With the 5 March deadline fast approaching for Jersey trustees to register records of beneficial ownership with HMRC, Ed Shorrock (pictured), Director of Compliance and Regulatory Consulting at Duff & Phelps, explains the significance of this requirement
Despite the UK's decision to leave the EU, the ongoing and ever-increasing disclosure requirements facing offshore trustees is being felt in the Crown Dependencies.
On this occasion, the EU has issued its fourth Money Laundering Directive (4MLD), consequent to which the UK government in June 2017 introduced reporting obligations for trustees of certain trusts.
Under these regulations, trustees of a relevant trust (including any express trusts) must maintain records on the 'beneficial owners' of the trust they administer.
Furthermore, trustees of taxable relevant trusts (trusts where the trustees are liable to pay any of the main UK taxes, such as income tax capital gains tax, inheritance tax or stamp duty) need to provide HMRC with certain information on beneficial owners and potential beneficiaries.
This information will then be included on a non-public register maintained by HMRC, but will be available to law enforcement or another EEA member state. Clearly, if a non-UK trust does not have any UK-source income or hold any UK assets directly, it will fall outside the scope of the requirements.
What does 'beneficial owner' mean?
The use of the term 'beneficial owner' in the context of discretionary trusts is ordinarily displeasing, but in this instance it includes all usual parties to a trust: the settlor, trustees, beneficiaries, classes of persons in whose interest the trust is set up, potential beneficiaries and anyone with control over the trust.
Technical problems have beset the online Trust Registration Service, and the deadline for registering existing trusts, without incurring penalties, has been extended to 5 March 2018, which doesn't leave much time. Trusts which have incurred liabilities for the first time in the 2016/17 tax year should have completed their registration by 5 January 2018.
Although the concept of providing ultimate beneficial owner information to a central authority will be a novel one for many UK trustees, this is, of course, a well-trodden path for Jersey fiduciary businesses.
Given the focus on anti-money laundering/countering financing of terrorism issues in the Crown Dependencies, the information required in respect of beneficial owners or potential beneficiaries should be readily available.
New data requirements
However, the need to provide information on trust assets, trustee details and legal/tax advisers is new. This represents an additional layer of data available for HMRC to add to their ever-growing data vault, which is also receiving data from initiatives such as the Common Reporting Standard.
While firms in the Crown Dependencies should now be well placed to respond to the registration requirement, it has undoubtedly increased the administrative burden for client teams already charged with updating local beneficial ownership registers.
It also signals that transparency and tax compliance on the part of both beneficiaries and trustees is a fundamental requirement, not only from a regulatory expectation, but also as a matter of law.
Indeed, these extra measures clarify the case for transparency in an environment that is most certainly under the microscope, and we expect other jurisdictions will be taking a lead from the UK in this forward-thinking approach.