Notwithstanding Brexit, the EU 5th Anti Money Laundering Directive (5MLD) must now be implemented by the UK Government and has a significant impact on trusts. Changes include an extension to the range of trusts that must be registered and a requirement for trusts to share certain information on publicly accessible registers. In this post, we look in more detail at the changes introduced by 5MLD and how UK trusts might be affected.
What changes are introduced by the 5th Anti Money Laundering Directive?
The 5th EU Anti-Money Laundering Directive came into force in the UK on the 10th of January 2020 and introduced several changes that affect the registration and administration of trusts. However, the application of changes that apply to HM Revenue and Customs’ Trust Registration Service (TRS) has been delayed pending the outcome of a recently closed consultation. 5MLD extends the scope of the money laundering regulations. Particular changes include an obligation upon certain trusts to provide “beneficial ownership” information. There are also likely to be new rules regarding which trusts must register with the TRS.
Which trusts do the changes apply to?
Trusts are widely used in the UK and are the basis of many elements of our everyday lives. Jointly owned property, bank accounts, life insurance, pensions, assets held for children, and commercial transactions may all make use of trusts. As a result, HMRC have indicated that they are seeking to implement the new rules proportionately.
The recently closed TRS consultation outlines that 5MLD will require all UK trusts and certain non-EU resident “express trusts” to be registered with TRS. However, there are likely exceptions to this rule, including:
- Statutory trusts such as arise in England and Wales on intestacy
- Pension and life assurance trusts
- Charitable trusts
- Trusts that are prescribed explicitly by legislation, such as maintenance funds for historic buildings
- Where two or more people own a shared asset, such as a bank account, legally and beneficially for themselves
- Trusts that are used solely to hold insurance policies,
- Trusts for vulnerable beneficiaries
- Personal injury trusts
- Trusts that have already been registered in an EU member state.
Further consideration is being given to “bare trusts”, which are widely used in both personal and commercial contexts. A bare trust is not actually a trust in the strict legal sense. In contrast, a bare trust is a commonly used term for a simple nominee arrangement where one party holds an asset on behalf of the true owner. Bare trusts do not require to register under the current rules.
It is also important to note, that while the potential exclusions are important, they will not apply to taxable trusts that are already required to register. For such trusts, HMRC intends to go beyond the requirements of 5MLD by using the registration service for both anti-money laundering purposes and notification of taxable status.
What should I do as a trustee?
The practical steps trustees can take at this stage are to stay informed of changes to their obligations and be aware of key deadlines, which have been revised in the past.
Where you are unsure about changes to your obligations under 5MLD, you should seek professional advice.
Specialist Trusts Solicitors, Edinburgh
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