Government consults on expanding access to information on trusts
What is the current position?
Currently, the UK Government collects information on trusts connected with the UK through different means, including through the UK’s Register of Overseas Entities (ROE) and its Trust Registration Service (TRS). More detail on these regimes is set out in the box below.
However, information on trusts in the UK is effectively private and not available to the general public.
Under the ROE, a non-UK entity (an overseas entity) that owns registered land in the UK is required to file details of its registrable “beneficial owners” at Companies House. Failure to do so is an offence and means that the entity will be unable to deal with the land.
Similarly, an overseas entity that wishes to acquire legal title to registered land in the UK must register on the ROE and obtain a registration number. Without that number, the acquisition of the land will not be registered.
The concept of a beneficial owner is broadly similar to that of a “person with significant control” (PSC) under the UK’s PSC regime. A person will be a beneficial owner if they hold more than 25% of an entity’s shares or voting rights, wield board control or in some other way exercise significant influence or control over an entity. There are also provisions within the ROE regime that look through trust and partnership structures.
In addition, if any of an entity’s registrable beneficial owners is acting as a trustee, the entity must also provide certain details relating to the trust in question, including the beneficiaries of the trust.
Information on overseas entities and their registrable beneficial owners is available to any member of the general public at no cost.
However, information on trusts within an overseas entity’s ownership structure is private and may be disclosed only to enforcement authorities and HM Revenue & Customs (HMRC).
The recent Economic Crime and Corporate Transparency Act 2023 (ECCTA 2023) gives the Government power to allow applications for access to trust information held on the ROE. So far, the Government has not utilised these powers, although it has stated in the current consultation that it does intend to do so.
Finally, the ECCTA 2023 also amends the ROE regime to introduce an additional category of beneficial owner. Where an overseas entity holds land as “nominee” for someone else (the “principal”), the principal will automatically be regarded as a registrable beneficial owner of the entity and their details will be publicly available.
This additional category has not yet been brought into force, but the Government has stated that it will come into effect in 2024. Once live, it will force disclosure of certain trusts over land.
Frustratingly, the legislation does not define “nominee”. It will include bare trusts of land where the trustees exercise no control or discretion over how the land is used and when it is sold. However, it is less clear whether other kinds of trust fall within this concept.
Under the TRS, trustees of certain kinds of express trust are required to file details of those trusts with HMRC. This includes details of the trust’s beneficial owners, which includes the beneficiaries, settlor and any protector or enforcer.
Broadly, the TRS applies to all UK trusts, to all trusts that own registered land in the UK, and to certain trusts that enter into business relationships with regulated persons in the UK.
The level of detail that must be filed depends on the nature of the trust. Certain types of trust (so-called excluded trusts) do not need to file information with HMRC. These include trusts established in connection with insurance policies, pension schemes, employee share option schemes and genuine commercial transactions, as well as charitable trusts.
Information on wholly offshore trusts is available only to enforcement authorities.
In theory, information on other trusts is available to anyone seeking the information in connection with an investigation into money laundering or terrorist financing (the legitimate interest test) or if the trust controls a legal entity outside the UK or the European Economic Area. In both cases, however, the person requesting the information must identify the specific trust in their request for access, which can make gaining access to the information difficult.
In practice, the stringency of these tests means that public access to information on trusts registered with the TRS is very limited.
What is the Government proposing for the Register of Overseas Entities?
As noted in the box above, trust information held on the ROE is not available to the general public. The Government has floated three options for the future treatment of this trust information.
- Public disclosure by default. All trust information filed by an overseas entity would automatically be publicly available on the entity’s file (other than any information that has been suppressed from public view under a successful protection application).
- Partial disclosure. Some, but not all, information about trusts would be publicly available. The consultation does not state definitively which information would be private and which would be public, although it suggests that the name of the trust, its date of creation and the name of its settlor and any interested persons could be public, whereas the information about beneficiaries could remain private.
- No change. Trust information would remain private (subject to any application for access).
Whatever option is pursued, the Government will not make information on members of pension fund trusts available. In addition, an individual’s residential address and the “day element” of their date of birth would not appear on the public record (which is consistent with the approach for directors and persons with significant control).
Under option 2 or 3, it would be possible to apply to Companies House to obtain trust information that has not been made publicly available. (No such application would be necessary under option 1, as, under that option, the information would automatically be public.)
The Government would allow anyone to apply for access to trust information held in the ROE. If the application concerns a single trust, the applicant would not need to show they have a “legitimate interest”, but they would need to explain how they intend to use the information. If the application concerns multiple trusts, the applicant would need to show a legitimate interest in the information.
In both cases, Companies House would be able to place restrictions on how the information can be used.
What else is the Government proposing?
The proposals above in relation to the ROE would apply only to trusts that sit above the corporate structure of an overseas entity. They would not apply to trusts over land itself.
There is currently no single register of trusts over land in the UK. If trustees became the registered proprietor of land in the UK on or after 6 October 2020, they must register the trust under the TRS. However, the TRS holds very little information about the land itself.
As a result, the Government is asking more open-ended questions about the potential disclosure of land-based trusts. These include what information should be collected on trusts of land, for what purposes and in relation to what kinds of property.
The consultation then moots five potential options for disclosure of that information and seeks views on which option may be most appropriate.
- No change. The consultation does not expressly set out what this would entail, noting merely that this would “retain existing access practices relating to trusts information”. Effectively, this would likely mean that the current regime under the TRS would continue to apply, with information on trusts remaining theoretically public in certain circumstances but, in practice, effectively private.
- Increased transparency of non-UK trusts holding land. The consultation suggests applying the proposals for the ROE to non-UK trusts that hold UK land. However, it does not provide any detail on what this would mean in practice, given that the options for the ROE range from making no change at all to full disclosure of all trust information.
- Minimum disclosure. This would involve making some trust information publicly available if the trust is involved in land ownership. All other information would remain private.
- Minimum disclosure with additional access. This is the same as option 3, except that it would be possible to obtain access to the private information on a trust if the applicant has a “legitimate interest” in the information.
- Public disclosure by default. This is similar to option 1 for proposed changes to the ROE. It would involve automatic public disclosure of all information relating to a trust of land, but with the ability to apply to suppress information from public view in certain circumstances and potentially exempting certain information from public disclosure.
Importantly, the Government is not specifically proposing simply to make information on the TRS publicly available (although, depending on the option it decides to pursue, this could be one way of achieving disclosure).
In that regard, it is worth nothing that, whilst only express trusts are required to supply information to the TRS, the Government’s questions on broader disclosure of land trusts does not appear to be limited to express trusts.
Children and vulnerable persons
Trusts are often established for the benefit of children and, in some cases, vulnerable persons who are unable to manage their own affairs (such as persons who lack sufficient mental capacity).
We have previously drawn attention to the need for the Government to act carefully in relation to any proposals to expand the public availability of trust information to ensure that children and vulnerable persons, to whom public disclosure arguably creates greater risks, are protected.
It is therefore encouraging that the consultation recognises concerns around publicly disclosing details of minors (i.e. persons under the age of 18) and vulnerable persons.
In the context of the ROE, the consultation paper states that the Government is planning to expand the grounds on which a person connected with a trust can apply to suppress their details from public view to potentially include where the person is a minor or a vulnerable person.
In the context of both the ROE and the wider proposals for disclosure, the Government is seeking views on whether information on minors should be publicly available by default, but with the ability to apply to suppress the information, or private by default, but with the ability to obtain the information if the person seeking it has a legitimate interest.
What does this mean for me?
Disclosure of trusts has been a talking point for years now and so the consultation comes as no surprise. Although the paper does contemplate the possibility of not making any changes, the Government has made its objectives clear and we should likely expect some element of public disclosure in due course.
The consultation makes it clear that, at this stage, the Government is looking only at trusts that are in some way connected with land in the UK. Other trusts, such as trusts over UK company shares and other securities, are not within the scope of the proposals.
The central debate will most likely revolve around which trusts would be subject to public disclosure and what information they would need to be disclosed.
The consultation recognises the sensitivities involved with disclosing details of children and vulnerable persons (although it does suggest that this may be justified in some circumstances). The key question will be whether information on these persons should be public by default, or private but accessible with a legitimate interest. Given that children and vulnerable persons are much less likely to be involved in economic crime, such as money laundering, the latter would seem a logical approach.
Outside of personal arrangements, trusts appear in a variety of commercial contexts. These include within institutional business and investment structures where a trust arrangement is a convenient – or, indeed, the only – means of holding land (or any other investment).
In some structures, the use of a trust is unavoidable. For example, private funds are usually structured as limited partnerships. For various reasons (both practical and legal), legal title to the property of the fund – which may include real estate – is held by the fund’s general partner and/or one or more separate nominees.
As a matter of law, the property is held on trust for all the partners, and this may well be enshrined in the limited partnership agreement itself. The utility of requiring separate disclosure of every private fund trust of this kind is questionable, particularly given that limited partners in a fund will typically have little or no say in how the real estate is dealt with and, if the fund is formed in the UK, will be publicly disclosed at Companies House.
In other institutional structures, trusts are used to facilitate ownership of land by creating tradeable interests but are not designed to obscure ownership. These include so-called Jersey property unit trusts (or JPUTs), where property is held on trust by nominees and investors simply trade units issued by the trust itself. In many cases, where the investor base is more dispersed, decisions are taken by an independent property manager, rather than underlying investors.
Again, the value of public disclosure in these circumstances will need to be carefully scrutinised so as not to deter legitimate institutional investors from pursuing investment opportunities in the UK.
The consultation is open until 21 February 2024.
This article was also authored by Rebecca Delaney and Klara Kronbergs