Trust and Estate Reporting – Trustee compliance considerations


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Throughout the past few years, there has been an influx of new legislation which requires trustees to report certain information to various governing bodies in the UK and overseas.  The drives behind the changes are primarily to improve international tax transparency, obtain a clearer understanding of financial assets held abroad and reduce money laundering.

For trustees, the legislation has meant an increased burden of administration that can be burdensome and complex.

The Trust and Complex Estate Registration Service (TRS)

Trusts

Last year, HMRC launched the TRS with a view to providing a single point of access for trustees and their agents to register and update records online. Historically, trusts were registered using a paper form 41G which has become obsolete being replaced by the TRS which also provides more information about the trust. This is now the only way of obtaining a Unique Tax Reference (UTR) number to be used when submitting annual tax returns. The TRS applies to UK express trusts or a non-UK express trust which receives UK source income.

A new trust will require registration by the 5th October if it has incurred a UK tax liability in the preceding tax year. The UK taxes triggering registration are: income tax, capital gains tax, inheritance tax, stamp duty land tax, stamp duty reserve tax and land and buildings transaction tax (Scotland). Existing trusts should have been registered by 5th March 2018 and will be required to pay a penalty if registered after this date. The TRS requires details of trust assets, settlor(s), trustee(s), any person with effective control over the trust and the beneficiaries or class of beneficiaries.

Estates

The Estates Register was launched at the same time as the Trust Register forming part of the TRS providing a single point of access for personal representatives and their agents. An estate is considered complex and thus required to be registered if: the value of the estate exceeds £2.5 million, tax due for the whole administration period exceeds £10,000 or the value of assets sold in any tax year exceeds £250,000 (for deaths up to April 2016) or £500,000 (for deaths after April 2016).

The Estates Register calls for: the name or title of the estate, personal representative details and information about the deceased. The TRS will then issue the estate with a UTR number and request that tax returns are submitted for the period of administration.

The Foreign Account Tax Compliance Act (FATCA)

The tax authorities of the United States introduced FATCA to improve international tax compliance and reduce tax evasion by their citizens. It was implemented from 1st July 2014 and UK trustees must ensure that they adhere to the guidelines.

If a trust is resident in the UK and not for a charitable purpose then trustees ought to consider whether their trust should be registered for FATCA. If more that 50% of the trusts income is attributable to investing, reinvesting or trading in financial assets and it is managed by an entity carrying on business in the UK where more than 50% of gross income is attributable to trading in money markets instruments, portfolio management or the investment and administration of funds the trust is considered to be a Financial Institution (FI). The trustees of FIs are required to register the trust on a central database with the American Internal Revenue Service (IRS) to comply with FATCA. Alternatively, the trust could be registered by a third party known as the "owner-documented approach" (a common example of this would be a stockbroker holding a trust portfolio of stocks and shares) but this service is not always available and it is the trustees' duty to ensure that the trust is compliant. When a trust has been registered, it is supplied with a Global Intermediary Identification Number (GIIN) number which is a code which may be requested by third parties or HMRC and used if a FATCA return is required.

There are many situations where trusts are deemed to be a Non-Financial Foreign entity and thus do not require registration but it is important that trustees check this. The FATCA legislation is vast and there are many unique definitions of terminology resulting in trustees requiring legal assistance. If a trust is deemed to be reportable under FATCA then the trustees will be required to complete FATCA returns by 31st May of the year following the calendar year to which it relates.

The Common Reporting Standard (CRS)

The CRS is a group of some one hundred countries (including the UK and all EU member states) who have agreed to exchange information to enable tax authorities to understand the extent of financial assets held abroad by their residents.

The bare bones of the reporting requirements and establishing whether is trust is an FI are very similar to that described above for FATCA. CRS also applies to FIs. , Generally speaking, if a trust is an FI for FATCA it will also be an FI for the purposes of CRS, although many of the definitions differ between FATCA and CRS., including the definition of a FI.. A trustee may be required to report under CRS as well as under FATCA depending on the nature of the trust and residency of the beneficiaries.

Once it is established that a trust is an FI for CRS purposes, it is then important to determine whether the trust is resident in one of the participating CRS countries. If the trust is not resident in one of these, it will not require registration by the trustees. It is important to note that residency is determined by that of the trustee(s) and is satisfied if only one trustee is resident in a participating jurisdiction. If reportable persons are solely resident in the UK, there is no requirement to report for CRS.

Under CRS FIs must gather and report information in relation to the financial accounts they maintain. Discretionary beneficiaries will be reportable account holders of an FI if they receive a distribution in an accounting year. The deadline for CRS is 31st May in the year following the calendar year to which it relates.

Markets and Financial Instruments and Directive Part II (MiFID) The above Directive predominantly controls the regulatory framework in the financial sector. However, this has introduced a requirement which has impacted upon private trusts from 3rd January 2018. If a trust holds assets that are registered on the London Stock Exchange, the trust will now be required to obtain a Legal Entity Identifier (LEI) which is essentially a code enabling trades on the stock market.

Without this code, third parties cannot trade on behalf of the trust.. If the trust assets are managed by a stock broker, the majority of stock brokers will obtain the LEI on behalf of the trust. However, if thethe intermediary cannot or will not do so, Trowers and Hamlins are able to assist the trustees in this regard.

How we can help

With a political climate where there is a move to the sharing of information between jurisdictions and complex issues regarding compliance it is essential that trustees take steps to make appropriate declarations to the relevant authorities. Failure to do so can mean unwelcome attention from the regulatory bodies, increased expense and the possibility of penalties, fines and interest.

The Private Wealth Team at Trowers and Hamlins are well placed to advise institutions, professional advisers and trustees in respect of their compliance related duties in order to ensure the smooth running of trust affairs.

This article is taken from Private Wealth newsletter - December 2018

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