The EU’s fourth anti-money laundering directive (AMLD) required the UK to introduce a centralised beneficial ownership register for all express trusts with UK tax liabilities. HM Revenue & Customs (HMRC) accordingly set up the Trust Registration Service (TRS), which has been in operation since 26 June 2017.
Where the only asset held by a discretionary trust was an investment bond, provided the settlor was alive in the tax year of the chargeable gain and UK resident as the tax liability rested on them and not the trust, registration was not required. The trust only needed to be registered if a chargeable gain occurred and the trustees were liable (settlor had died in a previous tax year or was not UK resident), or when a periodic or exit charge was payable.
However, move forward to 2020 and aspects of the EU’s fifth AMLD relating to money laundering and terrorist financing, in particular about registration of trusts, have now been placed in UK law under “The Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020”.
The regulation removes the link with taxation, widening the definition of those trusts required to register; so that all UK resident trusts set up before 9 February 2022 (other than those which are specifically excluded) will need to be registered on the TRS on or before 10 March 2022.
Trusts set up on or after 9 February 2022 must be registered within 30 days of being set up and once a trust is registered on the TRS, trustees will have 30 days from when they are aware of any changes to update the details.
While some trusts have professional trustees appointed, most do not. It is those trusts that will look towards their professional adviser for guidance.
Firstly, what trusts are specifically excluded?
• A policy that only pays out on the death, terminal illness or permanent disablement of the insured, or to meet healthcare costs placed under trust. This covers individual protection policies, which provide payments on death, critical illness and terminal illness and will also cover whole of life policies that have no surrender value and only pay out on death. As such any trust wrapped around our Canprotect whole of life policy and Flexible Life Plan, available via Canada Life International, will not require registration.
- Registered pension scheme for the purposes of Part 4 of the Finance Act 2004(b) such as The Retirement Account, Lifetime Annuity, and Fixed Term Income Plan will also not be required to register.
- Other trusts that, as an adviser, you may come across that don’t need to be registered are:
- Bereaved minor trusts
- vulnerable persons trusts
- personal injury trusts
- trusts that arise as a result of a statutory requirements – for example a trust arising under intestacy rules
- will trusts created on death that only receive assets from the estate
During the consultation stage various bodies campaigned for bare trusts to be excluded as the risk of fraud and money laundering was relatively low. Disappointingly there is no exclusion for bare trusts, and these will require registration.
But what other trusts need to be registered?
Within the regulations the trusts that now required registration have been categorised into three types – “Type A”, “Type B” and “Type C”.
Type A is a UK trust where either all the trustees are resident in the UK or at least one trustee is UK resident and the settlor was resident or UK domiciled at the time the trust was set up. Most providers’ standard trusts, when wrapped around an investment bond, will fall within this category. Canada Life’s gift trusts, discounted gift trusts, gift and loan trusts, and probate trusts together with our packaged solutions; wealth preservation trust and controlled access trust; will all need to be registered on the TRS by the trustees.
Type B is a non-UK trust where there is at least one UK resident trustee and will only be required to register on entering a business relationship with a UK obliged entity which includes a relationship with a UK based adviser. The adviser must be acting in the course of business carried out in the UK, carrying on business outside the UK will not trigger a registration requirement under this category.
Type C is a non-UK trust with no UK resident trustees, where the trustees acquire an interest in UK land, that is where at least one trustee becomes registered on the legal title as the proprietor of a freehold interest or a lease granted for an initial term of more than seven years.
What needs to be included in the TRS?
There is a significant difference between what information a trust which has a tax liability needs to provide, compared to a trust that has no tax liability.
Currently, if the trust has a tax liability the trustees need to provide information on the trust itself – the name of the trust, when it was set up, a statement of accounts, the trust’s residency and the name of any adviser who is being paid to provide legal, financial, tax or other advice to the trustees.
However, none of this information is required in respect of the non-taxable trusts that are now within scope. The trusts now within scope will only need to provide information on the beneficial owners, that is the settlors and beneficiaries. Remember that beneficiaries include named beneficiaries as well as any potential beneficiary named in a letter of wishes or other relevant document.
Unfortunately, the government have confirmed that it will not be possible to register non-taxable trusts on the TRS until next year as they are in the process of updating the TRS’s IT system to accommodate the new requirements set out within the regulations. They will provide guidance about when and how trustees will be able to register in due course but in the meantime advisers and providers will need to educate their clients on the new rules.
Something to think about
Trusts that hold investment bonds which don’t have a UK tax liability need to be registered on or before 10 March 2022.
Trusts that hold investment bonds which do have a UK tax liability need to be registered on or before 31 January after the tax year in which the trustees were first liable to pay tax.
And trustees need to familiarise themselves with the difference between what information is required for a trust that has a tax liability compared to a trust that doesn’t.
Kim Jarvis is technical manager at Canada Life