Trusts and the right to privacy – welcome news for taxpayers
In ‘olden times,’ the settlors and beneficiaries of UK and offshore trusts could generally be certain that the details of their arrangements would remain confidential.
Enter the EU
Along came yet another EU Directive to change the landscape, in the form of the EU’s Fourth Anti-Money Laundering Directive (“the MLD”). The intentions, as set out in the MLD, are clear:
“Flows of illicit money can damage the integrity, stability and reputation of the financial sector……. ……. Legal professionals, as defined by the Member States, should be subject to this Directive when participating in financial or corporate transactions, including when providing tax advice…… It is important expressly to highlight that ‘tax crimes’ relating to direct and indirect taxes are included in the broad definition of ‘criminal activity’ in this Directive…
…….. With a view to enhancing transparency in order to combat the misuse of legal entities, Member States should ensure that beneficial ownership information is stored in a central register located outside the company, in full compliance with Union law. Member States can, for that purpose, use a central database which collects beneficial ownership information, or the business register, or another central register. Member States may decide that obliged entities are responsible for filling in the register. Member States should make sure that in all cases that information is made available to competent authorities and FIUs and is provided to obliged entities when the latter take customer due diligence measures. Member States should also ensure that other persons who are able to demonstrate a legitimate interest with respect to money laundering, terrorist financing, and the associated predicate offences, such as corruption, tax crimes and fraud, are granted access to beneficial ownership information, in accordance with data protection rules. The persons who are able to demonstrate a legitimate interest should have access to information on the nature and extent of the beneficial interest held consisting of its approximate weight.”
Where we are now
The result of the MLD is that since 26 June 2017, trustees of UK trusts and of non-UK trusts with UK tax liabilities have been required to maintain accurate and up-to-date records of all the beneficial owners of the trust. They are also required to report beneficial ownership information annually to HM Revenue & Customs (HMRC) to be kept on a UK register of trusts.
Who exactly has a ‘legitimate interest’ is obviously a critical point, and it is every settlor and beneficiaries nightmare (and every tax adviser who assists them) that intimate details of their financial arrangements become public. Trustees are required to provide information on the identities of the settlors, other trustees, beneficiaries, all other natural or legal persons exercising effective control over the trust, and all other persons identified in a document or instrument relating to the trust, including a letter or memorandum of wishes.
It would that such fears are unfounded however, according to John Glen, Economic Secretary to the Treasury. Mr Glen has recently stated:
“While the register is a valuable tool for law enforcement authorities that can access information held on it, the government is opposed to granting public access to such information so as to protect individual privacy rights,” it reads.
“The provisional political agreement on these proposals gives members states the right to define who should be considered to have ‘legitimate interest’ in information held on national registers of trust beneficial ownership.
We will consider how best to consult with interested stakeholders on how this definition should be applied in the UK in view of the fact that many trusts are established for personal or family reasons.”
Given the current public attitude towards all forms of financial planning, it remains to be seen how long this very welcome right of privacy will be maintained. Watch this space…..!
Levy and Levy – the tax resolution specialists