A publicly available register of all trust beneficiaries moved a step closer on 20th February 2014 when MEPs voted overwhelmingly in favour. It appears that MEPs from civil law jurisdictions regard trusts as being essentially vehicles for tax evasion or money laundering and are largely ignorant of the ways trusts are used by even moderately well-off families in the UK and other common-law jurisdictions. Not only would all beneficiaries be named, but there would be nothing to distinguish those receiving modest levels of support from multi-millionaires. Such a register has the potential to become a dangerous tool for those who might make illicit use of such information. Then there are practical problems, for instance where trusts are “for issue” or for a class of beneficiaries. They would all have to be identified so that they could be named.
Prime Minister David Cameron and Treasury Minister David Gauke have previously suggested that they would not welcome a public registry of trust beneficiaries, because trusts are used for purely private purposes far more under UK common law than they are in civil-law jurisdictions. In a House of Lords debate earlier this month Treasury spokesman Lord Newby stated that the government would welcome a mandatory public central register of company beneficial ownership (equivalent to the UK’s Companies House), but not of trusts in general:
“We want to ensure that, as far as possible, information about trusts that could be problematic for money-laundering purposes will be more generally available. Our proposals would do that in respect of the UK without having a full mandatory register in the same way as we propose for companies.”
“the government opposes the mandatory registration requirement for trusts [which] unlike companies are used for a range of purposes, such as benevolence, inheritance, protecting vulnerable people and family support. As such, the implications for privacy are far greater, and trusts therefore warrant different treatment… We consider registration of trusts to be a disproportionate approach and, in particular, one which undermines the common-law basis of trusts in the UK.”
The Treasury is currently in negotiations with the EU Council presidency and other member states to reach a compromise that would limit the scope of obligations on trusts to those holding financial assets (i.e. not those holding, or mainly holding land), which the UK would satisfy through existing reporting obligations for trusts holding financial assets, domestic reporting requirements and automatic exchange of tax information agreements. It is hoped that Will trusts can also be excluded.
The proposal will go to the Council of Ministers later this year where the UK will try to have the clauses containing the specific proposals removed or amended. However, the size of the majority by which it passed in the European Parliament makes it politically difficult for the UK, particularly given that it will be decided in the Council by qualified-majority voting.
If you would like to know more about how the proposal might affect trust arrangements, please speak with Druces LLP’s Private Client team.