08 Dec 2017

UK trusts' disclosure for non-UK trustees

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Those who have invested in UK property, shares or other assets using a trust need to take note of the new trust registration requirements in the UK. 

Under these new rules, a trustee of a trust that receives UK source income or has assets in the UK, in respect of which the trust is liable for certain UK taxes, is required to register the trust with the UK's HM Revenue and Customs ("HMRC") under the recently established Trusts Registration Service ("Trusts Register"). This registration requirement is wide-ranging and is not limited to UK resident trusts; it may include trusts where the trustees, beneficiaries and the protector are all located outside the UK.

Which trusts need to register?

The Trusts Register applies to the following express trusts:

a) Trusts where all the trustees are resident in the UK.

b) Trusts where at least one trustee is UK resident, and the settlor was resident and domiciled in the UK when the trust was set up or when the settlor added funds to the trust.

c) Trusts not falling within a) or b) which receive income from a source in the UK or has assets in the UK on which it is liable to pay any of the following UK taxes: income tax, capital gains tax (including non-resident capital gains tax), inheritance tax, stamp duty land tax ("SDLT") and the Scottish equivalent, the land and buildings transaction tax and stamp duty reserve tax.

Accordingly, trusts with non-UK resident trustees are only required to register when they become liable to the specific UK taxes noted above. In particular trusts acquiring or holding UK real estate should be aware that the need to register can be triggered simply by purchasing land and incurring SDLT. Trustees should also be aware that the extended  scope of UK inheritance tax (with effect from 6 April 2017), such that UK residential property indirectly held through non-UK companies may be subject to UK inheritance tax, is also likely to trigger a registration requirement in the tax year in which an inheritance tax liability is incurred.

Non-UK resident trusts do not have to register if the trustees are not themselves directly liable to UK tax – eg if the liability is on a company held by the trustees or if the tax liability is of the settlor or the beneficiaries.

When do non-UK resident trusts need to register?

For most existing trusts with ongoing UK tax liabilities, the deadline to first register is 31 January 2018.

For trusts that became liable to UK income tax or capital gains tax for the first time during the 2016/17 UK income tax year (6 April 2016 to 5 April 2017), and have not previously registered with HMRC (using Form 41G), the trust had until 5 October 2017 to register. However HMRC has stated that no penalties will be imposed if the trust is registered by 5 January 2018 as a transitional measure on the introduction of the Trusts Register.

Non-UK trustees of trusts that first become liable to income tax or capital gains tax in subsequent years (ie 2017/18 onwards) will need to register by 5 October following the end of that tax year.

Note that if trusts are only liable to UK taxes other than income tax or capital gains tax (eg inheritance tax or stamp duty land tax), trustees have until 31 January following the end of the tax year in which the liability is triggered (not the filing deadline) to register.

Broader context for the Trusts Register

The Trusts Register was established under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 ("Regulations") which took effect on 26 June 2017. The Regulations are the UK's implementation of the EU's 4th Anti-Money Laundering Directive ("4AMLD"). Similar registries of beneficial ownership are due to be introduced in the other EU member states.

The Trusts Register requires detailed information on the trustees, settlors, beneficiaries and protectors of a trust (eg address, passport details) so this may raise privacy issues for those who may have been accustomed to anonymity from regulators. More importantly, this disclosure of information by trustees is likely to conflict with the trustees' duty of confidentiality under the law of the trust. The Regulations exclude the provision of this information as a breach of restrictions on disclosure of information, but this may not protect trustees outside the UK. Advice should be sought on the trustee's obligations in its home jurisdiction.

Note that if potential beneficiaries can be identified in the trust deed, they may need to be disclosed as well even though no distribution is actually made to that beneficiary. Potential beneficiaries is taken by HMRC to include beneficiaries who are included in a letter of wishes or other written document from the settlor, even where this may not be entirely consistent with the express terms of the trust.

This information will be made available to HMRC, other UK law enforcement authorities and authorities in EEA states that are responsible for anti-money laundering and financial intelligence functions. The 4AMLD also requires this information to be available to "obliged entities" such as financial institutions but this aspect has not been transposed into UK's implementation of the 4AMLD. While the public is not currently able to access the Trusts Register, a proposal has been circulated by the European Commission to extend access to the Trusts Register to any person with a "legitimate interest", which may appear in a future EU AMLD.

In addition, non-UK trustees with UK assets or UK source income are required to maintain accurate and up-to-date records of the beneficial owners of the trust, irrespective of whether they have incurred a UK tax liability in a given tax year. These records must be provided on request to certain UK law enforcement authorities and any party applying customer due diligence measures pursuant to the Regulations.

The potential penalties for non-compliance with these registration obligations include civil as well as criminal penalties and sanctions. Trustees must ensure that they take all reasonable steps and exercise all due diligence in complying with their obligations in order to avoid such penalties. HMRC's guidance provides that if a trustee does not have all of the data available after making all reasonable efforts and steps, the trustees should still register the trust using the available data.

What details are required?

The details required under the Trusts Register are extensive and include the following:

  • Personal details for the trustees, settlors, beneficiaries, certain potential beneficiaries and protectors (if any), including date of birth, address and UK national insurance number/UK unique taxpayer reference (if a person does not have these numbers, passport/ID card details will be required instead)
  • Description of any unidentified beneficiaries under the trust deed (eg a class)
  • Disclosing the governing law of the trust, place of administration and where the trust is resident
  • Statement of accounts showing the assets and their estimated market values (as at the date of registration) – if the assets include real property, the Trusts Register requires disclosure of the property address
  • Details of the agent acting on behalf of the trustee in relation to the registration on the Trusts Register (if any)

There is also a requirement for trustees to review this information and update HMRC on an annual basis provided that the trustees remain liable for UK taxes, although this will not apply to changes in assets and their values.

If trustees are not liable for UK taxes in a particular year, they will not have to update the register. However, any historical information previously provided will remain on the register and will not be removed. A trust will only be removed from the Trust Register when HMRC is notified that it no longer exists.

Next steps for trustees required to register

Trustees of trusts which have some UK nexus (whether assets, source of income or residency of trustees) should consider whether they need to register their trust with the Trusts Register as soon as possible.

If there is an obligation to register, trustees should then start obtaining the information required. Given the volume of information required, trustees may need to consult with beneficiaries and potential beneficiaries as to how this disclosure is to be made, and additional information may be required from them. Trustees would also need to review their trusts to establish in respect of who they need to disclose (eg who are the potential beneficiaries) and what information they require (eg does the settlor have a UK national insurance number).

The deadline to register for some trusts has already passed on 5 October 2017 although penalties are not currently imposed by HMRC if the trust registers by 5 January 2018. Most trusts are not subject to this deadline but would need to register by 31 January 2018 in any case, if they meet the criteria for registration.

Practically, the Trusts Register has been introduced as an online-only form meaning that trustees must have a UK "Government Gateway" account before they can complete the form. The form can only be progressively filled in so it is not possible for trustees to ascertain all the information required at the start. The form will expire if information is not provided within a set period of time and trustees will have to start the process again if this occurs. Given the restrictions in the online form, HMRC has contemplated that some trustees will need to provide information to HMRC outside the online form in order to ensure that they have complied with the registration requirements.

Please contact your usual Stephenson Harwood contact if you have any queries. They will be able to liaise with our London team who is experienced in the application process.

And finally

In addition to the Trusts Register, trustees should be aware of the forthcoming deadline of 3 January 2018 for them to obtain a Legal Entity Identifier ("LEI") if they wish to trade in UK financial markets. The LEI is a unique 20 character code that is assigned to entities on a global basis. The LEI can be obtained from various authorised organisations, and charges apply to the initial allocation of the LEI and annual maintenance thereafter. Similar measures are being implemented across European markets. Trusts that wish to trade securities should take steps to obtain a LEI well in advance of when they wish to trade.

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Ian Devereux

Ian Devereux
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