Additional guidance on registering non-UK trusts on the Trust Registration Service

Here, International Tax partner, Sonal Shah, shares additional guidance on registering non-UK trusts on the Trust Registration Service.

New registrations

Whilst new legislation has been laid out on 6 October 2020 as part of the UK’s implementation of the Fifth Money Laundering Directive (5MLD), HMRC has only recently added additional guidance on non-taxpaying trusts which are required to be registered on the Trust Registration Service (“TRS”).

In 2017, we saw further steps taken in relation to the transparency of trust arrangements with the establishment of the TRS in accordance with the Fourth Money Laundering Directive. The criteria here was all non-UK express trusts (i.e. one that is established deliberately created by the settlor rather than, for example, by court order or statute) that incurred a UK tax liability would be required to be registered on the UK TRS. With the implementation of the 5MLD, the link with taxation has now been removed, widening the scope of those trusts required to register. The following non-UK express trusts must now also register on the TRS:

• Non-UK express trusts which have either:
  • at least one trustee resident in the UK when the trustees enter into a “business relationship” with an “obliged entity” (this would include, for example; banks, investment managers, lawyers, accountants, tax advisers, and property agents) or acquire UK land or property; or
  • no UK resident trustees, but the trust acquires UK land or property.
• Non-UK non-express trusts (i.e. implied or constructive trusts which are not created deliberately by a settlor in the form of a document such as a written deed or declaration of trust) and specifically excluded trusts which have a UK tax liability. These trusts will still have to be registered on the TRS for self-assessment purposes, even though they are not in scope under the new 5MLD rules.

There was considerable concern that non-UK express trusts using UK service providers would have to be registered on the UK TRS. Thankfully, the government has listened to many representations from stakeholders on how this should be interpreted and it is now confirmed that non-UK express trusts with all non-UK trustees will only be required to register on the UK TRS if the trustees receive UK source income or holds UK assets or acquire an interest in UK land.

Following on from the above, this, therefore, means that a non-UK express trust with all non-UK resident trustees who hold UK residential property through a non-UK company will not have to register on the TRS. However, foreign companies that hold, or wish to buy, land in England and Wales will be required to provide information on their beneficial ownership under the new Register of Overseas Entities proposal.

Whilst there are extended rules on exempt and non-exempt trusts and in line with the proposed new Register, the most impactful piece of legislation here is the fact that for non-UK express trusts, the acquisition of UK land by the trustees on or after 6 October 2020 triggers the requirement for registration regardless of whether there is a UK tax liability or not. What is pleasing to hear is that if UK land was acquired before 6 October 2020 by a non-UK trust, and the trust is not subject to UK tax, then the mere purchase of a UK land in itself would not trigger the requirement to register on the TRS. This effectively creates a dual purpose of the register.

Unlike UK trusts, to be treated as acquiring UK land, the trustees of non-UK trusts must acquire the land directly (i.e. for HM Land Registry, the trustees must become proprietors of a freehold estate in land or of a leasehold estate in land granted for a term of more than seven years from the date of the grant). Other rules apply for proprietors of land governed by the Land Registers of Scotland and Northern Ireland).

It is also worth noting if a trust has been registered under 5MLD in an EEA member state already, it is generally not required to register again under the TRS. However, this exclusion does not apply if the trust is a non-UK express trust with no UK trustees and where the trustees acquire UK land. In addition, trusts already registered on an EEA trust register are still required to register on the UK TRS if they have a UK tax liability.

Our final comment regarding new registrations on the TRS pertains to the deadlines. Non-UK express trusts which were created on or after 6 April 2021 which incur a tax liability before 9 February 2022 must, under current regulations, be on the register by 10 March 2022. As the TRS update was not made in time, HMRC has pushed back the deadline to Autumn 2022 to allow trustees around 12 months following the system upgrade to comply with the registration requirements.

Thereafter, to align taxable and non-taxable trusts, a taxable trust must register within 30 days of first incurring a UK liability.

Existing taxable trusts

In addition to new registrations, existing taxable trusts must also supply additional information on their beneficial owners and controlling holdings in any non-EEA and non-UK companies as part of their TRS record. The TRS portal has been recently updated and it now allows additional information to be included from 4 May 2021.

For each of the trust’s beneficial owners who are individuals, extra information should be provided regarding their country of residence, nationality, and nature and extent of the individual’s beneficial interest within 30 days of the trustee becoming aware of the change.

This additional information is not required if the beneficiaries have only been identified by class.

With regards to the controlling holdings, where the trust has such an interest, it must disclose on the register within 30 days of acquiring such an interest the following:

• Corporate or firm name.
• Country or territory whose law governs the entity.
• Registered or principal office of the third country entity.

The new regulations are slightly complex and could result in many unsuspecting trustees falling foul of the rules unaware of their duty to register non-UK trusts or update the TRS with any changes. Whilst we are still digesting and getting accustomed to the new TRS layout, feel free to let us know should you require any assistance regarding the above or regarding any trust matters. For better or worse, transparency continues to gain momentum!