MLD5 is here. Trustees Are You Ready?
Since the introduction of the Trust Registration Service (TRS) in 2017, trustees have been obliged to maintain records about their trusts and to only register these with HMRC where the trusts are subject to UK tax. Information needed by HMRC includes details about the settlor, the trustees, the beneficiaries and the value of the assets in the trusts among other things. Trustees’ obligations to register trusts are set to expand considerably under the Fifth Money Laundering Directive (MLD5) which was enacted into UK law in January this year.
The MLD5 places an obligation on all express trusts to be registered, with the two most significant changes being as follows:
(a) All Bare Trusts are required to be registered. Bare trusts often are trusts relating to minor children and other family arrangements. These trusts are mostly managed by lay trustees and many of them may not be aware of the need for registration. Consequently, many may fail to register their trusts with the TRS thus risking being in breach of the new legislation and subjected to penalties.
(a) Non-UK trusts holding land in the UK will need to be registered with the TRS. This applies irrespective of whether these trusts have a UK resident trustee or not. In addition, Non-UK trusts entering into a business relationship in the UK with a UK based lawyer, accountant or other professional, are required to be registered with HMRC. However, the requirement to register is triggered only when these trusts have at least one UK resident trustee. This means that from March 2022 UK based professionals will not be able to act for trusts which are not registered with HMRC.
Despite the wide scope of the MLD5, there are some trusts which do not need to be registered with the TRS because there are other structures in place to regulate them. UK registered pension Trusts are already regulated by the Pension Regulator or the Financial Conduct Authority and therefore fall outside the registration requirement. However, unregistered pension schemes will be required to register with the TRS. Similarly, charitable trusts which are regulated in the UK are exempt of TRS registration. This exemption does not extend to unregistered charities in Northern Ireland.
In addition the MLD5 provides a list of trusts which do not have to register with the TRS. Some of these are as follows:
· Trusts imposed by statute
· Pure Protection life insurance policies
· Personal injury trusts
· Co-ownership trusts where the trustees are also the beneficiaries
· Will trust created on death provided all the assets are distributed within two years of the date of death.
Registration and penalties
The responsibility to register trusts and update the register is incumbent upon trustees. If they have not done so already, trustees have until 10th March 2022 to register their trusts with the TRS. Where there are changes to the information already on the TRS, trustees have 30 days to update the register from the date of the event. Failure to register on time or failure to update the register will result in HMRC sending the trustees a nudge letter in the first instance. If there is non-compliance following the nudge letter, then HMRC will issue a penalty of £100 per offence for subsequent offences.
Access to the register
Access to the TRS is currently available to HMRC and law enforcement agencies. However, under MLD5, this is extended to those with a “legitimate interest”. A person will have a legitimate interest in the information on the register if the person is investigating money laundering or terrorist financing activities and failure to provide the information will prejudice criminal investigation or criminal proceedings.
MLD5 is changing the landscape for trusts and trustees must make sure their trusts are registered or that they meet the criteria for not registering with the TRS.
If you need advice on whether you should register your trust and assistance to get the trust registered, JPC can help. Contact Sangeeta Moore by email on firstname.lastname@example.org or telephone on 020 7581 7505 or connect with her on LinkedIn.