by Brynhild Weihe, Trainee Solicitor
Fifth Money Laundering Directive
Although the UK is currently on path to leave the EU on 31 January 2020, the EU’s Fifth Money Laundering Directive (5MLD) was implemented in the UK on 10 January 2020 when the 2019 Regulation was passed.
This Regulation expands upon the Fourth Directive, and the 5MLD focuses on enhancing powers of direct access to information and imposing greater transparency obligations on trusts and other forms of beneficial ownership, along with other matters.
The specific requirements that will affect trusts and trustees are not yet a part of the amendments, however HMRC has indicated that the implementations will be announced in early 2020. The UK government’s consultation on 5MLD sheds some light on the likely changes.
Trust Registration Service
The Fourth Directive led to the creation of HMRC’s Trust Registration Service (TRS) in 2017. The TRS implements a duty for trustees of any express trust that is liable to pay UK taxes to register the trust with HMRC within a certain time limit.
The key point of the TRS as it currently stands is that a trust would only need to be registered once it is clear a tax liability will become due. Before this, nothing needs to be done and trusts that do not have tax consequences for income tax, capital gains tax or inheritance tax do not have to register.
5MLD changes this by implementing the requirement that all UK express trusts and some non-EU resident express trusts must be registered. The TRS no longer applies just to those with UK tax implications, and this addition will likely lead to a significant increase in the number of trusts that must be registered.
Non-EU resident express trusts must be registered if they acquire UK land or property or if they enter a new business relationship with an obliged entity.
HMRC and HM Treasury published a technical consultation on 24 January 2020 on the trusts registration aspects of transposing 5MLD into UK law.
Express trusts are the most commonly seen trusts in the UK. These are expressly created by the settlor, as opposed to trusts established by court order.
The types of trusts that fall under the category of express trusts are discretionary trusts, interest in possession trusts, and some types of bare trusts, among others.
There will be exemptions that can be applied to the above types of trusts, provided they meet certain conditions; however these have yet to be finalised. These exemptions would then bypass the requirement to register.
When will registration be required?
Unregistered trusts already in existence prior to 10 March 2020 will be required to register by 31 March 2021. This affords some time for the trustees of the many trusts already established that are affected by 5MLD to prepare for the amendments of the TRS.
New trusts that are created on or after 1 April 2020 will have to be registered within 30 days of establishment, thereby registration will become a part of the trust establishment process.
5MLD also imposes data sharing obligations on the government. Most significantly, access to information shared on the TRS will be granted to anyone who can show a legitimate interest.
This note is intended to be a brief summary. No responsibility can be accepted for any action taken in reliance of this note and specialist legal advice is recommended in every case. Turcan Connell would be happy to provide such advice.