Trust registration service: extension to non-taxable trusts

From September 2022, a wide range of additional UK and non-UK trusts will need to register with HMRC under the Trust Registration Service (TRS). At present, only trusts taxable in the UK are required to register, but the scope of the rules is being widened by regulations designed to implement the Fifth EU Anti-Money Laundering Directive (AMLD5).

The new rules extend the registration obligation, in principle, to all UK express trusts as well as many non-UK express trusts which do business or acquire property in the UK. However, there is a long list of exempt trusts, which substantially reduces the practical implications of the rules. In particular, many express trusts used in financial and commercial transactions for bona fide reasons will be excluded.

Trustees and businesses affected by these changes should take action now and carry out any necessary due diligence to ensure that they are compliant with the new rules. Whilst the rules contain wide-ranging exemptions in the commercial context, those affected will need to make sure that they are familiar with these exemptions and have in place processes to identify any registration obligations.

AMLD5

The requirement to register certain trusts was first introduced by the Fourth EU Anti-Money Laundering Directive (AMLD4). However, this registration requirement was limited to certain taxable trusts. AMLD5 extends the requirement, in principle, to all express trusts.

AMLD5 was implemented in the UK by the Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020, which amend the original 2017 regulations (The Money Laundering and Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017).

Trusts required to register

The new regulations extend the obligation to register trusts to three new categories of non-taxable express trust:

• A UK express trust. A trust is a UK trust if all the trustees are resident in the UK or at least one trustee is resident in the UK and the settlor was resident and domiciled in the UK
• A non-UK express trust that has at least one trustee resident in the UK, where the trustees enter into business with supervised persons or acquire an interest in land in the UK
• A non-UK express trust where none of the trustees are UK resident but where the trustees acquire an interest in UK land.

Where a trust is required to register, trustees are required to maintain written records of the beneficial owners of the trust and register with HMRC's Trust Registration Service. Anyone with a "legitimate interest" will be able to view the information on the TRS as well as government bodies.

Information to be provided to the TRS includes, in addition to information on the trust itself, information on the settlor, trustees, beneficiaries and any individual with control of the trust. the trustees need to provide information on the persons involved in the trust. Since TRS is a register of beneficial ownership of trusts, HMRC take the view that it should contain information on all beneficial owners of the trust since the time that the trust became liable for registration. For registerable express trusts that were in existence on or after 6 October 2020, this means that all individuals who have been beneficial owners for any period of time on or after 6 October 2020 should be recorded on TRS at the point of registration.

In addition, all firms subject to anti-money laundering obligations under the 2017 regulations entering into a business relationship with a trust which is subject to the new registration requirements must check whether the trust has been properly registered and report any failure. Thus, even when not acting as a trustee, regulated businesses will need to determine whether trusts used on transactions they are involved in are subject to the new registration requirements.

Exempt trusts

The UK government recognised that trusts are used much more widely in UK than generally within the EU and that the requirements would lead to significant administrative and practical challenges without a range of exemptions for trusts which, in practice, present a low money laundering risk. Accordingly, the regulations include a lengthy list of exemptions set out in Schedule 3A.

In a commercial context, these exemptions include trusts used in a financial markets infrastructure context, in a capital markets context and trusts generally used for genuine commercial transactions.

The capital markets exemption applies to trusts created for the enabling or facilitating certain activities listed in the Capital Requirements Directive, or for protecting or enforcing rights relating to that activity, provided that one or more persons to that activity is a supervised person and the use of the trust is incidental to the principal purpose of the activity. The activities covered include lending, finance leasing, guarantees, trading in securities and derivatives and participating in securities issues.

The financial markets infrastructure exemption covers trusts created in connection the activities of institutions responsible for providing clearing, settlement and recording of monetary and other financial transactions, such as central counterparties, central securities settlement systems, and payment systems. It covers trusts created for the purposes of default arrangements or default rules of financial markets infrastructure, trusts to evidence and protect the interests of holders of foreign uncertificated securities and trusts created for the purposes of protecting client money or assets held by supervised persons in financial markets infrastructure. There is also a separate exemption for trusts created by a supervised person for the purposes of holding client money, securities or other assets, where it is incidental to the carrying on of that person's business.

Further details of these exemptions can be found in HMRC's Trusts Registration Service Manual at TRSM23100.

More generally, there is also a general sweep up exemption for any trusts created for the purpose of enabling or facilitating a transaction effected for genuine commercial reasons or protecting or enforcing rights relating to such a transaction, provided that the use of the trust is incidental to the purpose of the transaction. Further details can be found at TRSM23110.

Outside the commercial context, there is a further wide list of exempted trusts including those required by legislation, imposed by court order, pension scheme trusts, life policy trusts, charitable trusts, trusts effected by will and co-ownership trusts.

Effective dates

The regulations currently require express trusts to register by 10 March 2022. However, HMRC subsequently announced an extension to this deadline as a result of delays in upgrading the Trust Registration Service with trustees required to register non-taxable express trusts which were in existence on or after 6 October 2020 by 1 September 2022.

Where a trust is set up or otherwise becomes registerable in the 90 days immediately prior to 1 September 2022, HMRC guidance confirms that the trust must instead register within 90 days of the date of creation. (This represents an extension to the 30 days currently included in the regulations.)

Registrable taxable trusts are required to register by 31 January following the end of the tax year in which the trust had a liability to UK taxation.

Trustees have an obligation to keep the TRS record up to date. The information on TRS must be updated within 90 days of the date that the trustees become aware of changes to the trust details or beneficial ownership.

The current guidance indicates that the registration obligation equally apply to trusts that were in existence on or after 6 October 2020 but have since ceased. Trustees should register such trusts on TRS with the required information and then are able to immediately close the trust record to record the fact that the trust has ceased.

Actions needed

Trustees should make themselves familiar with the new trust registration rules and ensure that they comply with any registration obligations. The exemptions included in the 2020 regulations should mean that many commercial trusts will not need to be registered, but it will still be necessary for trustees to review their operations and carry out any necessary due diligence.

In addition, all businesses regulated by the money laundering regulations will have obligations to ensure that any trusts required to be registered are indeed registered. Accordingly, all such businesses will need to put in place processes to comply with this new obligation.