Upcoming changes to trusts under the Fifth Directive

Details of the extension of the trust registration service under the Fifth Directive

On 24 January 2020, HMRC launched their promised technical consultation on changes to the Trust Registration Service (TRS) to be made under the Fifth Anti-Money Laundering Directive.

The changes will focus on the registration requirements of all UK and many non-EU resident express trusts, whether or not they incur a UK tax consequence. This could extend the number of registrable trusts from around 200,000 to over two million.

The technical consultation will examine the scope of trusts that will be required to register, as well as the penalty regime for non-compliance.

What does HMRC suggest regarding trusts?

The purpose of the Fifth Directive trust provisions is to counter the risk of money laundering through these instruments. The TRS was created as a result of the Fourth Directive to register tax-paying trusts and estates. Any trusts required to register currently should continue to do so.

While the Fifth Directive requires all express trusts to register, the government recognises that in many cases, a trust created through the intention of the settlor will be implied by law, and therefore the beneficial owners will not necessarily be aware the trust exists. There are also a small number of cases where a trust arises directly from the operation or requirement of statute, such as managing assets for the benefit of vulnerable individuals.

The government stated in the consultation document that implied trusts do not meet the definition of express trusts, and therefore they are outside the scope of the register.

The government also proposed to not bring into scope trusts where:

Their purpose and structure mean payments to beneficiaries are predetermined and highly controlled
They are already supervised by HMRC or other regulatory bodies
Statutory trusts, such as the Tenants’ Service Charge Contributions Protection Trusts
Joint ownership trusts that exist solely for the purpose of jointly owning a home with a partner, relation or friend
Trusts where two or more people co-own an asset such as a bank account, or shareholding, where the trust is legally and beneficially for themselves with concurrent and not successive interests
Bare trusts
Maintenance-fund trusts for historic buildings
Approved value share option and profit-sharing schemes
Vulnerable beneficiary trusts
Personal injury trusts
Trusts that consist solely of life insurance, income protection or payment of death benefit policy where payment is not made until the death or terminal illness of the insured
Registered pension schemes that are already subject to regulation by the FCA or Pensions Regulator
Charitable trusts
Where a trust is already registered in an EU member state

Deadlines

Trusts that are already in existence on 10 March 2020 (in line with the Directive) must register by 10 March 2022
Trusts that are set up after 10 March 2020 must register within 30 days or by 10 March 2022, whichever is later
Trusts that are set up on or after 10 March 2022 will have 30 days to register
Once registered on the updated system, trustees will have 30 days from when they are aware of any changes to update the details

Penalties

There are two administrative offences set out in the Directive that relate to TRS – the failure to register on time and the failure to keep the record up to date and correct.

For the offence of failing to register on time, there will be no financial penalty, but a nudge letter will be sent to the trustee outlining their responsibilities.

For the offence of failure to keep the record up to date and correct, for a first-time offence, there is no financial penalty, but a nudge letter will be sent. Subsequent offences could result in a penalty of £100 for each offence.

However, any trustee who deliberately fails to register on time or deliberately fails to keep the record up to date and correct may be subject to a financial penalty in the first instance.

Updated anti-money laundering training

Screenshot of VinciWorks' AML course — AML: Know Your Risk, is one of the courses which was updated for the Fifth Directive

All VinciWorks’ anti-money laundering courses have been updated to ensure that they reflect the latest regulations across all relevant jurisdictions. If you are a VinciWorks client and currently license our AML training, your courses have automatically been updated.

How are you managing your GDPR compliance requirements?

GDPR added a significant compliance burden on DPOs and data processors. Data breaches must be reported to the authorities within 72 hours, each new data processing activity needs to be documented and Data Protection Impact Assessments (DPIA) must be carried out for processing that is likely to result in a high risk to individuals. Penalties for breaching GDPR can reach into the tens of millions of Euros.

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