Hundreds of thousands of trusts will be hit by sweeping new reporting rules that came into force this week as part of a money laundering crackdown, reports Financial Times.
Trustees will need to give HM Revenue & Customs a detailed picture of the assets held in a trust, as well as the identities of trustees and beneficiaries.
The government expects the extra information to “deliver a marked change” in its ability to identify the misuse of trusts, as well as giving it a wider understanding of the tax liabilities of people connected to a trust.
But advisers warned that many trustees — who may include family members as well as legal advisers — would not be prepared for the breadth of information they would be required to provide. Rachael Griffin, head of trusts at Old Mutual Wealth, a wealth management business, said: “This is another example of the administration burden placed on ‘ordinary’ trustees who may not be familiar with dealing with HMRC reporting.”
Only law enforcement agencies are set to get access to the information, but the majority of EU states are pushing to make the registers public.
The issue was reignited by the last year’s Panama Papers, the leaked documents that exposed illicit aspects of offshore finance. The proposal had previously been dropped with the help of a personal intervention by David Cameron, former prime minister, in 2013.
The UK government and the wealth management industry have argued against public access to trust registers because of concerns over privacy, human rights and data protection as well as fears it could expose vulnerable beneficiaries to potential abuse.
When France last year set up a public register of trusts, it was soon suspended following a legal challenge by an 89-year-old American woman who did not want the beneficiaries of her estate to learn the details of her intentions.
The government sees trusts, which are often used to structure inheritances, as largely a private matter. But critics say that exempting them from public disclosure will create a loophole that can be used by criminals. The One Campaign, an advocacy group, said: “Trusts provide an unparalleled degree of secrecy, allowing individuals to disguise the origin and ownership of assets while still benefiting from them.”
If the EU decided to insist on public disclosure of trusts, it is unclear whether Britain would be affected once it has left the bloc. Brussels might take Britain’s compliance with the new rules into account when evaluating what form of market access the UK financial services industry should be granted after Brexit.
The new rules introduced on Monday will catch a big range of trusts — potentially including those set up in wills — but only if they incur tax liabilities. HMRC says that 162,000 trusts made self-assessment returns for the 2014-15 tax year.
Trustees will need to update the register for each year that the trust generates a UK “tax consequence”. Graeme Robb of Prudential, the insurer, said this might underline the advantages to trustees of holding a non-income producing investment bond.
The implementation of the new register has been delayed for a few weeks. Trustees will have until October 5 this year to register new taxable trusts and until January 31 2018 to provide information on existing trusts.
Step, the professional body for trust experts, said the regulations have been “rushed through HMRC with little industry consultation, and, as a result, there has been only nominal guidance on some key issues”.