The Government initiated a consultation on December 27th to explore the transparency of land ownership associated with trusts, based on three fundamental principles:
1. Public interest and land ownership transparency
2. Supporting a public-friendly housing market
3. Tackling illicit finance and corruption
With over 16 years’ experience as a Private Client Lawyer, Tracey Neuman – Private Client Executive, provides a comprehensive exploration of the complexities and implications embedded in the proposed changes.
“These principles, while broad in scope, prompt a crucial consideration: the disclosure of additional information about trusts and its potential to further these objectives. The consultation diverges from a focus on information availability to law enforcement and HMRC, instead proposing the public disclosure of this information. This is noteworthy, especially in light of the European ruling against publicly available beneficial ownership registers, and the Crown Dependencies' commitment to maintaining the privacy of such registers.
Moreover, the consultation confirms the introduction of regulations giving public access to trust information on the Register of Overseas Entities (ROE). Notably, it is proposed that individuals seeking information won’t need to prove a public or legitimate interest, except in cases involving multiple trusts. In this case, the applicant will be required to provide evidence of the legitimate interest. The entities will be given a period of time to apply to Companies House for the trust information to be protected, prior to the new regime coming into force. It is proposed that the existing protection regime will be extended for trust beneficiaries only, so that it is wider than the current risk of harm or violence and may include protections for minors and vulnerable people, however there is no guarantee, and the current rules are very restrictive.
Despite these significant changes to the ROE, the consultation contemplates even further steps, such as default public publication of trust details. This proposal is defended by the argument that it aids in identifying rogue landlords and holding high-rise building developers accountable. However, it overlooks the limited influence beneficiaries typically have over trustees' actions, particularly in discretionary trusts where beneficiaries may not even be aware of their status.
An alternative proposal suggests publishing details of beneficiaries receiving benefits, but this overlooks complexities like sub-funds for different beneficiary groups. The ensuing burden and potential inadvertent non-compliance make this option less workable.
To gain a comprehensive understanding, it's crucial to evaluate existing avenues for information retrieval. Property titles, when held in a trust, should carry a restriction indicating the fact. Concerned parties can approach the trustees about their issues in the same way as other owners. The scenario is more nuanced when trustees act as nominees, potentially necessitating beneficiary’s details for effective issue resolution.
In cases where trustees act as nominees, seeking guidance from beneficiaries on issue resolution is essential. Currently, beneficiary details are only disclosed if the trust has to pay UK tax or acquired UK land after 5 October 2020. Requiring registration for all trusts owning UK land could address the matter effectively.
Currently, access to the trust register is confined to those with a "legitimate interest,” which is defined as a demonstrable suspicion of money laundering or terrorist financing. Expanding this definition to cover property occupants might offer a balanced solution without necessitating wholesale public disclosure.
The scenario is more complex when a property is owned by an entity linked to a trust, as often seen with developers. For non-UK entities, the ROE requires public disclosure of registerable beneficial owners. These owners are typically the controllers of the entity, which raises the question as to the benefit of making trust information public. Although it may seem a moot point, given the imminent extension of ROE to include beneficiaries of nominee arrangements as registrable beneficial owners and the new regulations discussed above.
A crucial distinction arises with UK entities. They are required to maintain a Persons with Significant Control Register (PSC Register). Despite the initial alignment of the ROE with PSC Register requirements, the ROE has evolved with more extensive disclosure demands, leaving the PSC Register trailing. Currently, trust beneficiaries' details are not required for the PSC Register, and no imminent change is indicated, except for this consultation. For consistency, treating UK and non-UK entities alike and restricting access to trust beneficiary information based on a demonstrated "legitimate interest" seems a reasonable approach, avoiding unjustifiable further intrusion, particularly if the definition is extended as I suggest.
The consultation also proposes greater disclosure for non-UK trusts. Having witnessed the evolution of these rules and worked extensively with both UJ and non-UK trusts, I would argue that non-UK trusts often demonstrate superior management and regulation, largely as a result of the reduction in non-UK trusts, driven by increased compliance costs and legislative changes. Conversely, many UK trusts have lay trustees, who are potentially unaware of heightened regulatory demands. I can see no apparent justification for preferential treatment of UK trusts.
Considering government agencies' existing access to trust information related to UK property ownership, a cautious approach is warranted in expanding public domain details. Simple modifications proposed earlier should effectively address the Government's outlined principles, achieving a better balance with individuals' right to privacy.”
How can Ocorian help in the structuring of trusts?
Whilst much has been made on the level of publicly available information in the UK, it may still be possible to maintain a degree of privacy for settlors and beneficiaries, if their UK investments are structured appropriately which Ocorian is happy to assist on.
Ocorian’s dedicated trust team will guide you through the process of setting up the right structure and provide ongoing administration services for all types of trusts and companies, to manage your wealth in the most effective way for you.
If you have any further questions on understanding UK beneficial ownership registers or our trust services, please contact a member of our private client team.