Many of you will know that the UK
has now passed legislation requiring the beneficial ownership of UK registered
companies to be held on a publicly available register by June 2016. The exact detail of what has to appear on the
register at Companies House is yet to be confirmed.
With companies in the spotlight,
it was only a matter of time before trusts came under similar scrutiny. It was clear from the recitals to the EU’s
4th Anti-Money Laundering Directive (4AMLD) that trusts and similar structures
should not be given comparatively favourable treatment. Therefore Article 31 of the 4AMLD provided,
among other things, that Member States should require trustees to hold accurate
information about the settlor, trustees and beneficiaries. The trustees should also provide that
information to a central register.
However, only trustees of a trust which ‘generates tax consequences’
were obliged to do so.
Separately, in November 2014 at
the G20 Brisbane summit, the UK Government committed to implementing the G20
High Level Principles on Beneficial Ownership Transparency. What this commitment will involve has now
been published and essentially we have a flavour of how the UK Government will
interpret its obligations under the 4AMLD.
From 2017, with the introduction
of new UK Money Laundering regulations to implement the 4AMLD, trustees of
trusts that generate UK tax consequences will have to:
- hold accurate and up-to-date information about the settlors, trustees and beneficiaries of their trusts; and
- place this information on a central register available to ‘domestic competent authorities’ (which includes HMRC) and financial institutions/professionals who deal with the trustees.
The beneficial ownership information gleaned will also
be shared with foreign competent authorities in line with international
agreements.
In contrast to corporate beneficial ownership though,
the details of trust beneficial ownership will not be placed on a public
register.
It is not clear whether the
assessment of what constitutes ‘tax consequences’ will look to the residency of
the trustees (UK trustees pay UK taxes) or the situs of the trust assets – UK
situated trust assets generating UK source income create UK tax issues even if
the trustees are not resident in the UK.
Perhaps both trusts holding an investment portfolio or a rental property
would need to disclose. Presumably
trusts of life policies will be left alone, and trusts of land (applicable
where UK property is owned by two or more persons) will also, if the land does
not generate an income or profit (but what happens if a couple jointly owning
their home sell – does the fact that a CGT relief usually prevents there from being
a CGT bill mean that there are no UK tax consequences?). What about pension trusts?
In the UK, it will at least put
the beneficial owners of trusts and companies on a similar footing, but the
difference is that many beneficiaries of trusts do not choose to have that
status bestowed on them, and may not even see any benefit from the trust if
they are among a sizeable class of discretionary beneficiaries with only a hope
of being considered. In contrast, most
beneficial owners of companies expect to receive some monetary benefit from
their position and have chosen to become shareholders.
Will it be necessary to equip all
newly drafted UK trusts with a power to add and exclude beneficiaries so that
trustees only add some people to the class when a distribution is to be made to
them and exclude them thereafter – a fleeting loss of privacy in return for a
payout? How quickly and frequently will
the register have to be updated with any changes?
Privacy issues are
about to take their place as another key issue to discuss with clients wishing
to set up trusts with UK tax consequences. 
