For UK financial advisers only, not approved for use by retail customers. Click here for the consumer website For UK financial advisers only, not approved for use by retail customers. Click here for the consumer website
PruAdviser on-line services will be unavailable from 20:00 PM on Saturday 19th September until 17:55 PM on Sunday 20th September for website essential maintenance. We apologise for any inconvenience caused.

Trust Registration Service (TRS) 5MLD Consultation

Author Image The Technical Team
4 minutes read
Last updated on 28th Apr 2020

Four becomes five

Life never stands still. 

Just two and a half years ago the Fourth Money Laundering Directive (4MLD) came into effect giving rise to the Trust Registration Service (TRS). Now, regulations have been enacted bringing into force 5MLD to ensure that the UK’s anti-money laundering and counter terrorist financing regime is up-to-date, effective and proportionate.

This has a knock-on effect on the TRS as we know it, and with that in mind the Government has issued this consultation on the potential impact. Lots of tecchie detail of course, but in honour of 5MLD, here’s five fast facts covering what you need to know.

 

Remind me, what does the TRS do?

The TRS which became operational in July 2017, provides online capability for trusts (and complex estates) to comply with registration obligations and obtain a Self-Assessment reference. ‘Express trusts’ with UK tax liabilities (e.g. Income Tax, Capital Gains Tax and Inheritance Tax) are required to register whether UK or non-UK resident. 

What’s an Express trust?

It’s a trust that was deliberately created by a settlor expressly transferring property to a trustee for a valid purpose. This excludes Statutory trusts because they do not result from the clear intention of the settlor. Will this exclusion continue to apply under 5MLD? Yes.

What about Bare trusts?

Currently, bare trusts do not need to be registered. Their fate under 5MLD is unclear. The government previously set out examples of the categories of UK trusts that are likely to fall within the definition of an express trust and this included “many types of bare trusts.” In  the consultation document, the government state

“...more information is needed to ascertain the risk of bare trusts being used for money laundering or terrorist financing purposes. The government will continue to consider this...”

What is the position with a discretionary trust holding an insurance product?

For the time being, trusts which do not need to register include those where the trustees do not need to file a tax return and have not incurred a UK tax liability. A discretionary trust holding a non-income producing investment bond falls into this exclusion (assuming also no IHT liabilities). Remember however that UK resident trustees may become taxable if a chargeable event gain subsequently arises and the settlor cannot be taxed because he/she died in an earlier tax year or is non-UK resident. Therefore, if for example a bond is held in a discretionary will trust, then the trustees will need to register if a chargeable event gain occurs.

5MLD is however removing this link with taxation so that the existing TRS will be expanded to include UK express trusts (and some non-EU resident express trusts) irrespective of whether the trust has incurred a tax liability.

This is however notable in the consultation

“The use of trusts to hold life insurance policies, income protection policies or policies solely for the payment of retirement death benefits is often for estate planning purposes. Where the trust consists solely of a policy which is a pure protection policy and payment is not made until the death or terminal illness of the insured, it is proposed that these trusts will not be required to be registered on TRS...

The removal of pure protection policies from the TRS should greatly reduce the registrations and work for advisers notifying trustees.

Note that the Government want TRS obligations to be proportionate and propose not including trusts where payments to beneficiaries are predetermined, highly controlled, and are already supervised by HMRC or other regulatory bodies.

No surprise that the consultation proposes Registered pension schemes held in trust should be excluded from registration as they are already subject to regulation by either the FCA or the Pensions Regulator. There are also income tax controls on sums going into and out of the fund, and the benefits that can be provided by the funds. Pension scheme trusts that are not registered with HMRC will however be required to register on TRS.

Next steps?

Where a trust is already registered on the TRS under 4MLD, some additional information will be required in due course to fulfil the requirements of 5MLD. Although the 5MLD regulations come into force in 2020, the updated TRS system will probably not be launched until 2021 with 5MLD trust registration deadlines then starting in March 2022.

Where a newly registered trust has no liability to tax, the trustees will only need to provide information about the beneficial owners of the trust - settlors, trustees and beneficiaries - in line with 5MLD requirements.

For the time being there are no impending deadlines regarding 5MLD other than the consultation closing on 21 February.

We will keep you posted. In the meantime, our Knowledge Library contains this article which may be of interest.

Labelled Under:
Trustees

Next steps

"Prudential" is a trading name of Prudential Distribution Limited. Prudential Distribution Limited is registered in Scotland. Registered Office at Craigforth, Stirling FK9 4UE. Registered number SC212640. Authorised and regulated by the Financial Conduct Authority. Prudential Distribution Limited is part of the same corporate group as the Prudential Assurance Company. The Prudential Assurance Company and Prudential Distribution Limited are direct/indirect subsidiaries of M&G plc, a company incorporated in the United Kingdom. These companies are not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America or Prudential plc, an international group incorporated in the United Kingdom.

Trust Registration Service (TRS) 5MLD Consultation
For UK financial advisers only, not approved for use by retail customers. Click here for the consumer website For UK financial advisers only, not approved for use by retail customers. Click here for the consumer website
PruAdviser on-line services will be unavailable from 20:00 PM on Saturday 19th September until 17:55 PM on Sunday 20th September for website essential maintenance. We apologise for any inconvenience caused.

Trust Registration Service (TRS) 5MLD Consultation

Author Image The Technical Team
4 minutes read
Last updated on 19th Feb 2020

Four becomes five

Life never stands still. 

Just two and a half years ago the Fourth Money Laundering Directive (4MLD) came into effect giving rise to the Trust Registration Service (TRS). Now, regulations have been enacted bringing into force 5MLD to ensure that the UK’s anti-money laundering and counter terrorist financing regime is up-to-date, effective and proportionate.

This has a knock-on effect on the TRS as we know it, and with that in mind the Government has issued this consultation on the potential impact. Lots of tecchie detail of course, but in honour of 5MLD, here’s five fast facts covering what you need to know.

 

Remind me, what does the TRS do?

The TRS which became operational in July 2017, provides online capability for trusts (and complex estates) to comply with registration obligations and obtain a Self-Assessment reference. ‘Express trusts’ with UK tax liabilities (e.g. Income Tax, Capital Gains Tax and Inheritance Tax) are required to register whether UK or non-UK resident. 

What’s an Express trust?

It’s a trust that was deliberately created by a settlor expressly transferring property to a trustee for a valid purpose. This excludes Statutory trusts because they do not result from the clear intention of the settlor. Will this exclusion continue to apply under 5MLD? Yes.

What about Bare trusts?

Currently, bare trusts do not need to be registered. Their fate under 5MLD is unclear. The government previously set out examples of the categories of UK trusts that are likely to fall within the definition of an express trust and this included “many types of bare trusts.” In  the consultation document, the government state

“...more information is needed to ascertain the risk of bare trusts being used for money laundering or terrorist financing purposes. The government will continue to consider this...”

What is the position with a discretionary trust holding an insurance product?

For the time being, trusts which do not need to register include those where the trustees do not need to file a tax return and have not incurred a UK tax liability. A discretionary trust holding a non-income producing investment bond falls into this exclusion (assuming also no IHT liabilities). Remember however that UK resident trustees may become taxable if a chargeable event gain subsequently arises and the settlor cannot be taxed because he/she died in an earlier tax year or is non-UK resident. Therefore, if for example a bond is held in a discretionary will trust, then the trustees will need to register if a chargeable event gain occurs.

5MLD is however removing this link with taxation so that the existing TRS will be expanded to include UK express trusts (and some non-EU resident express trusts) irrespective of whether the trust has incurred a tax liability.

This is however notable in the consultation

“The use of trusts to hold life insurance policies, income protection policies or policies solely for the payment of retirement death benefits is often for estate planning purposes. Where the trust consists solely of a policy which is a pure protection policy and payment is not made until the death or terminal illness of the insured, it is proposed that these trusts will not be required to be registered on TRS...

The removal of pure protection policies from the TRS should greatly reduce the registrations and work for advisers notifying trustees.

Note that the Government want TRS obligations to be proportionate and propose not including trusts where payments to beneficiaries are predetermined, highly controlled, and are already supervised by HMRC or other regulatory bodies.

No surprise that the consultation proposes Registered pension schemes held in trust should be excluded from registration as they are already subject to regulation by either the FCA or the Pensions Regulator. There are also income tax controls on sums going into and out of the fund, and the benefits that can be provided by the funds. Pension scheme trusts that are not registered with HMRC will however be required to register on TRS.

Next steps?

Where a trust is already registered on the TRS under 4MLD, some additional information will be required in due course to fulfil the requirements of 5MLD. Although the 5MLD regulations come into force in 2020, the updated TRS system will probably not be launched until 2021 with 5MLD trust registration deadlines then starting in March 2022.

Where a newly registered trust has no liability to tax, the trustees will only need to provide information about the beneficial owners of the trust - settlors, trustees and beneficiaries - in line with 5MLD requirements.

For the time being there are no impending deadlines regarding 5MLD other than the consultation closing on 21 February.

We will keep you posted. In the meantime, our Knowledge Library contains this article which may be of interest.

Labelled Under:
Trustees

"Prudential" is a trading name of Prudential Distribution Limited. Prudential Distribution Limited is registered in Scotland. Registered Office at Craigforth, Stirling FK9 4UE. Registered number SC212640. Authorised and regulated by the Financial Conduct Authority. Prudential Distribution Limited is part of the same corporate group as the Prudential Assurance Company. The Prudential Assurance Company and Prudential Distribution Limited are direct/indirect subsidiaries of M&G plc, a company incorporated in the United Kingdom. These companies are not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America or Prudential plc, an international group incorporated in the United Kingdom.