Opinion

The Trusts Register - Is Your Charity Complying and are You Ready for 2020?

8th May 2019

The Trusts Register - Is Your Charity Complying and are You Ready for 2020?

The Trusts Register records information on trusts that incur a tax liability and was brought in to combat money laundering, terrorist financing and organised crime.

At the moment the obligation to register with the Trusts Registration Service will often not apply to charitable trusts as they generally do not incur any tax liability. However, all trusts need to maintain certain records. The position is also due to change drastically in 2020 and charities need to be prepared.

The current regime implements the European Union’s 4th Money Laundering Directive (“4th MLD”) which requires all trusts to maintain certain records and, where a trust is a taxable relevant trust, to record this information on the UK's central register which is HMRC’s Trusts Registration Service (“TRS”).

What is the current position?

The provisions in the 4th MLD were implemented into UK law by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692) (“the 2017 Regulations”) which came into effect on 26 June 2017.

The provisions impose specific obligations on trustees and in summary they require the trustees of:

  • A relevant trust to keep and provide certain information about the trust (i.e. to maintain records);
  • A taxable relevant trust to provide information to HMRC’s TRS.

Civil and criminal sanctions can apply where these obligations are not met.

“Relevant Trust”

Charitable trusts registered with the Charity Commission for England and Wales will be a relevant trust.

All relevant trusts must maintain records and record certain information.

Whether a trust will need to register with the TRS will depend on whether it incurs a liability to any of the relevant UK taxes in a given tax year and therefore becomes a taxable relevant trust.

“Taxable Relevant Trust”

A “relevant trust” is one which incurs a liability to pay any of the following taxes in the UK in relation to assets or income of the trust:

  • income tax;
  • capital gains tax;
  • inheritance tax;     
  • stamp duty land tax;
  • Scottish land and buildings transaction tax;
  • stamp duty reserve tax.

HMRC has confirmed that a charitable trust will not be a taxable relevant trust unless it has incurred a liability to pay any of these UK taxes.

However, a charitable trust is still a “relevant trust” for the purposes of the 2017 Regulations even where no tax liability has been incurred and is therefore obliged to keep the necessary written records.

It is therefore important that trustees of charitable trusts check with their accountants, IFA’s, investment managers and any other professional advisors handling their finances whether they need to register with the TRS.

What written records are required?

Trusts must record certain information in order to avoid falling foul of the 2017 Regulations and must provide this information to the TRS if they become a taxable relevant trust. In very broad terms, this information is as follows:

  • Information about the trust;
  • Information about beneficial owners and other potential beneficiaries;
  • Information about legal entities who are beneficial owners; and
  • Where there is a class of beneficiaries who have not yet been determined (as will often be the case for charitable trusts), a description of the class of persons who are beneficiaries or potential beneficiaries.

HMRC must also be notified about any changes to the information held on TRS.

In Summary

Does your charitable trust need to register?

  1. Is the trust either a UK express trust (most charitable trusts will be) or a non-UK express trust with either UK income or UK assets?
  2. Have the trustees incurred a liability to pay any of the UK taxes listed above?

If yes to both, then the trustees need to register with TRS.

The trustees will need ask themselves these questions in each tax year as registration is triggered when the trustees incur a liability to pay any of the relevant UK taxes listed above.

Changes in 2020

The 5th Money Laundering Directive (“5th MLD”) is due to come into effect on 10 January 2020. Brexit will not affect the implementation of the 5th MLD.

It will extend the registration obligation under 4th MLD to all express trusts. As a result, even if a charitable trust does not incur a tax liability in a particular year, it will still be required to register with the TRS and provide the information set out above.

This regime is likely to come as a shock to the charitable sector, it contains many technical terms which will take some getting used to. Trustees should seek advice to help guide them through this process and prevent them falling foul of the sanctions which can apply.

Once the required information has been gathered in the first year, subsequent years should be less onerous. However, in the short term trustees of charitable trusts face further regulation and administration. This has led many to re-visit the question about whether to re-structure their charitable trust as a CIO or charitable company limited by guarantee. Clearly no charity should re-structure only to by-pass such regulation, but where this issue is already being considered it has certainly pushed the issue up the agenda for many.

The Trust Register regime is complex and this article is intended to provide an overview. Action is needed now to make sure your charity complies and charities should consult HMRC guidance and take professional advice, where required.

The experts in Higgs & Sons Charity and Not for Profit team can assist charities to get to grips with this regime and advise on what action they need to take to comply and can also assist with queries about re-structuring.

 

 

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