The 5th Money Laundering Directive (5MLD) came into force on 10th January 2020. One of the major changes was an extension to the Trust Registration Service (TRS) maintained by HM Revenue and Customs.
What is the issue?
Previously only trusts with a tax liability had to register with HMRC. 5MLD significantly extended the scope of the TRS. In very broad terms, all express trusts that existed at 6th October 2020 (or have been created since then) must register with the TRS by 1st September 2022 and provide details about the trust and the beneficiaries even if that trust has now been wound up. Not all trusts are captured by this new requirement as there are a wide range of exclusions but many are.
Many private trusts that were not previously required to register (usually because there was no tax consequence to them) are now caught by 5MLD. For example,
- Trusts of property where someone has the right to occupy the property for their lifetime. These trusts are often created on the death of a first spouse or they may have been created during the lifetime of the people occupying;
- Investment backed trusts such as “discounted gift trusts” or “gift and loan” trusts established with insurance companies;
- “Life interest” trusts where the “life tenant” receives the income directly from investment company;
- “Dormant” trusts which may already have been registered with HMRC but are not currently filing tax returns. This will include many “nil rate band discretionary trusts” created many years ago. These will have to be re-registered with the TRS.
Many bare trusts will now also need to be registered with TRS. This includes, for example, any property (land, shares etc.) registered in the name of one or more individuals but held for a third party (unless one of the exclusions applies). So, for example,
- Some arrangements (but not all) where assets are held for the benefit of minor children;
- Trusts of land where not all the people who are entitled to the value of the land are shown as the legal owners (at HM Land Registry or otherwise);
- Trusts created where one spouse owns property but enters into a declaration of trust before sale to transfer a share in the property to the other spouse – usually for capital gains tax reasons – and including trusts created during divorce to take advantage of the “year of separation” rules;
HMRC have very recently confirmed that the TRS will extend to partnership assets.
Many partnerships will own land as part of their assets. Often these assets will remain registered at HM Land Registry in the name of one or more partners – but not necessarily all the partners in the partnership. That partner is holding “on trust” for the other partners and that trust must be registered with the TRS.
Again, there are exclusions, specifically where there is a partnership of more than four people and the land is registered in the names of four partners. Because the legal title to land can only be registered in a maximum of four people’s names, this is excluded from registration under the TRS.
New trusts created from 1st September 2022 will need to be registered within 90 days of their creation as will any changes to existing trusts.
What should you do?
If you think you might be within the ambit of these new rules then we would strongly recommend that you talk to your accountant, tax advisor or to us as soon as possible.