guidance replaces the FCA’s previous guidance from February 2018. It carries across much of the substance of the FCA’s previous guidance, but with detailed clarifications of the FCA’s approach and its expectations of firms looking to carry out a transfer of insurance business.
Part VII contains a mechanism allowing an insurance firm to transfer some or all of its insurance business to another firm without needing to obtain the consent of each and every policyholder. (Part VII can also be used to transfer banking, reclaim fund and deposit-taking businesses.)
To complete an insurance business transfer, either the transferor or the transferee (or both) must apply to the court. The application must contain a report on the terms of the proposed transfer scheme prepared by an independent expert nominated or approved by the Prudential Regulation Authority (PRA). The PRA must consult the FCA before nominating or approving an independent expert.
In deciding whether to sanction an insurance business transfer, the court must be satisfied that the transferee has the right permission(s) to carry on the business and that it is appropriate, in all the circumstances, to approve the transfer.
The court cannot sanction a scheme unless the PRA has issued a certificate confirming that the transferee has a “necessary margin of solvency” – effectively, the regulatory solvency capital requirement that applies to the transferee.
The FCA’s consent is not required for an insurance business transfer, but the FCA is entitled to make representations at the court hearing.
The guidance sets out (among other things) the FCA’s expectations of applicants when engaging with regulators, as well as the factors the FCA will take into account when engaging with the PRA on nominating or approving an independent expert and generally when deciding whether to make representations at the sanction hearing.
Insurers looking to undertake a Part VII transfer should review the guidance and seek legal advice before commencing an application.