HMRC introduced the Trust Registration Service (TRS) in 2018. Under existing rules any trust with a UK tax liability is required to register and to provide details regarding, among other things, the trustees, settlor, beneficiaries and the value of the trust assets.
The EU Fifth Money Laundering Directive
The scope of the TRS is due to be expanded significantly because of the EU Fifth Money Laundering Directive (MLD5). There are currently around 200,000 trusts registered under the TRS and some estimates suggest that this will increase to two million because of MLD5.
However, despite MLD5 having been enacted into UK law earlier this year, the details of exactly how the new version of the TRS will operate have not been finalised and we obviously hope that the government implements them in a way which is sensible.
Why might MLD5 have such a dramatic impact?
The two most significant proposals are that:
- Trusts based outside of the UK that enter into business in the UK or hold UK real estate will need to be registered.
- All bare trusts could be required to register, even trusts relating to minor children and simple intra-family arrangements. It is difficult to see how this would be workable in practice, given all the situations in which a bare trust may arise.
Another important implication is the increased access to TRS. Currently, only HMRC and law enforcement agencies can access information on the TRS. The MLD5 proposals would expand this access to those with a “legitimate interest”. HMRC have insisted that such access will only be granted to counter money laundering and terrorist financing. However, it is not clear how TRS access will be regulated.
What is the status of these proposed changes?
As mentioned above, the details of the proposed extension of the TRS have not been finalised yet. The delay is a result of HMRC’s consultation on the technicalities of the changes that would be introduced, including the types of trusts that will be required to register, data collection and sharing, and penalties for failure to register. HMRC is still to provide their conclusions from the latest consultation process, which finished in February this year.
Despite these delays, the industry expectation is that the expanded TRS rules will be introduced in some form, notwithstanding the UK’s impending departure from the EU. We will provide a further update once we know more.