A matter of trusts
Ahead of the 1 September deadline, Polly Seale and I consider the impact of the Trust Registration Service.
The Trust Registration Service implements the EU’s Fourth and Fifth Anti-Money Laundering Directives, primarily through the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and the Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020.
The TRS forms part of the UK’s anti-money laundering and counter-terrorist financing regime and enables HM Revenue & Customs to have an accurate picture of who can benefit from a trust. It is the online system on which trustees can provide beneficial ownership information to HMRC – ie to register with the TRS is to disclose beneficial ownership information to HMRC.
Which trusts are required to register with the TRS?
Having previously required only trusts subject to UK tax liability to be registered, under the 2020 Regulations, subject to various exclusions, the TRS expanded to:
- all UK trusts that are not subject to UK tax (whenever established), which were in existence on or after 6 October 2020;
- non-UK express trusts that acquire UK real estate (including leases for more than seven years) on or after 6 October 2020; and
- non-UK express trusts which have at least one trustee resident in the UK and enter into a “business relationship” within the UK on or after 6 October 2020.
The details are complex, and advice should generally be sought as to whether a trust is to register with the TRS.
In terms of UK real estate, it is worth reiterating that:
- an interest in land which was acquired by a non-UK trust before 6 October 2020 will not trigger a registration requirement; but
- interests acquired by non-UK trusts after 6 October 2020 will trigger a requirement to register. Therefore, overseas trusts and their advisers need to look back over their records since that date.
What beneficial ownership information is to be disclosed?
The information to be disclosed to HMRC via the TRS relates to beneficial owners and potential beneficiaries and depends on the nature of the trust. It can include their full names, date of birth, role in the trust, National Insurance number, unique taxpayer reference or residential address. Where the beneficial owner is another legal entity, details may include the corporate name, UTR, registered office, legal form of the legal entity and the nature of the legal entity’s role in the trust. Under the 2020 Regulations, additional information required can include the individual beneficial owner’s country of residence, nationality and the nature of their beneficial interest.
What are the key deadlines?
Relevant non-taxable trusts which came into existence before 4 June 2022 (90 days before 1 September 2022) are to be registered by 1 September 2022. Trusts created on or after 4 June 2022 are to register within 90 days of their creation.
As mentioned, non-UK trusts acquiring UK real estate since 6 October 2020 will trigger a registration requirement. Changes to trust details must be registered within 90 days of the change.
How do these obligations impact trusts involved in property ownership?
The use of trusts can be a common part of property ownership structures.
Where a trust is part of a UK property ownership structure, the trustees should review the 2017 and 2020 Regulations carefully or seek professional advice to understand their additional TRS obligations. Trustees may want to start collating the necessary information now to ensure they are fully compliant ahead of time.
Locating the necessary information
The information to be registered at HMRC via the TRS is very detailed and there are only 90 days from creation of the trust within which to register. Trustees should therefore ensure they already have or can promptly obtain the additional information required. To comply with the updating requirements, trustees should also ensure the relevant information can be obtained easily and regularly.
Dealing with property held in a trust
Compliance with the updated TRS requirements will become a more prominent aspect of due diligence for lenders.
Where a lender is securing a loan over a property which is held in a trust arrangement, the lender will want to ensure there has been compliance with the TRS requirements in respect of the relevant trust. Equally, a lender will want to ensure that any borrower who owns property in a trust arrangement has complied.
Evidence should be requested confirming that the relevant trust is registered with up-to-date information on TRS. This can be obtained by downloading a certificate from the TRS which provides this confirmation.
Trustees of offshore trusts acquiring property in the UK should consider carefully how to structure the acquisition and be alert as to whether the ownership structure of the property means the trustees are liable to meet the TRS requirements.
Co-ownership by individuals
Co-ownership of a property by individuals is a form of trust arrangement. There is an exemption where co-owners and beneficial owners are identical. However, where the beneficial owners are not the same as the legal owners, the updated TRS requirements will need to be met.
Will there be further TRS changes?
HMRC has published the TRS Manual, which addresses some of the uncertainties raised by the 2020 Regulations and the complex legislation surrounding the TRS. Further updates to the guidance are expected as well as legislative changes to correct unintended ambiguities. However, 1 September 2022 is the date by which relevant trusts must be registered. Trustees and anyone dealing with property held in trust ownership can start preparing now.
This article first appeared in Estates Gazette