Briefing document

Fifth Money Laundering Directive – Trust registration

13/01/2022

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Introduction

The EU’s 5MLD is now in force and the UK has enacted it into UK law. As a result, registration will be required by a significantly greater number of trusts than under the previous 4MLD trust register and information will be more widely publicly available. This note summarises the key points with regards to the 5MLD trust register and the dates from which trusts will either need to be registered for the first time under 5MLD or provide additional information if the trust is already registered under 4MLD.  

Trusts required to register under 5MLD

Scope of the registration requirements

5MLD requires the following express trusts to register: 

  1. All UK trusts, including non-taxable trusts, subject to exemptions. UK trusts are trusts where all the trustees are UK resident or where at least one trustee is UK resident and the settlor was both UK resident and UK domiciled when the trust was set up and/or when the settlor added funds to the trust. 

  2. Non-UK trusts that incur a UK tax liability on UK income or UK assets, as under 4MLD. 

  3. Non-UK trusts that acquire an interest in UK land after 5 October 2020. 

  4. Non-UK trusts with at least one UK resident trustee that, after 5 October 2020, enter into a business relationship with a UK relevant person (such as tax advisers and financial institutions) with an ‘element of duration’. HMRC’s manual states that, as general rule, this will include business relationships that go beyond a one-off short-lived transaction. 

UK tax liability

Trusts are taxable for 5MLD purposes if the trustees are liable to pay income tax, capital gains tax, inheritance tax, Stamp Duty Land Tax (SDLT), land and buildings transaction tax (Scotland), land transaction tax (Wales) or stamp duty reserve tax. 

Non-UK trusts are only required to register due to a UK tax liability if the tax liability arises on UK income or assets. This means that registration is not required for taxation reasons if the trustees’ only liability to UK taxation is inheritance tax on indirectly owned UK residential property (e.g. where UK residential property is owned by an underlying offshore trust company). 

Residence

Trustees who are individuals are resident for 5MLD purposes if they are resident for the purposes of any of the taxes set out above. This means residence under the statutory residence test for income tax and capital gains tax purposes and/or for SDLT purposes under the SDLT residence test. Corporate trustees are UK resident if they are incorporated in the UK. 

Excluded trusts

Some non-taxable trusts do not need to register with HMRC under 5MLD, either because they are otherwise required to register with HMRC or because they present a low risk of being used for money laundering or terrorist financing. These include: 

  • Trusts for bereaved minors and vulnerable beneficiaries. 
  • Will trusts created on death that only receive assets from the estate and which are wound up within two years of death. 
  • Trusts that hold life insurance or retirement policies that only pay out on the death, terminal, critical illness or either temporary or permanent disablement of the person assured, to pay the healthcare costs of the person assured, or which pay benefits on the death of the life assured under a retirement policy. This exemption is wider than first legislated and its extended scope is subject to a draft Statutory Instrument coming into force.  
  • Charitable trusts regulated in the UK. 
  • Co-ownership trusts where the trustees and the beneficiaries are the same persons. 
  • UK registered pension schemes. 
  • Share incentive plans. 
  • Trusts in existence before 6 October 2020 that hold assets worth less than £100. Registration will be required if value is added to such trusts.

There are some notable exceptions from the exclusions. Registration is required by trusts that are: 

  • Taxable, due to incurring a liability to one of a number of specified UK taxes on UK income or assets, as set out in the ‘UK tax liability' section above. 
  • ‘New’ trusts created after 5 October 2020 of any value, unless the trust is not taxable and is within an excluded category. 
  • Pre-6 October 2020 trusts with assets worth more than £100. This will include many longstanding trusts that do not require active management or ongoing engagement with HMRC, such as trusts created on death entitling a surviving spouse to occupy the family home for life with the property passing to the children thereafter. 
  • Bare and co-ownership trusts that have different trustees and beneficiaries. The aforementioned statutory instrument will, once in force, remove children’s bank accounts and bank accounts set up for persons who lack mental capacity (as defined) from the registration requirements. 

Trusts registered in the European Economic Area (EEA)

5MLD is an EU-wide directive and all EU Member States and the UK must maintain their own 5MLD compliant trust beneficial ownership registers. 5MLD states that the national registers should have been interconnected via a European Central Platform by 10 March 2021.

UK trusts and non-UK trusts with at least one UK resident trustee will not need to register on the UK register if they are registered on an EEA trust register, provided the trust is not taxable.

Non-UK trusts that do not have any UK resident trustees will need to register if the trustees acquire UK land even if no UK tax is payable. Information about such trusts will be less broadly available than for other types of trust (see below). 

Access to information 

HMRC will continue to administer the trust register. Under 4MLD, information held on the register was only accessible to law enforcement agencies and financial intelligence units. Under 5MLD, ‘third-parties’ (i.e. persons other than law enforcement agencies and financial intelligence units such as journalists) will be able to access information in the following circumstances: 

  • Information about trusts will, subject to the exceptions below, be available on request to those with a ‘legitimate interest’ in the information held. HMRC’s manual states that this means the requester must be looking into a specified instance of money laundering or terrorist financing and that the requester’s suspicions must be reasonable.   
  • There is no legitimate interest requirement in order to access information where a trust holds a controlling interest in a non-EEA legal entity. The consultation document published on 24 January 2020 noted that 5MLD allows such information access requests to be refused where they are not made in line with the objectives of 5MLD. HMRC’s more recent guidance does not repeat this point.
  • This broader access rule does not apply to non-UK trusts that only have non-UK resident trustees that acquire UK land. In such cases, HMRC will only share information with persons who have a legitimate interest in the information held by HMRC. 
  • Information will not be shared with third parties if HMRC consider that the information should be exempt because it relates to minors or persons who lack mental capacity, as defined in the Statutory Instrument, or if HMRC consider that releasing the information would result in the trust’s ‘beneficial owner’ facing a disproportionate risk of fraud, kidnapping, blackmail, extortion, harassment, violence or intimidation. 
  • Additionally, HMRC’s manual states that trusts that are only registered due to a liability to UK taxation are not subject to the third party access provisions. In practice, taxable trusts may also be required to register with HMRC for non-tax reasons.  
  • When HMRC share information, the information they may share includes details relating to the identity of individuals and legal entities who are beneficial owners of the trust (as defined), including the nature and extent of the beneficial owner’s interest in the trust. HMRC’s manual states that HMRC will not share information about the trust’s assets.

Existing 4MLD trust registration requirements

We are currently in a transition period as the earliest deadline that requires trusts to register for the first time under 5MLD is 1 September 2022 (which is a deferral from the originally legislated 10 March 2022 deadline – deferral is subject to the approval of the draft Statutory Instrument.) HMRC do however consider that information already provided to them must be updated within a set number of days. The original 30-day deadline is to be deferred to 90 days under the Statutory Instrument that is due to come into force from 9 March 2022. 

Until the 5MLD deadlines for unregistered trusts come into effect, unregistered trusts must register with HMRC if the 4MLD trust registration requirements are met. These are that:   

  • The trust is an express trust, and; 
  • The trust is either a UK trust (as set out for 5MLD above) or a non-UK trust, and; 
  • The trustees incur a UK tax liability, on UK income or UK assets where the trust is a non-UK trust, as set out for 5MLD above.  

Under 4MLD registration is due by the 31 January following the first tax year in which the above requirements are met, though in practice earlier registration may be required in order to comply with other statutory deadlines (e.g. notifying an income tax or capital gains tax liability by the 5 October following the tax year). 

Taxable trusts must make annual confirmation that the trust register is up to date. Taxable trusts are trusts where the trustees incur a liability to one of the taxes specified under the ‘UK tax liability’ sub-heading above and where the trust is either a UK trust or a non UK trust that receives UK income and/or owns UK assets. 

The online system to enable trustees to submit updates for most reportable changes is now available. 

Registration deadlines 

The table below summarises the deadlines by which trusts must register with HMRC and/or update information held by HMRC. 

Deadline Affected trusts
Within 30 days of a change ·  HMRC consider that registered trusts must update HMRC of certain changes within 30 days of the change occurring. This is an ongoing deadline that already applies. The draft Statutory Instrument extends this deadline to 90 days with effect from 9 March 2022.  
31 January 2022 ·  Unregistered trusts that incurred a UK tax liability in 2020/21 and are within the 4MLD registration requirements must register with HMRC.
From 9 March 2022: within 90 days of a change ·  HMRC must be updated of changes to certain information provided to them by a registered trust within 90 days of the change occurring.
1 September 2022

·  Unregistered taxable trusts set up after 5 April 2021 where the trustees first become liable to pay UK taxes before 4 June 2022 must register with HMRC.

·  Registered taxable trusts where the trustees become/became liable to pay tax before 4 June 2022 must provide additional information to HMRC.

·  Non-taxable trusts in existence on or after 6 October 2020 must register by 1 September 2022, unless the 90-day deadline below gives a later registration deadline.

Within 90 days of a trust first needing to register

·  Taxable trusts that are set up on or after 4 June 2022 must register within 90 days of the trustees become liable to pay UK taxes.

·  Non-taxable trusts that are not required to register by 1 September 2022 must register within 90 days of first triggering a registration requirement.  

Every 31 January ·  Registered taxable trusts must update HMRC of any previously unreported reportable changes to the trust, or confirm that there are no such changes, as applicable.

 

In practice, registration may be required earlier than under the deadlines set out above. For example, by 5 October following the tax year in which an income or capital gains tax liability arises, if the trustees need to notify HMRC of chargeability.

 

 

 

Find out more…

This note reflects the law in force and information available with regards to the 5MLD trust register as at 13 January 2022. The note refers to changes in a draft Statutory Instrument that is not yet in force: changes could be made before enactment.

This note does not cover all aspects of this subject. To find out more about any aspect of the above, please discuss with your usual Deloitte contact. If you do not have a usual contact, please contact Michelle Robinson (michellerobinson@deloitte.co.uk). For further information visit our website at www.deloitte.co.uk.