Private client update - December 2021 – 4 / 4 观点
The long-awaited roll out of the expanded Trust Registration Service (TRS) finally commenced on 1 September. So, are we at the final chapter, or will there be a sequel?!
Non-taxable, express UK trusts are now able to register on the TRS, in compliance with their obligations following the UK's adoption of the EU's 5th Money Laundering Directive (5MLD). While originally the legislative deadline for such registration was March 2022, HMRC have committed to amending the UK regulations to give trustees a clear year to gather the necessary information and register.
While we await these final amended regulations, we understand the registration deadline for non-taxable trusts will be extended from the current deadline of 10 March 2022 to 1 September 2022. This extended deadline will apply to both trusts which were already in existence on 6 October 2020 and those created before 1 September 2022.
It's not just existing trusts which are being granted more time to fulfill their obligations. Going forwards, while the original regulations imposed a 30-day time limit for registration, having considered significant concerns voiced by several professional bodies, HMRC have confirmed a much more realistic time frame of 90 days.
This new 90-day period will apply to new non-taxable trusts created after 1 September 2022. To ensure no illogical situations (as the starting point deadline of 1 September 2022 for trusts created just prior to this could have created an obligation to register in one day!), HMRC have confirmed that those trusts created in the countdown to the 1 September 2022 deadline will also get 90 days leeway to register. In reality this means any registrable trusts created from 2 June 2022 will also have a 90-day deadline to register.
The new regulations dramatically increased the potential scope of registrable trusts. While the initial version of the TRS only caught "taxable relevant" trusts (typically UK and non-UK trusts with a UK tax liability), this material expansion obliges registration of all UK express trusts (regardless of tax liability) and non-UK express trusts who have a new business relationship with a UK service provider (if they have at least one UK resident trustee) or acquire an interest in UK land. Obviously, all taxable relevant trusts, caught previously, remain within scope.
In response to the professional bodies' concerns about the workability of such a wide ambit, HMRC created exclusions to address some, but not all, of the concerns. As was inevitable, even those exclusions, designed to simplify matters, have invited further consideration. To HMRC's credit, they have provided helpful clarification on a number of points.
HMRC have clarified that the list of exclusions for non-taxable trusts will be expanded to include trusts holding policies which have surrender values (until such time as the policy is actually surrendered) and trusts connected with opening children's bank accounts. These expansions are to be welcomed, and along with the exclusions for co-ownership trusts where the trustees and beneficiaries are the same (covering many co-ownership of land situations), charitable trusts, pension trusts and will trusts (provided they are wound up within 2 years), go some way to reducing the potentially unmanageable burden of registration, in a country which uses trusts for a wide variety of day to day transactions.
Bare trusts – including non-UK trusts with UK land
While many had been hoping for a further widening of exclusions to include a greater number of bare trust scenarios, HMRC show no appetite to do so. One of the more widely publicised consequences to the TRS' expanded ambit is the position of non-UK bare trusts with UK land.
Non-UK trusts which had a UK tax liability have always been within scope of the TRS – so UK trust tax liabilities, arising from a trust directly acquiring or holding UK land, would have brought them into scope. However, the tax liability needed to fall on the trustees directly, with the assets also being held directly by the trust.
Under the now expanded scope, non-UK trustees who hold UK land on bare trust (so the trustees themselves are not directly liable to UK tax on the trust assets) which they acquired on or after 6 October 2020, will now need to register. HMRC will then be aware of the relevant parties to such arrangements. This is a significant change which will greatly impact the offshore trust community.
Hearteningly however, such non-UK trusts, if they are only registering because they have acquired UK property are not subject to the same third party information requests (discussed below), and will therefore be able to maintain greater confidentiality than other trust structures (provided they do not need to register under any of the other TRS categories).
When do you have a 'new' business relationship?
The regulations have expanded to include non-UK express trusts which enter into a business relationship with a UK service provider – a huge change as nothing of this kind was included previously. It's important to remember however that this requirement only extends to non-UK trusts with a UK resident trustee. Non-UK trusts will doubtless be relieved that they are able to continue using UK service providers without needing to register on the TRS. Practitioners were relieved when HMRC clarified that this covered new, as opposed to existing, business relationships. While HMRC's Trust Registration Service Manual provides some clarity as to what is classed as 'new' in this context, the line between existing and new business relationships remains woolly. There is very little in the Manual to assist practitioners in deciding when this change of status happens. Depending on the level of caution, the degrees of possibility range from the provision of new terms of business to the issuance of new engagement letters. We understand that HMRC intends to continue finessing the guidance, which is sorely needed in this area.
As practitioners have grappled with the real-life enactment of the TRS, the conundrum has been posed as to how to deal with registrable trusts which are terminated before the September 2022 registration deadline. HMRC's current (rather non-sensical) position is that trusts which existed on 6 October 2020 when the rules took effect, but which are closed before the TRS was opened to non-taxable trusts on 1 September 2021, still need to be added to the register – and then immediately reported as ceased.
HMRC have proven open to discussion and it is to be hoped that HMRC reconsider this in the future – given the unproductive need to register where a trust has been wound up before it was practically possible to register it.
While it's easy to focus on the seismic changes to the TRS affecting the newly caught trusts, don't forget that relevant taxable trusts are also impacted by HMRC's plan to amend the regulations. While taxable trusts have been able to update their TRS entries since May 2021, HMRC has decided to also shift their deadline compliance dates to 1 September 2022.
One of the biggest aspects of changes to the TRS is the ability of third parties to make requests to see TRS information – provided they meet the requirements. Successful requests will need to show a 'legitimate interest' in such information, showing that their enquiries are linked to money laundering concerns. While requests made in relation to trusts with a controlling interest in a non-EEA legal entity do not need to pass this higher gateway, if they are to be granted, they must have been made in the spirit of the directive. The delays in registration have a knock-on effect as to when information requests can start to be made – delaying it from March 2022 to 1 September 2022.
Given the different permutations of different trusts' situations, it can be hard to keep track of when they each need to register!
In summary, for trusts who now have a UK tax liability (and who had not needed to register previously), the registration deadline is 1 September 2022. Interim provisions are in place for those trusts which incur a UK tax liability in the 90 days prior to 1 September, to ensure parity of treatment. Going forward, such trusts must register within 90 days of the tax liability.
For non-UK trusts which hold UK land, if they acquired it before 6 October 2020, there is no need to register at present, if the trust does not have a UK tax liability. Once they incur a UK tax liability, the registration deadline is 90 days. For those trusts which have acquired UK land on or after 6 October 2020, the registration deadline of 1 September 2022 applies (or 90 days after the tax liability, whichever is the later).
There has been some concern at how the expanded scope of the TRS will increase the public accessibility of information regarding individuals' trust structures. However, while the TRS does increase the transparency of trusts, it is important to consider just how transparent trusts now are, in the context of other transparency initiatives regulating other wealth holding structures.
UK companies continue to have the PSC register, which is publicly searchable (with very limited defences). In addition, the Government remains committed to imposing transparency on non-UK companies holding UK land with The Overseas Entities Register.
Given the potential defences to information requests under the TRS, trusts are still firmly an attractive option when considering wealth planning structures.