Monday 19 June 2017 saw the start of the Brexit negotiations for the UK to leave the European Union. However, the UK continues to be subject to EU rules and regulations and just a week later brings the implementation of the Fourth Money Laundering Directive (the “Directive”) on 26 June which will have a considerable impact on the information retained by trustees in relation to trusts.
The Directive will be implemented by the snappily titled The Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 or the Money Laundering Regulations 2017 (the “Regulations”) for short. The regulations were passed into law on 22nd June 2017.
Although trustees may be confident that the trust they administer has nothing to do with terrorists (they may consider the younger beneficiaries of family trusts to be “little terrors”) the trustees should take steps to ensure that they comply with the Regulations. The Money Laundering Regulations will also apply to the trustees of employee benefit trusts used to provide benefits to members of staff or used to warehouse shares for employee share option schemes.
Information keeping requirements
The Regulations will apply to all UK trusts and also to non-UK trusts which receive income from the UK or have assets in the UK. A trust is a UK trust if its trustees are established in the UK or at least one trustee is established in the UK and the settlor (the person founding the trust) was established in the UK at the time the trust was set up or when funds were added to the trust. Being established in the UK is based on the individual’s place of residence for tax purposes.
The Regulations will apply to all trusts that enter into transactions with “relevant persons”. A “relevant person” includes credit and financial institutions, auditors, accountants, tax advisers, lawyers, estate agents, auctioneers and trust or company service providers. The relevant persons are required to carry out client due diligence on their clients when establishing a business relationship or when entering a one off transaction involving at least €1,000.
Trustees are required to maintain a register of the beneficial owners of the trust and be in a position to provide the information set out below on request by a relevant person or any law enforcement agency. If there are changes to the beneficial owners, the trustees are required to provide details of the date and the changes in identity within 14 days of one of the trustees becoming aware of the change.
In relation to the beneficial owners of the trust (which includes not just the beneficiaries but also the settlor and the trustees) or any person who is referred to in a letter of wishes in relation to the trust, the trustees must be able to supply the following information:
- The individual’s full name
- If the individual lives outside the UK, their passport number or identification card number together with the country of issue and expiry date of the document
- The individual’s date of birth, National Insurance Number and unique taxpayer reference (or in the absence of a NI Number or UTR, the individual's home address)
- The nature of the individual’s role within the trust, for example, beneficiary, trustee or settlor
Where the trust is a discretionary trust and the identity of the individual beneficiaries has not been decided, which will include many employee benefit trusts operated for company employees, the trustees must provide a description of the class of persons who are entitled to benefit from the trust. This would usually be a description of the beneficiaries, for example, “all the employees, former employees and their dependents of Geldards LLP”.
Where a trust has been wound up, the information has to be retained for at least five years after the date of the final distribution.
Register of beneficial ownership with HMRC
HM Revenue & Customs (“HMRC”) are establishing a register of beneficial ownerships of trusts where the trust has a liability to pay tax in the UK in relation to the assets of the trust. In order to establish this register, the trustees are required to file an annual return with HMRC before 31 January 2018, or the 31 January following the end of tax year in which a trust is liable to pay UK taxes as HMRC will be maintaining a list of trusts and the beneficial owners.
The trustees must be able to supply the following information with regard to the trust:
- Name of the trust and date of establishment
- Statement of accounts which identifies the trust assets and relevant value of the trust assets (including the address of any property assets)
- The trust’s tax residence and the place of administration
- Contact address for the trust and the names of any advisers who are paid to provide legal, financial, tax or other advice to the trustees.
The trustees are also required to supply the information regarding the beneficial owners (including the settlors) which is listed in the section above regarding Information Keeping Requirements.
The provision of the information is not a one off event. Any changes to the details must be notified to HMRC by the 31 January following the end of the tax year in which the change takes place. In the absence of any changes, a return confirming no changes must be filed. Any trusts that have previously registered with HMRC for other tax purposes have to register separately under the Regulations.
Administration of Estates
In a separate development HMRC have introduced a register of trusts for complex estates, even where the estate had been registered with HMRC using Form 41G(Trust). An estate is complex where:
- The value exceeds £2.5 million
- Tax due exceeds £10,000
- The value of assets sold in any tax years exceeds £500,000 for deaths after April 2016 (the previous limit was £250,000)
The personal representatives are required to provide details of the deceased and the personal representatives.
What do trustees need to do?
Trustees will probably hold all the information required somewhere in their records. However, the Regulations will require the information to be collated into one readily accessible document and trustees should take steps to collect all the information.
Trustees need to do the following:
- Collate the beneficiaries’ information
- If the trust has a UK tax liability, prepare the information required to be filed with HMRC and make a diary note to file the information by 31 January 2018
- If dealing with a complex estate, register the estate with HMRC as soon as possible
- Remember to update the records and filing information if the beneficiaries change
Trustees should also be mindful of their obligations regarding the holding of personal data under the current Data Protection legislation and the more stringent requirements that will apply from May 2018 under the General Data Protection Regulations.
If you would like any further advice or assistance on your obligations to provide information under the Money Laundering Regulations please contact the Private Client Team, and if you are unsure about your data protection position, please contact the Information Law Team.
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