The ATT is calling for clear guidance on new disclosure obligations which will require all UK trusts to register details of their ownership on the UK Trust Register from next year.1 The expanded requirements could result in hundreds of thousands, and potentially millions, of trusts having to add themselves to the existing Register. Trustees who breach the regulations by failing to register, risk both civil and criminal sanctions.
The EU’s Fifth Money Laundering Directive (5MLD) came into force in July 2018, and means that the UK must implement the new rules for trusts by March 2020.2 The ATT’s concerns are set out in its recent response to a Treasury consultation3 on how the UK will implement the Directive.
When the Trust Register was introduced in 2017, HMRC estimated that 170,000 trusts would need to register. The latest Directive will significantly expand the scope of the existing register by requiring the trustees of all UK resident trusts to register their trusts on the UK Trust Register, regardless of whether the trust has incurred any UK tax liabilities.
Jon Stride, Co-Chair of the ATT’s Technical Steering Group, said:
“It is important that we have robust measures in place internationally to prevent the financial system being used for money laundering and financing of terrorist groups. But it is also important that these measures are proportionate and those who, while willing, may struggle to comply, are helped through the process with clear guidance and a collaborative approach from the authorities.
“While it is impossible to know how many more trusts will need to register under the new rules, the sheer scale of this task must not be underestimated. Many trusts which have been effectively dormant, often for many years, will be brought within scope, including trusts that hold land and property or, very commonly, investments such as life insurance policies. Given the low level of understanding of trusts by the general public, we think that it will be extremely difficult to ensure that all the trusts which will be caught by the new rules are identified and registered.
“We are calling on the Government to provide clear guidance, together with understandable examples, on what arrangements are in and out of scope of the rules to ensure that trustees can understand and comply with their obligations.
“Trustees who inadvertently breach the regulations by failing to register run the risk of both civil and criminal sanctions. Even the smallest trusts must comply because there are no carve-outs, exemptions or de minimis thresholds in the rules. Many trusts do not have any liquid cash assets, nor assets that could be easily sold to raise funds, which leaves trustees who need to seek professional advice in the difficult position of having to meet the costs personally. It is vital that trustees can establish their obligations from clearly drafted guidance.
“We urge the Government to apply the penalty regime in a proportionate and reasonable manner for any trust that fails to register. It is quite possible that trustees who are not seeking to hide anything could be in breach of the regulations entirely unintentionally if they are unaware of the rules. The objective of any penalty regime should be to educate and encourage trustees to comply and not to levy penalties.”
Notes for editors
- The existing UK Trust Register was created in 2017 following the Fourth EU Money-Laundering Directive as a transparency measure. Trusts must register details of the settlor(s) (the individual or individuals who created and funded the trust), the trustees (who manage the trust) and the beneficiaries who could potentially benefit from trust assets.
- The consultation is taking place on the basis that there will be a Withdrawal Agreement and implementation period after the UK’s exit from the EU so that the UK will be required to implement the changes to the trust register even if it has left the EU by March 2020.
- ATT’s response to the HM Treasury consultation Transposition of the Fifth Money Laundering Directive can be found here. A further consultation on more detailed aspects of the Trust Register is expected later this year.