The UK has significantly expanded its Trust Registration Service as part of its implementation of the 5th Anti-Money Laundering Directive. The new regulations came into effect earlier this month and require almost all trusts with a link to the UK to register with the Trust Registration Service. Existing reporting obligations have also been changed.
The vast majority of UK express trusts and non-UK express trusts with UK assets are now required to register. As we reported previously, following consultation, there has been an expansion of the exemption list but the government rejected calls to exempt bare trusts. Newly-registrable trusts will need to be registered by 10 March 2022 and after that there will be a thirty-day deadline to register following the creation of a new trust. HMRC will need to overhaul the online registration service to facilitate the new registrations. The system is expected to be ready in early 2021.
Trusts that are already registered are now required to provide more information to the Trust Registration Service, particularly when there is a UK tax liability. The penalty regime for non-registration is unchanged, and for most will begin with nudge letters and a £100 fixed penalty. A significant change is that the government will provide third parties with access to the register. Those parties will generally need to prove a reasonable suspicion of money laundering but neither the trustees nor beneficial owners will be notified that such a request has been made. There will be safeguards in place to protect vulnerable beneficial owners.
As with many issues, the effect of Brexit on the UK’s anti-money laundering regime is unclear. The government has previously agreed to continue to apply the 5th Anti-Money Laundering Directive during the transition period but longer-term application will depend on what (if any) withdrawal agreement is made. Although the legal position is unclear, it is likely that the UK will continue to apply the Directive for two reasons. First, the UK has historically been tough on money laundering and the Directive is broadly in line with our laws. Second, by continuing to apply it, the UK will be deemed an equivalent jurisdiction by the EU and this will allow UK residents to trade in Europe without being subjected to enhanced scrutiny.
More changes to come?
Although the regulations have come into effect, much remains uncertain and/or subject to change. The precise registration requirements have not yet been laid out and HMRC has confirmed that it will publish detailed guidance, which is expected in the coming months or early next year. It is hoped that the guidance will also provide some assurances as to how HMRC will consider requests for information from third parties.
HMRC says it will keep the compliance regime under review and acknowledges that the current tax-based compliance system may no longer be effective given the number of trusts that do not have a tax liability that now have to register. With the updated registration platform and new guidance still to be released, it is difficult for trustees to know what action to take. However, it is important for them to be aware of the changes and to take advice on what they need to do.
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