Action needed by trusts to comply with beneficial owner register requirements

04 July 2017

As part of the UK implementation of the EU's 4th Directive on Money Laundering, a beneficial ownership register for trusts has been introduced by HMRC. While in theory, it should have been operational from 26 June 2017, in practice its implementation has been delayed for a few weeks. The register will not be public at this stage, but access to the register will be granted to various authorities including the National Crime Agency and financial intelligence units in the EEA states.

New trusts within the scope of the rules will need to register by 5 October 2017 and information on existing trusts must be provided by 31 January 2018. Thereafter, the register will need to be updated once a year, as a minimum, by the end of each tax year, in each year that the trust generates a ‘UK tax consequence’. 

But which trusts need to register? Essentially, all express trusts with UK tax consequences will have to register. An express trust is one that was deliberately created by a settlor expressly transferring property to a trustee for a valid purpose as opposed to a statutory, resulting or constructive trust. Most bare trusts will not need to register.

A UK tax consequence will arise if the trust incurs UK liabilities for income tax, capital gains tax, non-resident capital gains tax, inheritance tax, SDLT or SDRT.

Therefore, UK resident trusts with UK tax liabilities will be required to register, as will trusts resident outside the UK which have a UK tax liability. Trusts can fall into and out of the duty to register each year, depending on their tax situation. Contracts, wills and testaments will not need to register automatically, but only if they create an express trust which generates a tax consequence. 

If within the scope of the regulations, trustees will be required to maintain accurate and up-to-date records of the ‘beneficial owners’ and ‘potential beneficiaries’ of the trust and to report specific information on the trust to HMRC. 

Beneficial owners are defined to include the settlor, trustees, beneficiaries (even if only discretionary) and any individual with control over the trust. A potential beneficiary is someone referred to as a potential beneficiary in a document from the settlor relating to the trust, such as a letter of wishes.

The information the trustees are required to report to HMRC includes:

  • the name of the trust, its creation date and a statement of accounts describing the trust assets and identifying the value of each category of assets; and
  • the name and UK tax reference number or national insurance number of the beneficial owners and potential beneficiaries, their correspondence address and other contact details, their date of birth and if not UK resident, their passport or ID number with its country of issue and expiry date.

In the case of a discretionary trust where not all of the beneficiaries have been determined (eg all future grandchildren of the settlor), then trustees will need to provide a description of the class of persons who are entitled to benefit from the trust.

It is the responsibility of the trustees to update the register, but clearly settlors, beneficiaries and others will need to inform the trustees of relevant changes and for some trustees there will be a huge amount of information to gather. 

While most professional trustees will have systems in place to collate the data and ensure the register is updated, there are numerous trusts with no professional trustees who have little time to comply if they are even aware of their obligations.

For more information please get in touch with Karen Clark, or your usual RSM contact.

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