News: UK sets new conditions for data disclosure on trusts

Before we tell you in this article about upcoming innovations. I would like to add a few words about what the system of trusts is, about its advantages and why it is needed.

A trust, as a rule, is created for a certain time ( although indefinite options are possible, for example, for life, until the death of the founder). After it expires, the property is distributed as specified in the trust agreement (for example, it is returned to the founder or transferred to the beneficiaries).

Trusts are used for:

1.transfer of inheritance (no need to pay inheritance tax, information about the participants in the trust and their names may not be disclosed);
2.preservation of property from waste (inability to manage money) - to provide income and capital to beneficiaries (for example, the children of the founder, in the event of his death) until they reach a certain age;
3.joint ownership of property that is difficult to divide;
4.charity;
5.payment of corporate pensions;
6.hiding property and receiving benefits, reducing the tax rate, avoiding creditors (formally, the property no longer belongs to the founder).

Trust property (or trust - from the English trust) in common law is a system of relations in which property originally owned by the founder is transferred to the disposal of the trustee (manager or trustee), but the beneficiaries (beneficiaries) receive income from it. The founder (who may at the same time be the beneficiary) under a special agreement transfers the values belonging to him under the control of the trustee, who is obliged to perform operations with them that bring the maximum profit to the beneficiaries or comply with other instructions of the founder.
The services of a trustee are paid by the beneficiaries or the settlor of the trust, usually as a percentage of the profits received.

The object of trust property can be any property, both movable and immovable. Only property expressly prohibited by the legislation of the country where the trust was established is excluded from these relations.

As mentioned earlier, the founder has the right to transfer his property both during his lifetime (lifetime trust), and provide for such a transfer after his death (testamentary trust). The trustee is responsible for fulfilling the terms of the trust agreement and, as a rule, receives broad powers to manage the property of the settlor, but may also receive special instructions on the distribution of trust income and capital among the beneficiaries upon the occurrence of certain conditions, which are obviously provided by the settlor. Such conditions, as a rule, are included by the founder in the so-called letter of wishes (English letter of wishes), addressed to the trustee. The founder also has the right to provide for the conditions for replacing the trustee, to stipulate the issue of transferring this right to another person or authorized person.

More recently, HMRC has published details of its policy for responding to third party requests for information held by the Trust Registration Service (TRS) under the Trust Data Request System, which will become effective September 1, 2022.

Consequently, the obligation for taxable trusts to register with the TRS online service was introduced by the Fourth EU Anti-Money Laundering Directive (4AMLD), and in 2021 the Fifth Directive (5AMLD) extended it to all trust deeds. The registration deadline for trusts has been extended to September 1, 2022, and the period within which trusts must inform HMRC of changes to the information contained in the Register is now 90 days.

The Fifth Directive also requires the Registry of Trusts to be publicly available, but the UK has a strict regime whereby requests must be scrutinized before they can be granted.

HMRC will only release data if the requester proves a legitimate interest. This means that the request must be related to a specific case of money laundering or terrorist financing in relation to a specific trust, and the information from the Registry that is the subject of the request will facilitate the investigation.

Legitimate interest is not properly identified if the information provided by the requester does not give sufficient grounds for suspicion of money laundering or terrorist financing in relation to the specific trust under which the request was made.

It is also important to know that, as a possibility, a request can be made under the offshore company rule if the trust owns a controlling interest in a company or other legal entity in a third country.

As a reminder, a controlling stake is usually considered to be when the trust owns more than 50% of the shares of the company or can control it in some other way.

However, if the TRS records do not show a controlling interest in an offshore company, HMRC will not disclose the information to the Registry.

In the event that the request is granted, the disclosures will be limited to beneficiaries who are associated with the trust. For individuals, this may be the name, month and year of birth, country of residence, citizenship and position in the trust. For companies and other legal entities, the information will be limited to the name, office address and role in the trust agreement.

Disclosure will also be denied if the trust is of an excluded type.

These include trusts with unexpressed taxation. Further, trusts that are excluded from registration and fixed because they are subject to taxation in the UK. Also trusts that are not resident in the country, without trustees, who are there only because they own land or property.

Including, HMRC will not discover information about specific individuals if they are subject to exceptions, such as those under 18 years of age or incapacitated, or if disclosure would create a disproportionate risk of fraud, kidnapping, blackmail, extortion, harassment, violence, or intimidation.

Thus, asset protection is a service aimed at preserving wealth from political and business risks associated with the activities of a particular individual, as well as from problems that may arise for members of his family in the context of this activity. Such protection can be provided by such legal structures as trusts and the correct transfer of the client's assets into them. An offshore trust is ideal for holding and protecting assets, but is not intended for ongoing commercial transactions.

Law&Trust international offers an individual approach to creating a turnkey trust. To obtain all the necessary information, please contact our managers. The vast experience of the company's lawyers and a professional integrated approach will save you from unnecessary costs and rash decisions!