Trusts Registration Service – risk issues for professionals

The Trusts Registration Service (TRS) was set up in 2017 as part of the implementation of EU wide anti money-laundering legislation (the UK regulation is snappily titled: Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI No. 2017/692)). Since then, all UK trusts (or an overseas trust which owns UK assets) which pay UK tax have been obliged to provide certain information to the Register.

The rules are changing: whilst there is a lack of clarity at present, at some point in 2020 (following an ongoing consultation process) a much broader class of trusts will require registration (essentially any express trust, whether or not it is liable to UK tax). This article explains the changes and the risks for professionals (solicitors, accountants, tax advisers etc) who operate in the private client sector.

The current provisions

The historic trigger for registration was a UK tax liability – practitioners have estimated that there are about 200,000 such trusts which are currently on the Register. But, from some point (originally anticipated to be 10 March 2020), any express trust will require registration. These could include such common tax mitigation/financial planning devices such as (1) life insurance policies written into trust or (2) shareholder protection policies or trusts holding shares in family companies and, some say, (3) all property jointly owned such as land or bank accounts. The Association of Taxation Technicians (ATT) has suggested up to two million trusts might be affected. Further, any non-EU trust which owns UK property or has a relationship with an entity in the UK which is obliged to carry out Customer Due Diligence must also be registered.

What information is to be provided?

In addition to basic details about the trust itself (name, contact details of trustees etc.), obligations arise to give information about the beneficiaries and assets. Such details include a description of the relevant asset (share or financial instrument, land etc.), the value of the asset at the time of registration and the names and interest of the beneficiaries.

Access to the Register

At present, HMRC can share data on the Register with law enforcement agencies. But, the Register will become open to a much broader class of applicant, including anyone with a “legitimate interest”. The precise scope of those interests is unclear, but it is assumed that creditors (for example in a matrimonial finance or in a general enforcement of judgments context) will be regarded as legitimate.  Essentially, a public register of trusts is created – which, some might say, defeats part of the purpose of having a trust in the first place.

What risk issues are there for professionals?

The risk issues fall into three broad categories: 

• Implementation risks – rules are to be implemented as to when trusts are to be registered – current expectations (which may prove inaccurate if the guidance is delayed) are by 30 March 2021 or within 30 days of creation or 30 days of a taxable event. Failure to register will lead to penalties and, in extreme cases, a risk of imprisonment. Fines and penalties tend not to be covered under standard professional indemnity policies.
• Advisory risks – whilst it would be wrong to suggest that all trusts are used by people who wish their affairs to be kept confidential, it is fair to say that trusts have been attractive to those who do. That objective may no longer be obtainable. Advisers will therefore need to consider whether clients’ objective can be reached in other ways (via the use of offshore trusts or other mechanisms). In any event, settlors, trustees and beneficiaries will need to be advised of the disclosure obligations required under the new rules. Further, those acting for creditors will need to ensure that appropriate searches of the Register are made to assess what if any interests a debtor may have in trust property.
• Information risks – if the ITT is correct that up to two million trusts require registration, that is a very large amount of data for what we assume to be a small pool of trustees (many of whom will be professionals) to assimilate. It is quite possible that relevant information will be old (for example a life insurance policy written in trust many years ago as part of inheritance planning) and that the trustees may not retain all relevant documentation (and may not be kept up to date with taxable events – e.g. if shares of a private company are held in trust and a dividend is declared).
  
  

Comment

Professional indemnity insurers will need to take note: many standard policies (for example the solicitors minimum terms) cover liabilities arising out of a trustee role. Insurers may now wish to learn more about the size of a firm’s trustee exposure (for example the number of trusts which members of staff are trustees of) and the size and makeup of the trust assets.

Whilst there is uncertainty as to implementation and scope of the new rules, one thing is certain: extra burdens will be placed on trustees who may lack the information to timeously comply. Whilst circumstances and claims arising from TRS registration issues may not arise this year, we would expect them to appear on insurers’ radar in 2021.

Further guidance will be issued by HMRC later in 2020.

Read others items in Professions and Financial Lines Brief - March 2020

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