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.