In accordance with European regulations the 4th and 5th AML directives, various countries have established trust registers which require the mandatory registration of trusts and certain associated information about those trusts. For some countries this is nothing new.
As far back as the 12th century and the Crusades, trusts evolved to be used in the UK for the protection and preservation of assets through the transfer of legal title (and all rights, privileges and freedoms associated). The established history of trust law and trust planning in the UK has changed over time, from increased liabilities to taxation and an expansion of the types of trusts that can be created, to now include the requirement to register certain trusts since 2017.
The two registers we note below are the Luxembourg and the UK registers, with a brief summary of what the registers are, what they mean for clients and the important next steps and deadlines for 2022.
Luxembourg Trust Register
In July 2020, Luxembourg published a law establishing a Luxembourg ‘Fiduciary and Trust Register’ (“LTR”). This law applies to express trusts and other arrangements where;
- the trustee/fiduciary (“Trustees”) is established in Luxembourg, or
- if they are not established in Luxembourg, they enter into a business relationship in Luxembourg (or acquires real estate) on behalf of the trust.
The Law introduces two main features: (i) the obligation for Trustees to obtain and maintain information on the beneficial owners of trusts and (ii) the obligation to register certain information on the LTR. Importantly, this information is not accessible by the public, but only by national authorities and certain professionals.
Various pieces of information are required to be provided such as:
- identification of beneficial owners (such as the settlors, Trustees, protectors, the beneficiaries or classes of beneficiaries and any other natural person exercising effective control over the trust) with supporting documentation to prove so and this information must be uploaded to the LTR, and
- information on the trust deed or fiduciary contract must also be provided.
Under Luxembourg law, this information must then be filed with the LTR within one month of the event that makes the filing mandatory. Failing to do any of the above means a fine of up to EUR 1.25 million can be faced by the Trustees (or where a corporate trustee, the board members).
Although trusts are not established under Luxembourg law, the use of them in other jurisdictions has brought them to the forefront of AML considerations in recent years. Jurisdictions such as the UK.
UK Trust Register
The UK Trust Register (“UTR”) is the format and platform for notifying trusts to Her Majesty’s Revenue & Customs (“HMRC”) for self-assessment tax purposes. Trustees of all new and existing trusts (whether based in the UK or offshore) assess whether they fall within the scope of registration requirements. If they do, then steps should be taken accordingly.
Who is caught?
The UTR was introduced in June 2017 and at that time trusts were only required to be registered where there was a UK tax liability. Since October 2020, new legislation was introduced to capture:
- all UK express trusts (ie. those created directly be the settlor) regardless of whether they have UK tax liabilities;
- non-UK trusts with UK assets plus UK tax liabilities;
- non-UK trusts - with at least one UK resident trustee – which;
- enter into a ‘business relationship’ in the UK after 6 October 2020, or
- acquires UK land after 6 October 2020.
Information to be provided and maintained
HMRC TRSM 50020 is very useful in setting out the information required to be maintained and recorded by Trustees (accurate and up to date written records of all the actual and potential beneficial owners of the trust, including all trustees, settlors, beneficiaries or any person who has control over the trust) in line with Regulation 44(1) of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
This includes: the contact details of trustees and the trust advisers; the names, date of birth, NIC numbers and addresses of beneficial owners; the corresponding information if the beneficial owner is a company and if there is a class of beneficiaries, a description of that class (identifiable persons such as “the children of X”).
This record keeping should be maintained until 5 years after the last distribution from a trust.
Unlike Luxembourg, the UK sets out certain exemptions from the requirement to register such as: charitable trusts, certain life insurance trusts, co-ownership property trusts, pension scheme trusts or trusts imposed by a court order. In addition, certain trusts arising on death (under a Will) are generally exempt liabilities for a period of two years (if still in existence) should they meet various conditions and unless they have UK tax.
Therefore, it is important to remember that a trust excluded from registration in one jurisdiction, may still need to be registered in another.
Insurance policies are often ‘written into trust’, which means that the insurance policy itself is held as an asset by a trust. Very often this is done to compliment or facilitate tax and estate planning or to ease the distribution of funds following death.
In the UK, trusts holding pure risk life policies are excluded from the requirement to register. However, once a claim has been made, if the trusts continues to hold proceeds for more than two years after the pay-out date, the trust must be registered.
Where the trust holds other types of life policies (such as unit linked life assurance which allow part surrenders on request) then the trust loses its excluded status and will be required to register.
HMRCs TRS manual notes that trustees of non-UK express trusts with at least one UK resident trustee must register when they enter into a business relationship with a UK relevant person (unless it is specifically exempted). This registration must be done within 90 days of the start of the ‘business relationship’.
A ‘UK relevant person’ is a long list that can be found at TRSM 24020 and it includes credit institutions, auditors, tax advisers, legal professionals, Trust or company service providers or accountants where those persons have a registered office in the UK or the business is carried out in the UK.
Importantly, Non-UK trusts with no UK resident trustees do not need to consider business relationships in determining the need to register. However, they may be required to register on a trust register in another jurisdiction (such as Luxembourg if the trustees have a business relationship there).
Features and Facts
In a similar vein to the LTR the UTR:
- is not widely accessible to the public,
- the responsibility to register sits with the trustees
- broadly the same information is required to be registered (Trust, beneficial ownership and the potential beneficiaries), and
- where there are changes, these must be notified to HMRC within 90 days of the trustees becoming aware of the change.
Timeframe for registering
To reiterate and summarise:
- for trusts with a UK tax liability, the time for registering is by 31 January (or 5 October in some cases) following the end of the tax year in which the trust had a liability to UK taxation.
- where the trust is created under a Will it should be registered within two years of death of the settlor.
- for Non-UK trusts, this registration must be done within 90 days of the start of the ‘business relationship’ in the UK.
Do you remember September?
For those Trusts that did not have a UK tax liability, the deadline for registration was more flexible and set to September 2022. That finish line is fast approaching and it means new, non-taxable trusts created after 1 September 2022 will need to register within 90 days of creation. Advisers and trustees should consider doing so sooner, rather than later.
Further details guidance with examples on trusts can be found in HMRC’s Trust Registration Service manual, published in May 2021. It contains details on the types of trusts that need to be registered, a full content on registering a trust, the relevant deadlines to be mindful of, the data to be declared and provided as part of the registration, and who can and cannot access information.