What is the Fifth EU Money Laundering Directive and how will this impact my clients?

The Fifth EU Money Laundering Directive (5MLD) is to be implemented by January 2020 into UK law. Although the UK has committed to leaving the EU it still intends to implement the directive.

The Fourth EU Money Laundering Directive (4MLD) was the reason for HMRC introducing the Trust Registration Service which broadly requires all trusts with tax liabilities to register with HMRC.

The new Directive will bring into its scope all UK express trusts not just those with UK tax implications and also non-EU resident trusts which own UK land or property or which have a “business relationship” with an entity in the UK such as solicitors, accountant or bank.

The term ‘express trust’ means a trust that was expressly/deliberately created by a settlor as opposed to being set up through a court order. The onus will be on the trustees and their agents to determine whether the trust is an express trust or not. The government has issued examples of the categories of UK trusts likely to have to register to include discretionary trusts, interest in possession trusts, many types of bare trusts, charitable trusts and employee ownership trusts.

Public access will also be available to the trust register to anyone who has a legitimate interest. There is no de minimis thresholds or exemptions provided.

For unregistered trusts already in existence on 10 March 2020 the proposed by government deadline for registration is 31 March 2021. For trusts created on or after 1 April 2020 the government is proposing that they trust should be registered within 30 days of its creation and this 30 day deadline is also to be used for any amendments to be made to the TRS data once the availability to do so is there.

The practical difficulty for agents will be in helping their clients identify the trusts they are involved in that the trustees will have to register for the first time. For example life policies written in trust, trusts owning a single property where the beneficiary lives, etc. Many clients will not have advised their agent of their interest in such trusts if no tax liabilities have previously arisen.

More detailed guidance can be found here.  https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/795670/20190415_Consultation_on_the_Transposition_of_5MLD__web.pdf

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