Draft regulations (“Regulations”) extending the scope of the UK trust register, published on 15 July 2020, confirm that the only non-UK resident express trusts which will have to register on the UK trust register (UK Trust Registration Service - TRS) are those where the trustees (in their capacity as trustees):
- acquire an interest in UK land; or
- enter into a new business relationship with an entity in the UK that is required to carry out customer due diligence checks in relation to the trust (e.g. a bank, lawyer, estate agent, accountant) where at least one of the trustees is UK resident and the beneficial owner information in relation to the trust is not held on a central register in another EEA country; or
- are liable to UK tax on UK source income or UK assets.
Trustees of non-UK trusts entering into a business relationship in the UK
There was considerable concern that non-UK resident trusts using UK service providers (banks, accountants, lawyers, estate agents etc.) would have to be registered on the TRS even if they had no liability to UK tax and no directly-held UK assets. However, thankfully, the government has listened to the numerous representations from stakeholders on how this element of the Fifth Money Laundering Directive (5LMD) should be interpreted. As a result, non-UK resident trusts where all the trustees are non-UK resident will not have to be registered on the TRS unless the trustees:
- receives UK source income; or
- holds UK assets
on which the trust is liable to UK income tax, capital gains tax (CGT), inheritance tax (IHT), stamp duty land tax (SDLT) or stamp duty reserve tax (SDRT); or
- acquire an interest in UK land.
Trustees of non-UK resident trusts with all non-UK resident trustees which do not have UK tax liabilities or acquire UK land can continue to use UK lawyers, accountants, investment managers etc. without bringing the trust within the scope of the TRS.
A non-UK resident trust with all non-UK resident trustees which holds UK assets (even UK residential property) through a non-UK company will not have to register on the TRS. Although the company holds UK assets and may receive UK income on which it is subject to UK tax (e.g. if it receives rental income from UK property) the trustees do not receive UK source income or hold any UK assets on which they are liable to UK tax. This is the case regardless of the settlor’s domicile status when the trust was created. However, foreign companies that hold, or wish to buy, land in England or Wales will be required to provide information on their beneficial ownership, under current proposals.
Other key points of interest confirmed by draft Regulations
UK resident trusts
All UK resident trusts (other than those which are specifically excluded – see below) will have to be registered on the TRS.
The types of trust (whether UK resident or non-UK resident) which will not have to be registered on the TRS have been expanded to include:
- UK charitable trusts
- trusts that arise as a result of statutory requirements – for example, statutory trusts arising for minor children under the UK intestacy rules
- trusts for a bereaved child set up under the will of a deceased parent of the child where the child will become absolutely entitled to the trust property on or before attaining the age of 25
- trusts created by a will which only hold assets forming part of the deceased estate and are wound up within two years of the deceased’s death
- ‘pilot’ trusts – trusts created before the Regulations come into force where the value of the property held by the trust does not exceed £100 (if further funds are added to the trust so that the trust fund exceeds £100 the trust will have to be registered at that point)
- trusts created by, or to satisfy, a court order – for example, on divorce or the dissolution of a civil partnership
- co-ownership trusts that exist solely for the purpose of jointly owning UK land
- trusts that exist where two or more people co-own an asset legally and beneficially for themselves – for example, a bank account or shareholding
- pension scheme trusts
- trusts of life insurance policies or policies solely for the payment of retirement death benefits - which only pay out on the death, terminal illness or permanent disablement of the insured, or to meet healthcare costs
- trusts incidental to commercial transactions
- authorized unit trusts.
If, however, the trustees of a trust that falls within one of the above exclusions become liable for UK income tax, CGT, IHT, SDLT or SDRT the trust will need to be registered on the TRS in order for the required trust tax return to be issued.
These exclusions are much needed and welcome, and will significantly reduce the number of trusts that have to be registered.
What about bare trusts and nominee arrangements? There is no general exclusion for bare trusts and nominee arrangements. However, there is an exclusion for bare trusts created on the transfer or disposal of an asset which arises solely because additional steps are required to transfer legal title to the relevant asset. For example, on a gift of UK shares the execution of the stock transfer form by the donor will transfer the beneficial ownership in the shares to the gift recipient but the legal title will not be transferred until the gift recipient’s name is entered into the company's register of members. There does not appear to be any time frame in the Regulations in which the procedure to transfer legal title needs to be completed – so there may be circumstances in which assets can effectively be held on bare trust for a prolonged period without that bare trust having to be registered on the TRS.
Access to information on UK trust register
Information on beneficial owners of registered trusts will, generally, only be accessible to people who can demonstrate a ‘legitimate interest’, and only where there is evidence that access to the information furthers work to counter money laundering or terrorist financing activity. People requesting access will have to provide information to support their suspicion that the trust has been used for money laundering or terrorist financing. The government has also previously indicated that they will have to provide the name of and identify the specific trust, to prevent ‘fishing’ for information.
Where the trustees of a trust (UK or non-UK) that has to be registered on the TRS have a controlling interest in a non-EEA entity, access to the information on the beneficial owners of the trust will be more widely accessible than in relation to other trusts. There is no ‘legitimate interest’ hurdle to overcome in order to gain access to the beneficial ownership information of such a trust; any person can, on making a written request, access the information. Trustees will be treated as having a controlling interest in a non-EEA entity if, in their capacity as trustees they hold, directly or indirectly, more than 50% of the shares or voting rights in the entity; are entitled, directly or indirectly, to appoint or remove directors holding a majority of the voting rights at board meetings on all or substantially all matters; or have the right to exercise, or actually exercise, significant influence or control over the entity.
Beneficial ownership information will not, however, be shared where doing so would expose the beneficial owner to a disproportion risk of fraud, kidnapping, blackmail, extortion, harassment, violence or intimidation or where the beneficial owner is under the age of 18.
Most trusts set up before 9 February 2022 (other than those that incur a liability to UK tax for the first time before 6 April 2021) must be registered on or before 10 March 2022.
Trusts set up on or after 9 February 2022 must be registered within 30 days of being set up.
Once a trust is registered on the TRS, trustees will have 30 days from when they are aware of any changes to update the details.