In a previous article in this Newsletter “Privacy - the Unaffordable Luxury | The Trust Register” (November 2017), I set out the requirements of Article 31 of the Fourth Money Laundering Directive (2015/849/EU) (MLD4). In short, MLD4 required:
- that HMRC maintains a central register of trusts; and
- all trustees maintain a register in writing containing pretty comprehensive information about the trust, its assets and its beneficiaries and all individuals with control over the trust.
Trustees of any trusts not previously registered with HMRC were required to provide information to HMRC by 5 December 2017. Trustees of a taxable relevant trust had to provide the information on or before 31 January 2018 or 31 January after the tax year in which the trustees were first liable to pay taxes.
The wide-ranging information required by HMRC included the name, National Insurance Number or usual residential address of:
- the settlor;
- the trustees;
- the beneficiaries;
- the class of persons in whose main interests the trusts are set up or operates; or
- any individual who has control over the trust.
In addition, HMRC request the following information about the trust itself:
- the full name of the trust;
- the date on which the trust was set up;
- the accounts for the trust, describing the trust assets and identifying the value of each category of the trust assets at the date on which the information is first provided to HMRC (including the address of any property held by the trust);
- the country where the trust is considered to be resident for tax; and
- details of legal and accountancy providers to the trust.
This article considers what impact the Trust Register has had in practice and examines the intended expansion of the Register and the consequential erosion of financial privacy.
Failure to prepare
It seems that whilst HMRC were keen to ensure trustees were prepared to register, they themselves were not prepared to efficiently register the information.
Trustees and their advisors will have spent many hours between them collating and inputting all relevant information, and making difficult judgement calls such as market valuations and the inclusion of potential beneficiaries. Odd to be asked to collate details of long dead settlors and valuation of assets when originally settled for trusts that have been going for decades. It is hard to see how such information advances the fight against money-laundering. It is never comfortable for conscientious advisors to be told to ‘guess-timate’ but ‘guess-timate’ and ‘workaround’ seem to be terms synonymous with the Trust Register’s first year of life. Despite submitting information close to a year ago, it is still not possible for lead trustees or their agents to review or amend their registered information or to declare that no changes have been made. Question 20 of the SA900 trust tax return still requires confirmation that the Register has been updated. The solution proposed by HMRC is to allow trustees to ignore question 20 but trustees must write to HMRC if the lead trustee’s or the trust’s correspondence address has changed. The lack of preparation by HMRC has created confusion and more work for trustees, the very opposite of the proposed aims.
A further lack of consideration is evident in the fact that trust corporations cannot be registered as executors. The workaround has been to temporarily use “dummy information” until such time as the HMRC are able to correct his glitch. Unfortunately, as stated above, trustees are unable to amend the information at present, meaning that part of the Register has been holding incorrect information since inception. Again, this goes against the fundamental objective of the Register. Additionally, trustees and their advisors are having to waste time keeping records of what information has and has not been registered, with no proposed deadline for rectification of the issues.
Expansion of the Register
Considering the serious complications currently affecting the basic function of the Register, one would assume the focus would be to rectify such issues. However, the Register is set to expand in scope and open its doors to the public.
It was initially proposed that MLD4 should cover all express trusts. In what was seen as a success at the time, the UK Government successfully amended the proposals to cover just those trusts that generate tax consequences. The concern was that trusts arise in the UK for a multitude of reasons such as in securities markets and even in basic personal transactions. Given the significant number of trusts, the impact would be disproportionate and overly cumbersome.
Despite the UK Government’s previous success, on 19 April 2018 the European Parliament voted to adopt the Fifth Money Laundering Directive (2018/843/EU) (MLD5). The MLD5 expands the obligation to register express trusts, regardless of their tax status. At a time where HMRC do not seem to have a handle on the information submitted so far, they are soon to be completely overwhelmed by a significantly larger body of information.
MLD5 has an arguably more serious consequence. The Directive allows anyone to request access to the Register if they can demonstrate a legitimate interest or where the trust has direct or indirect controlling interests in a company. Furthermore, not only does the directive not set out the minimum safeguards that a Member State must adopt in relation to the access of information, it allows the Member States to release information broadly.
The provisions of MDL5 must be complied with by 10 January 2020. Whilst the UK is expected to withdraw from the EU by March 2019, there is likely to be a transitional period lasting until 31 December 2020 during which time the UK will be expected to implement all directives. Trustees would be well advised to assume the provisions will be coming into force.
The Trust Register is currently riddled with practical issues. HMRC were not ready to operate a functional register and there is no light at the end of the tunnel. Quite the opposite, a lot more information is going to be rushing through HMRC’s doors with no apparent plans to deal with this. In addition, there remains outstanding questions about the current system: have trustees complied with their obligations when guesstimating market valuations; have the trustees included the correct beneficiaries?
In a world where we are now very conscious of our duty to safeguard personal data under GDPR, not hold data without justification and ensure processes are fit for purpose when dealing with that data, it can’t be right that the Trust Register be expanded and made accessible without a significant improvement on the current infrastructure and consultation on appropriate and commensurate protection of individuals’ financial privacy.