The UK Trust Register and discretionary trusts: good news for trustees
Trustees will not need to disclose the identity to the UK’s Trust Registration Service (TRS) of a member of discretionary class of beneficiaries unless the beneficiary is named or has received a benefit from the trust after 26 June 2017, HMRC announced on Friday.
The new guidance is expected to be welcome news for trustees, particularly as new rules on matters such as ownership of UK property is likely to bring more trusts into the UK’s tax net. For more information in relation to the UK tax changes for international owners of UK residential property read our dedicated blog. HMRC’s previous view was that if a beneficiary could be identified their details would have to be disclosed, even if they were not named in the trust deed and had not received any benefit, potentially placing a huge administrative burden on trustees.
The guidance also states that named individuals who can only benefit on a contingency (such as the death of a named beneficiary) will not need to be named until the contingency occurs.
The guidance gives an example of a trust deed, which states that the beneficiaries are the grandchildren (some being alive and some yet to be born) of the settlor and any other persons added by the trustees following instructions from the settlor. The settlor adds his niece Mary, who will benefit at the trustees’ discretion. The settlor adds that if Mary dies before any of the grandchildren, then a distribution can be made to his nephew John.
In this case, the grandchildren should be listed as a class on the TRS. However, if the trustees make a payment, or provide a non-financial benefit, to a grandchild, then at that time the trustees should provide the details of that grandchild to the TRS. Mary is named and could receive a benefit at any time, so her details should be registered. John should be identified as a class of beneficiary but his details should to on the TRS only when he actually receives a benefit.
The TRS has been introduced to help the UK comply with its obligations under the 4th Anti-Money Laundering Directive to tackle terrorism, money laundering and tax evasion. It replaces the old paper registration process for trusts with an online process, and requires additional information. Trustees, whether based in the UK or elsewhere, are now required to gather information to identify the ‘beneficial owners’ of the trust and, when the trust has a ‘UK tax consequence’ during a tax year, to provide this information to HMRC.
‘Beneficial owners’ include the settlor, trustees, protector, and any other person who can ‘exercise control’ over the trust. Beneficiaries and classes of beneficiaries are also included.
Currently this information will only be made available to law enforcement authorities in the UK or an EEA state if requested. However there is pressure within the EU to make this information publicly available.