As part of the EU's Fourth Anti-Money Laundering Directive, Member States are now required to identify and record beneficial owners of companies, partnerships and trusts in order to increase transparency.
On 26th June 2017, in the UK, HM Revenue and Customs introduced a new central register of trusts ("The Register") which trustees will be required to update annually. Clear guidance was not issued by HMRC at the time and The Register has only recently become available for agents to upload the required information.
Ocorian have engaged an international tax advisory firm to help ensure that all our clients' trusts remain compliant, and if necessary, file a return on The Register. Trustees and beneficiaries should also consider engaging their retained adviser regarding the consequences of registration.
New requirements explained:
A trust will be in scope of the new requirement if the trustee is a UK resident or if it is a trustee of a non-UK trust which is liable to pay certain UK taxes. In addition to UK income tax (IT), this also includes capital gains tax (CGT), inheritance tax (IHT), stamp duty land tax (SDLT), land and buildings tax (LBT) and stamp duty reserve tax (SDRT).
For real estate holdings, an offshore property trust is not excluded from these registration requirements and will need to register or update details on The Register in respect of years in which a UK tax liability was incurred. This registration is independent of any returns or payments that need to be made. Meaning, if a liability can be expected at some point in the future but has not yet crystallised, (for example a future IHT charge) then it will not be necessary to register in respect of that liability until 31 January following the tax year in which the liability arises. Even if the relevant tax return has been submitted and paid on the due date applicable to that return.
Where a trust is tax transparent, for example a property unit trust structured as a 'Baker Trust' (where the trust instrument is drafted such that the income generated by the trust assets accrues directly to the unitholders as it arises) the unitholder will incur the UK tax liability with responsibility to file a UK tax return themselves. In such cases, it is our understanding that, usually, these trusts will not need to appear on The Register, however further analysis may be required by the trusts' tax adviser to confirm individual circumstances.
A trust that purchases a UK property will need to appear on The Register for the year that the purchase took place because an SDLT charge will be incurred by the trust.
The recent changes to CGT announced in the UK budget are expected to affect trusts that sell a UK asset post April 2019, so annual monitoring will be required to ensure all trusts are compliant.
At this stage, The Register is described as private and will be administered by HM Revenue and Customs. The Register may, however, be inspected by any 'law enforcement authority', which includes HM Revenue and Customs, the Financial Conduct Authority, the National Crime Agency, various UK police services and the Serious Fraud Office.
What information must be provided?
The following relationships will be included on The Register:
- Beneficiaries or class(es) of beneficiaries
- All other natural persons exercising effective control over the trust
- All other persons identified as potential beneficiaries in a document or instrument
The information will include the person's name, date of birth, National Insurance Number or Unique Taxpayer Reference (UTR). If the person is a non-UK resident, it will include their passport or ID number, country of issue and expiry date.
The trust details will also be required and include:
- Date of establishment
- Statement of accounts describing the assets
- Country of tax residence
- The place of administration
- Contact address
- Full name of any agent who is acting on behalf of the trustee in relation to the trustee's registration affairs
There are two deadlines for filing the return:
5 January 2018 - Trusts which have only become liable for IT or CGT for the first time during the 2016/17 UK tax year and have not previously registered with HMRC using Form 41G.
Going forward, trusts that become registerable will need to register by 5 October following the tax year end, in line with the IT and CGT deadline.
5 March 2018 (recently extended from 31 January 2018) - Trusts which were liable for relevant UK taxes in the 2016/17 year and have already registered with HMRC using Form 41G or those which are not liable to IT or CGT tax but fall into The Register due to an IHT, SDLT, LBT or SDRT chargeable event.
Penalties for non-compliance:
Whilst the penalties for non-compliance are still being finalised, the guidance indicates any civil penalty will be 'proportionate to the offence committed'. They will likely comprise of civil and criminal penalties, including a fine and up to two years imprisonment.
How Ocorian can assist:
Ocorian in its capacity as a trustee of a trust, or as administrator to any entity will keep all related records up to date and as required, disclose these upon request by any competent law enforcement authority. As such, we may require the assistance of our clients and beneficiaries to ensure the information we hold is correct and up to date.
Our specialist tax team has considerable experience dealing with and meeting similar requirements of the UK Register of Trusts. In particular, we have extensive experience helping clients comply with the Register of Persons with Significant Control.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.