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            Update on Fifth Money Laundering Directive (MLD5)

            This note provides an update following the further consultation paper on the Fifth Money Laundering Directive (5MLD) that was published on 24th January 2020 by HMRC. 

            Date: 14/02/2020

            Introduction

            This note provides an update following the further consultation paper on the Fifth Money Laundering Directive (5MLD) that was published on 24th January 2020 by HMRC. This note looks at the impact on trustees in the UK, their reporting obligations and the Trust Registration Service (TRS).

            In brief, it seems trusts of land, personal injury trusts, life insurance policy trusts and charitable trusts will not be required to register on the TRS, which is welcome news.

            Update on 5MLD

            The consultation paper confirms that all trusts that are included 'in the scope' of 5MLD will be required to be registered on the TRS. Any trust that is deemed to be 'outside of the scope' but subsequently becomes a tax paying trust will also be required to register on the TRS.
             
            Trusts that are deemed out of scope

            The following trusts are deemed out of scope of TRS registration and, according to the consultation paper, do not meet the intention of the 5MLD. This is judged on dis-proportionality and the low risk of the trust being used for money laundering or terrorist financial activity. If a regulator already regulates a trust, it is not likely to be required for trust registration as the regulator ensures the trust remains low risk for money laundering or terrorist financial activity. If the risk of the trust is considered high than it will be included in the scope of those trusts required for registration.

            The trusts 'outside of the scope' are:

            • statutory trusts including trusts of land;

            • statutory trusts on intestacy;

            • joint ownership trusts;

            • protective trusts;

            • other trusts - i.e. two or more people co-own a bank account / shareholding with concurrent interests; 

            • some express trusts:

            a) personal injury trusts;

            b) vulnerable beneficiary trusts;

            c) maintenance fund trusts for historic buildings;

            d) profit sharing schemes and approved share option schemes;

            • life insurance policies / income protection policies / retirement death benefits;
            • pension schemes other than those that are not registered with HMRC / Pension Schemes Online / Manage and Register Pension Schemes; and
            • charitable trusts

            Whilst the above list is helpful, we await further confirmation from the government in respect of bare trusts and pilot trusts and whether they will be within the scope of registration.

            Deadlines for registration 


            The regulations will come into force in 2020 and it is expected that TRS will be ready for these trusts to register in 2021.

            The government proposes the following:

            • For  trusts in existence at 10 March 2020 – these must be registered by 10 March 2022;
            • For trusts set up after 10 March 2020 – these must be registered within 30 days or by 10 March 2022 whichever is the later;
            • For trusts that are set up on or after 10 March 2022 will have 30 days to register;
            • Once the trust has been registered on the new system trustees will have 30 days to update the details in respect of any changes; and
            • All trusts that incur a tax liability for the first time up until 10 March 2022 should register on TRS under 4MLD in any event.

            Penalty Regime 

            Two administrative offences are set out in the proposed Directive. These relate to the TRS and are:

            1. failure to register on time; and 
            2. failure to keep the trust register / records up to date and correct.

            The government has proposed the following penalties:

            1. A notification (nudge letter) would be sent to the trustee (s) for the offence of failure to register rather than a financial penalty. The letter would set out their responsibilities;
            2. For the first offence of the failure to update details within the time limit there would be no financial penalty, but a notification would be sent to the trustee reminding them of their obligations and the time limit for updating the register; and
            3. For a second and each subsequent offence of a failure to update details within the time limit, there would be a proposed set penalty of £100 per offence.
            The above proposals are subject to change when trustee(s) have failed to register the trust deliberately rather than because of genuine mistake through lack of awareness. An appeals process will be set up for any reasonable excuse for non-compliance with the TRS.

            Consultation response deadline


            The government's proposals are ongoing but they have advised that any responses to the consultation are due by the deadline of 21 February 2020. The contact details are: 

            Assets & Residence Policy Team 
            HM Revenue and Customs 
            Room 3C/03 
            100 Parliament Street 
            London 
            SW1A 2BQ 

            Or by email to: asres.consult@hmrc.gov.uk

            DWF Law LLP
            February 2020

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