Last year in the UK the Money Laundering, Terrorist Financing and Transfer of Funds Regulations legislation was passed.
Last year in the UK the Money Laundering, Terrorist Financing and Transfer of Funds Regulations legislation was passed. Now, with a scintillating name like that, it is quite likely that the legislation failed to create a blip on your radar. What’s Terrorist Financing got to do with us Kiwis?
Well, these UK Regulations have an extra-territorial reach. If you have set up a Trust and have beneficiaries living in the UK (your daughter or son or grandchildren perhaps), then your Trust is in the spotlight.
The UK taxation office, the HMRC, wields the spotlight.
- Any trust (even a New Zealand Trust) will have a reporting obligation to the UK tax office, every tax year, in which the trustee is liable to pay any of the following taxes in the UK: income tax, capital gains tax, inheritance tax (IHT), stamp duty reserve tax (SDRT), and stamp duty land tax (SDLT).
- If you have UK shares or other UK investments held by your Trust, (and many of our clients have these in the portfolio), the income in the form of UK dividends may be taxable to non-resident trustees if the trust has one or more UK resident beneficiaries. So it’s the combination of UK investments in a trust and UK resident beneficiaries or trustees that creates the issue. If the above applies, then the trustees are required to register the Trust and disclose the following Information on an online portal:
- Name, address, passport number, and date of birth of the settlor, all current beneficiaries, and all “controlling persons”;
- Details of the trust’s worldwide assets including current market values.
Just when trustees thought they were operating their trusts correctly, now international legislation is creating increased compliance. If the UK Regulations affect you there are several options to avoid the need to register your Trust there:
- Sell all UK investments; or
- Remove UK resident beneficiaries from the Trust and amend Wills for their inheritance; or
- Transfer all your investments into a personal portfolio and consider winding up your trust.
The second two options would involve work for your solicitor and/ or accountant. If you wish to retain your Trust as it is, we recommend the first option - selling all UK investments. It is the quickest option and from an investment point of view, it is also a good time to sell these and rebalance the portfolio. Most of the UK denominated investments have enjoyed greater than expected returns over the past year.
We don‘t forecast things getting any simpler in the future for Trusts. These types of long-distance regulation will only become more complex over time. Trusts with US citizens involved already have tax filing obligations. How long before Australia imposes their own similar track and trace regulations?
A Trust may still be useful in the context of your overall business, financial and family situation but now is a good time to reconsider the pros and cons. Please call us for a preliminary discussion and you will then need to talk to your lawyer and accountant. We don‘t forecast things getting any simpler in the future for Trusts. These types of long-distance regulation will only become more complex over time.