If you are a trustee of any trust, you should take advice on your obligations under the Fifth Money Laundering Directive.
Under current anti-money laundering regulations, any express trust which incurs a UK tax liability must also register on the Trust Registration Service. This register is intended to disclose information about the trust and the underlying beneficiaries to HMRC. The government’s aim is to prevent trusts being used for the purpose of money laundering or terrorist financing, but these rules apply to even the most innocent of trusts.
Trustees failing to register are liable for penalties, whether or not they were aware of their obligations.
The new Fifth Money Laundering Directive will extend this requirement to almost all trusts and settlements, even those which have no tax liabilities or which are dormant.
This includes, amongst other things, trusts set up under wills on the first death from a married couple, such as:
- A “Nil Rate Band” trust. In this situation, it is common for the trustees to have lent the whole trust fund – which may be up to £325,000 – to the surviving spouse on an interest-free loan.
- A “Life Interest” trust holding a share in the marital home, allowing the surviving spouse to live at the property for their lifetime.
Pilot trusts created before 6 October 2020 are also required to be registered where the trust assets are greater than £100. For trusts below this, registration will be required when added funds take the trust value over this amount. There is no lower threshold for pilot trusts created on or after 6 October 2020.
These and other trusts caught by the new extended rules are required to be registered by 1 September 2022 to avoid penalties. New trusts and settlements will have 90 days from creation to register. In addition, any changes to the registered data should be updated within 90 days of the change.
Trusts in existence on 6 October 2020 but wound up before 1 September 2022 are also required to be registered.
There are exclusions for charitable trusts, pension schemes and certain insurance policy trusts, will trusts wound up within two years of the death and a limited number of other categories.