As part of a wider drive against tax evasion, on 26 June 2017 the UK implemented the EU’s 4th Anti-Money Laundering directive. Amongst other things, this took aim at trusts in the form of a compulsory register administered by HMRC. All trusts, no matter where they are in the world, must considering whether they are obliged to register, whether or not they already report under an existing regime. This includes pension funds and charitable trusts.
What do the new rules entail?
The new anti-money laundering rules create two overlapping obligations:
1. Trustees must report information to HMRC on all trusts worldwide for any tax year in which there is a “UK tax consequence”; and
2. Trustees must retain up-to-date records of beneficial ownership, whether or not there is a UK tax consequence.
This article will concentrate on the first obligation: the trusts register.
How does the trust register work?
The reporting is done online, via HMRC’s trusts registration service. Information must be reported each year, with deadlines akin to tax return filing. A good rule of thumb is that if a trust requires a UK tax return it will require a report under the trust register by the same 31 January deadline, although the definition of “UK tax consequence” is wider than this (see below). Trusts which do not have a UK tax consequence do not need to report, but if they have done so in a previous tax year a nil return will be required.
Which trusts have to report?
All trusts (both onshore and offshore) will have to report if there is a “UK tax consequence”, being where the trustees have a liability to UK tax. This will usually be where a UK trust tax return must be filed, but it also applies to inheritance tax and stamp duty on land and shares.
Bare trusts and interest in possession trusts where all income is mandated to the beneficiaries escape the reporting requirement as the trustees do not have a liability to UK tax. However, HMRC have confirmed to us that charitable trusts and pension funds fall within the rules as they are governed by trust deeds.
What needs to be reported?
The information required is extensive, including:
• Details of the settlors, trustees and named beneficiaries (including full names, dates of birth and tax reference numbers or, where not available, their residential address).
• The name of the trust and the date it was established.
• Trust accounts, describing the trust assets and the value of each category of assets.
• Where the trust is treated as tax resident and where it is administered.
• The name of any advisers being paid to provide legal, financial, or tax advice to the trustees.
The declaration of assets is a snapshot. For new trusts it will be whatever is settled when the trust is established, and for existing trusts per the latest accounts.
Who needs to report it?
The obligation is with the trustees, although agents can file on their behalf. Failure to report can result in up to two years in jail.
When is the first deadline?
HMRC’s trusts registration service performs two functions:
1. To fulfil the Anti-Money Laundering directive; and
2. As a replacement for the old form 41G for registering for tax reporting.
Therefore, two initial deadlines apply:
1. For trusts already registered with HMRC using old form 41G, that have a UK tax consequence in 2016/17 (even if subsequently liquidated) must report by 31 January 2018.
2. For trusts settled in 2016/17 or which first became liable to tax in that year, the usual registration deadline of 5 October 2017 has been extended to 5 December due to teething technical difficulties with trusts registration service. .
What does all this mean?
The trust register represents unprecedented exposure for all of those involved with trusts, be they settlors, beneficiaries or even professional advisers. In particular, it places a heavy burden on trustees and will increase the costs of administering trusts.