www.blplaw.com/private-wealth 01 11 October 2017

Executive summary

If you are a trustee of a non-UK trust which is subject toUK tax, you will have to keep a register of beneficial

owners and provide this information to the UK Revenueunder rules which came into force on 26 June 2017. Herewe summarise the rules and how they work in practice.

UK REGISTER OF BENEFICIAL OWNERSHIP OF TRUSTS:IMPACT ON NON-UK RESIDENT TRUSTS

Rules in force from 26 June 2017

From 26 June 2017, UK resident trusts, and non-UK residenttrusts which are liable to UK tax, must maintain a register of‘beneficial owners’ and provide the UK Revenue (HMRC)with specified information on the trust and the beneficialowners following any UK tax year in which the trust is liableto pay UK tax.

WHICH NON-UK RESIDENT TRUSTS ARE CAUGHT?

A non-UK resident trust must maintain a register ofbeneficial owners and register with, and provide informationto, HMRC if the trust:

receives UK source income; or

holds UK assets

on which the trust is liable to UK income tax, capital gainstax (CGT), inheritance tax (IHT), stamp duty land tax(SDLT) or stamp duty reserve tax (SDRT).

Non-UK trust holding UK assets directly

The trustees of a non-UK resident discretionary trustwhich holds UK assets directly will be liable to UK IHT onthose assets and must keep a register of beneficialowners and register with and report to HMRC. This is thecase regardless of the settlor’s domicile status when thetrust was created.

The trustees must maintain an accurate and up-to-dateregister of beneficial owners at all times - but will onlyhave to register with HMRC and file information on thetrust and the beneficial owners with HMRC when thetrustees incur a liability to one of the specified UK taxes.

Example 1

A non-UK resident trust created on 16 September 2007holds non-income producing UK assets directly (e.g. UKresidential property which is not let). The trust is liable toIHT on the UK assets on the first 10 year anniversary ofthe trust on 16 September 2017 (i.e. in 2017/2018). Thetrustees must create an internal trust register now andmust register with HMRC and file the required informationby 31 January 2019.

If the trust has no further UK tax liability until the next 10year anniversary in 2027/2028 the trustees do not have tofile any further information with HMRC or update theinformation held by HMRC until 31 January 2029.However, if the beneficial owner information changes thetrustees can, on a voluntary basis, make changes to theinformation that has been provided to HMRC, includingremoving details of a person who is no longer a beneficiaryof the trust.

Example 2

A non-UK resident trust holds income-producing UK assets.If the trust is already registered with HMRC for self-assessment and has a UK income tax liability in 2016/2017the trust will need to register with HMRC through the new‘Trusts Registration Service’ by 31 January 2018. Thetrustees will need to update the information held by HMRC(or confirm there have been no changes) by 31 Januaryfollowing each tax year in which the trust incurs a liabilityto one of the specified UK taxes.

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Non-UK trust holding UK assets through a non-UK company

A non-UK resident trust which holds UK assets (even UKresidential property) through a non-UK company doesnot have to maintain a register of beneficial owners orregister with or report to HMRC. Although the companyholds UK assets and may receive UK income on which itis subject to UK tax (e.g. if it receives rental income fromUK property) the trustees do not receive UK sourceincome or hold any UK assets on which they are liable toUK tax. This is the case regardless of the settlor’sdomicile status when the trust was created.

The government is (separately) proposing that foreigncompanies that hold, or wish to buy, land in England orWales be required to provide information on theirbeneficial ownership.

WHO MUST THE TRUSTEES KEEP DETAILS OF?

The trustees must keep information on the following‘beneficial owners’:

settlor (even if the settlor is dead)

trustees

beneficiaries named in the trust

where there is a class of beneficiaries, any individualwithin the class that has received a benefit and so beenidentified as an actual beneficiary

any individual who has ‘control’ over the trust.

An individual will be treated as having ‘control’ over thetrust if, for example, he has power to add or removebeneficiaries, or appoint or remove trustees, or power towithhold consent to or veto trust distributions oramendments to the trust.

Letter of wishes

The trustees must also include on the register details of anyindividual referred to as a potential beneficiary in a letter ofwishes or similar document from the settlor. An attendancenote made by a solicitor is not a ‘document from thesettlor’.

WHAT INFORMATION ON BENEFICIAL OWNERSMUST THE TRUSTEES KEEP A RECORD OF?

The following information on every beneficial owner (andany individual referred to as a potential beneficiary in aletter of wishes or similar document from the settlor) mustbe recorded and kept up-to-date:

full name and date of birth

national insurance number or unique taxpayer reference,or if he doesn’t have one his usual residential address. If

the individual’s usual residential address is not in the UKthe individual’s passport or identity card number,together with the country of issue and the expiry datemust be recorded

nature of the individual’s relationship to trust - e.g.settlor, beneficiary.

There is no prescribed format for the beneficial ownerregister, but it must be in writing.

WHEN MUST TRUSTEES REGISTER WITH HMRC?

New trusts and existing trusts that incur an UK income taxor CGT liability for the first time must register with HMRC by5 October following the end of the tax year in which theliability arose (this deadline is extended to 5 December 2017for 2016/2017). For all other trusts the registration deadlineis 31 January following the end of the tax year in which aUK tax liability arose.

Once a trust has been registered with HMRC, trustees onlyhave to update the information on the register held byHMRC, or confirm there is no change to the information, by31 January following the end of a tax year in which thetrustees are liable to pay one of the specified UK taxes.

WHAT INFORMATION MUST TRUSTEES FILE WITHHMRC?

If the trustees are required to register with HMRC and filebeneficial owner information, they must provide HMRC withthe following information:

information in relation to the trust, including:

- the name of the trust and the date it was established

- a statement of account of the trust assets

- where the trust is tax resident and administered

- the name of any advisers being paid to provide legal,financial or tax advice in relation to the trust

information in relation to each beneficial owner/potentialbeneficiary.

WHAT ARE THE PENALTIES FOR FAILING TOCOMPLY?

HMRC can impose a penalty on, and publish a statementabout, trustees who fail to comply with their obligations.Trustees will also be guilty of a criminal offence, punishableby imprisonment for up to 2 years or an unlimited fine (orboth).

WHAT SHOULD SETTLORS AND TRUSTEES DO?

Trustees will need to obtain information on all beneficialowners. This could result in individuals becoming aware of atrust which they previously did not know existed.

A settlor might consider:

avoiding naming individual beneficiaries other than theprincipal beneficiaries

referring to default beneficiaries (who are unlikely to everactually benefit) by class rather than by name

not providing the trustees with a written note of wishesduring his lifetime (as his wishes are likely to changeover time).

Trustees should ensure any letter of wishes they have is up-to-date and does not refer to anyone who it is no longerintended should benefit from the trust.

The trust deed includes the following definition:

Beneficiaries means: (i) Abigail Smith, (ii) Ben Smith,and (iii) their children and grandchildren

Abigail Smith and Ben Smith should be included on theregister, as they are named as beneficiaries in the trust.

The children and grandchildren of Abigail Smith and BenSmith should be recorded as a class. Only when aparticular child or grandchild receives a benefit, will thatchild/grandchild have to be included on the register.

www.blplaw.com/private-wealth 03

CASE STUDY

TRACEY HAWKSLEY

Associate DirectorPrivate Client

Tel: +44 (0)20 3400 4287tracey.hawksley@blplaw.com

SIMON PHELPS

PartnerPrivate Client

Tel: +44 (0)20 3400 2286simon.phelps@blplaw.com

DAMIAN BLOOM

Partner, Head of Private ClientPrivate Client

Tel: +44 (0)20 3400 2262damian.bloom@blplaw.com

This note is a general guide only and is not a substitute for specific legal and tax advice

BENEFICIARIES

Abigail Smith Ben Smith Mr Smith’s Cassie Smith children children of above spouses, widows/widowers of

above

SETTLOR

Mr Smith

TRUSTEES

Mr Roberts Mr Stone Mrs Turner

Trust

RESERVED POWERS

Mrs Smith – has power to consent toor veto: the addition of beneficiaries capital distributions

Who must the trustees keep details of?

The trustees will need to keep accurate and up-to-date information on:

all the trustees

Mr Smith – as the settlor (even if he is dead)

Mrs Smith – as she is treated as having control over the trust

Oversight Ltd and any ‘person with significant control’ in relation to Oversight Ltd – as Oversight Ltd is treated as havingcontrol over the trust

Abigail, Ben and Cassie Smith – as named beneficiaries

David and Emma (Mr Smith’s niece and nephew) – as they are named in the letter of wishes from the settlor as potentialbeneficiaries.

The trustees will also need to record a description of the classes of beneficiaries specified in the trust. If any individual withina class receives a benefit from the trust details of that individual will then have to be recorded on the trust register as theywill have been ‘identified’ as a beneficiary.

PROTECTOR

Oversight Ltd (UK trust company) -has power to remove and appoint trustees to consent to or veto changes to

trust deed

Letter of wishes states: if all Mr Smith’s children and

grandchildren are deceasedtrustees should consider addinghis sister’s children, David andEmma, as beneficiaries anddistributing trust fund to them

Mr Smith’s brother, Frank, andFrank’s children and grandchildrenare not to receive anything underany circumstances

11 October 2017

SAM CARVER

Associate DirectorPrivate Client

Tel: +44 (0)20 3400 4212sam.carver@blplaw.com

EXPERTISE

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> Succession planning, wills & probate > Tax planning, disputes and compliance

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