Wedlake Bell responds to plans for a central UK trusts register
15 / 11 / 2016
The global drive for greater transparency of corporate and other legal entities continues. In an attempt to prevent money laundering, terrorist financing, tax evasion and other financial crime, one of many provisions set out in the EU’s Fourth Money Laundering Directive, passed in May 2015, is that member states are required to establish a central register of trusts (“the Trusts Register”) governed under that jurisdiction.
The Trusts Register will list the “beneficial owners” of such trusts, which include the names and addresses of trustees, settlors, beneficiaries and protectors. Despite Brexit, the UK government has made clear that it plans to proceed with the transposition of the Directive into UK law, and published a consultation (“the Consultation”) in September on the finer detail of doing so, and the information on what UK trusts will need to provide for this central register.
The plans have been met with concern by the profession and trustees. Trusts have been used for centuries in the UK as structures to provide asset protection for young and vulnerable beneficiaries, the safe and gradual devolution of wealth to younger generations, as well as legitimate wealth planning options for the beneficiaries involved. The identities of the beneficiaries, the values involved, and the background and rationale behind the trust, has always been private information; UK trusts have their own tax regime, pay tax and rates at the same or higher level than individuals and are a transparent structure for tax purposes.
The provisions of the Directive represent a radical shift in approach from the UK’s perspective. UK trusts underwent radical tax changes in 2006 and have recently been subject to the burden of complex compliance with the introduction of the U.S.’s Foreign Account Tax Compliance Act (“FATCA“) and the OECD’s “Common Reporting Standard” (“CRS”). The requirements of the Directive introduce yet more change and compliance which appears to add little, or just repeat, the information already required by FATCA, the CRS and a trust’s annual income tax return, and is generally an unwelcome additional layer of bureaucracy for trustees.
The Trusts Register is seen by many in the trusts industry as a disproportionate reaction to the role UK trusts play, or not, in the global problems of money laundering, terrorist financing and tax evasion. Some positive news is that, as a result of the UK government’s negotiations, the Directive as currently drafted (although amendments have been proposed) does not require the trusts register to be accessible to the public, as is the case for “people with significant control” of UK companies (please see Edward Craft’s article, Operating under the PSC Regime). Instead, the data will only be accessible to competent EU tax authorities and financial investigation units. Rather than having additional paperwork which will only add to the administrative costs of UK trusts and the burden of what are the already onerous responsibilities and duties undertaken by trustees; if the government goes ahead with implementing this regime, we believe the data collection could be organised so as to be more coordinated with the information required under FATCA and the CRS, reducing the duplication and the inevitable burden this extra layer of compliance will place on trustees.
Wedlake Bell have responded to the Consultation to explain our concerns with the elements of the Directive that affect trusts, and the impact these will have on our clients who are settlors, trustees or beneficiaries.
You can read our response below. We will be closely monitoring developments in this area and will respond where possible to represent our clients’ interests and emphasise the importance of getting the right balance between transparency in relation to beneficial ownership, and the privacy, personal security and administrative burden for those involved.