Trust structures holding UK real estate: Reporting requirements under the Trust Registration Service and Register of Overseas Entities
Since the UK’s implementation of the Fourth Money Laundering Directive, trusts which have incurred a UK tax charge have been required to register on HMRC’s Trust Registration Service (TRS) and provide details of their beneficial owners. The scope of the TRS was subsequently expanded under the Fifth Money Laundering Directive, with the effect that certain trusts which are not taxable in the UK must also now register.
The TRS has now been supplemented by a public register of non-UK incorporated entities owning UK real estate. The introduction of such a register was first announced back in March 2016, but legislative implementation never seemed to be high on the political agenda. That was until this year, when the Economic Crime (Transparency and Enforcement) Act 2022 (the Act) was suddenly fast-tracked through Parliament, receiving Royal Assent on 15 March 2022.
Parts 2 and 3 of the Act concern unexplained wealth orders and sanctions regimes, further information on which can be found here. However, Part 1 of the Act establishes the register of overseas entities (the ROE) and requires non-UK incorporated legal entities which are registered owners of real estate in the UK to register and provide information regarding their beneficial owners.
Proposals for further reporting are also set out in Part 9 of the Levelling-up and Regeneration Bill, under which regulations would be introduced requiring the identification of persons who own relevant interests or rights in land, or have the ability to control or influence those who do (including through a company, partnership, trust or similar legal structure or arrangement). However, the Bill is still in the early stages of passage and the regulations are yet to be published, so it is not possible to comment on their scope and effectiveness at the time of writing.
This note focuses on the registration requirements for trust structures holding UK real estate and reporting requirements under the TRS and ROE. For completeness, this note also touches on reporting obligations under the Persons with Significant Control (PSC) regime, which generally applies to UK incorporated companies.
In particular, three scenarios will be examined:
- Scenario A: Direct ownership by a trust
- Scenario B: Ownership by a company held by a trust
- Scenario C: Ownership by a nominee company holding for a trust
The position in relation to these scenarios is summarised at a table at the end of the note. In some cases, there is a dual reporting requirement - a legal entity within the structure is required to register on the ROE (or under the PSC regime) and at the same time, a trust arrangement which forms part of the structure needs to registered on the TRS. In other cases, registration is required under just one of these regimes, or is not required at all.
There will of course be a variety of other structures for the ownership of UK real estate. Specific advice is always recommended in such cases.
The ROE: what overseas entities need to register?
The registration requirement for the ROE is limited to “overseas entities”, defined as legal entities governed by the law of a country or territory outside of the UK. The term “legal entity” is itself defined, as a body corporate, partnership or other entity that (in each case) is a legal person under the law by which it is governed. It follows from this that in no circumstances are individuals subject to a registration requirement for the ROE (although individuals acting as trustees may be subject to registration requirements for the TRS).
There is no registration requirement under the Act unless the overseas entity is an existing registered proprietor of, or is proposing to become a registered proprietor of, a “qualifying estate”. In England and Wales, this is defined as a freehold estate or leasehold estate for a term of more than 7 years. Generally, overseas entities that are already the registered proprietor of a qualifying estate will be required to register. An exception applies to overseas entities that have held a qualifying estate since 31 December 1998 or earlier. Different rules apply to property in Scotland and Northern Ireland.
For overseas entities that are subject to a registration requirement in respect of an existing qualifying estate, a restriction will be entered on the title register, preventing a disposition of the land unless the entity registers on the ROE. An offence will be committed if after six months of Part 1 of the Act coming into force (such date still to be confirmed), the entity has not made an application to register, potentially subjecting it and its officers to a fine or imprisonment.
For overseas entities effecting disposals of qualifying estates between 28 February 2022 and the end of this period, an application to register will be required, even if a restriction has not been entered. Failure to comply will result in a daily fine of up to £2,500.
Going forward, overseas entities will need to be registered on the ROE before they can acquire a qualifying estate. HM Land Registry will not register a transfer of a qualifying estate to an overseas entity that has to register on the ROE.
The ROE: what information needs to be provided?
If a registration requirement exists, an application must be made to the registrar with information on the entity such as its name, address and other basic details.
The application must also include confirmation that the entity has identified one or more registrable beneficial owners (defined below) and that it has no reasonable cause to believe there are any others. Alternatively, the entity must confirm that it has no reasonable cause to believe that there are any registrable beneficial owners (as would be the case for entities which are widely-held), or that it has reasonable cause there is at least one registrable owner that it has not identified. To the extent possible, the required information in respect of each registrable beneficial owner must also be provided.
A “registrable beneficial owner” is an individual, entity or government body that meets any of the following conditions in respect of the entity (the Conditions):
- It holds (directly or indirectly) more than 25% of the shares (Condition 1)
- It holds (directly or indirectly) more than 25% of the voting rights (Condition 2)
- It has the right (directly or indirectly) to appoint or remove a majority of the directors (Condition 3)
- It is able to exercise “significant influence or control” over the entity (Condition 4) or
- In is able to exercise “significant influence or control” over the activities of a trust, partnership, unincorporated association or entity that is not a legal person, and the trustees of that trust or members of that other entity meet one or more of Conditions 1-4 above (Condition 5).
The Conditions are the same as the principles that apply when identifying who is a PSC in relation to a UK incorporated company. Although “significant influence or control” is not defined in the Act, one would expect it to have the same meaning as it does in the context of the rules on PSCs. In the context of trusts, this includes the right to appoint or remove trustees, to direct the distribution of funds, or to revoke the trust.
The ROE: How far up the chain?
As “directly or indirectly” indicates, it is necessary to trace the ultimate beneficial owners of the overseas entity in question up through the chain of ownership. However, an exemption applies in respect of any beneficial owner holding an indirect interest through a legal entity which is subject to its own disclosure requirements. Again, this reflects the exemption for such entities under the PSCs regime.
The result is that if there is a UK incorporated company within the structure which is subject to the PSC regime, there is no obligation to identify its beneficial owners for the purpose of the ROE. However, this does not affect any requirement for the underlying overseas entity to register on the ROE.
Scenario A: Direct ownership
Non-UK resident trustee:
Requirements for the ROE
If a qualifying estate is directly held by a trust whose trustees are all individuals, the ROE won’t be relevant. As already noted, this follows from the fact that it is only legal entities governed by foreign law that are potentially caught by the registration requirement.
If a qualifying estate is directly held by a trust with a non-UK incorporated corporate trustee, on the other hand, there will normally be a requirement to register on the ROE. If so, information about the corporate trustee will need to be provided, together with information about any persons who qualify as registrable beneficial owners of the company.
However, information in relation to a trust is only required where a trustee is the beneficial owner of the overseas entity that holds the qualifying estate. There is no requirement to provide information in relation to a trust where the overseas entity holding the qualifying estate is itself the trustee.
The implications of the ROE for private trust companies (PTCs) require consideration on a case-by-case basis. PTCs are established with the sole or main purpose of acting as trustee in relation to a specific trust, or sometimes a number of trusts, normally with the same settlor. Shares in PTCs are often held by a dedicated purpose trust managed by a professional trustee. The trustee could therefore qualify as a registrable beneficial owner, meaning details in respect of the purpose trust would need to be registered on the ROE (see Scenario B below). In rare cases where family members hold the shares in a PTC, the details of any individuals who satisfy one or more of the Conditions would need to be registered.
This situation is to be contrasted with one where the trustee holding the property is a widely-held overseas company. The trustee will still need to register on the ROE, but as there is no individual or entity that meets the definition of a registrable beneficial owner of the company, the trustee will simply be required to provide confirmation of this.
The position is different again where the trustee holding the property is an overseas subsidiary of a widely-held overseas company (for example, it is an overseas subsidiary of a foreign bank). In that scenario, information about the parent company will need to be provided for inclusion in the ROE, as it qualifies as a registrable beneficial owner; but no information about the owners of the parent company need be provided.
Requirements for the TRS
The lack of reporting required in respect of the trust itself under the ROE for Scenario A is somewhat mitigated by the TRS, which imposes a registration requirement in some circumstances where an interest in UK land has been acquired by a trust. This applies not only where the trust has a corporate trustee but also where one or more individuals are acting as trustee(s).
For the purposes of the TRS, a trust acquires an interest in UK land if at least one if its trustees becomes registered as the proprietor of a freehold estate or a leasehold estate granted for a term of more than 7 years. This is aligned with the provisions for the ROE regarding the acquisition of qualifying estates.
Previously, only trusts which incurred a UK tax charge were required to register on the TRS. However, under the Fifth Anti-Money Laundering Directive, the scope of the TRS was expanded so that certain trusts are now required to register even if they do not incur a UK tax charge. These registrable non-taxable trusts are categorised under the regulations as “Type A”, “Type B” and “Type C” trusts:
- A Type A trust is a “UK trust” which is an express trust and is not an EEA registered trust where:
- all the trustees are resident in the UK or
- (i) at least one trustee is resident in the UK, and (ii) the settlor was resident and domiciled in the UK at the time the trust was set up, or when the settlor added funds to the trust
- A B trust is a non-UK trust (i.e. not a “UK trust”), which is an express trust and not an EEA registered trust, with at least one UK resident trustee, where the trustees:
- Enter into a business relationship with a UK service provider (lawyers, accountants, investment managers etc.) or
- acquire an interest in land in the UK
- A Type C trust is a non-UK trust, which is an express trust with no UK resident trustees, where the trustees acquire an interest in UK land.
Importantly, the trustees of Type B and Type C trusts are only regarded as having acquired an interest in UK land if the interest was acquired on or after 6 October 2020. Interests acquired prior to this date do not cause a trust to be classified as a Type B or Type C trust. The default position for the TRS, therefore, is that there is no requirement to register a non-UK trust which holds an interest in UK land that was acquired before 6 October 2020. However, the position changes in the event that the trust incurs a UK tax charge (e.g. because the land is let and UK source rental income is received, or the trust’s interest in UK land gives rise to an inheritance tax liability for the trust).
Where a non-taxable trust is required to register on the TRS (e.g. due to the acquisition of an interest in UK land), information must be provided to HMRC in respect of the persons are deemed to be the trust’s beneficial owners under the regulations. These include the following:
- Its settlors
- Its trustees
- Any other individuals who have control over the trust (such as protectors) and
- Its beneficiaries
“Beneficiaries” extends to any individuals who are referred to as a potential beneficiary in a document from the settlor relating to the trust, such as a letter of wishes. The general rule that information must be provided regarding beneficiaries is qualified where beneficiaries fall within a class not all of whom been determined (for example, where the class is defined as descendants of the settlor, and further descendants may be born within the trust period). In such cases, the information required is limited to a description of the class.
Information is also required for any third country entity in which the trustees have a controlling interest.
From 1 September 2022, HMRC will be required to disclose limited information held in relation to Type A and Type B trusts to third parties who request access to it and can demonstrate a “legitimate interest” in the beneficial ownership of the trust. Type C trusts will not be subject to this, so provided a trust has no UK resident trustees, any information in respect of its beneficial owners will not be publicly accessible in any circumstances.
A non-UK resident trust which holds UK property directly will qualify as a Type C trust and its trustees will be required to ensure that the trust is registered on the TRS, but only if the interest was acquired on or after 6 October 2020. Where the interest was acquired prior to this date, there is no requirement to register the trust (or indeed provide details of the trust on the ROE, even where the trustees include an overseas company).
UK resident trustee:
Requirements for the ROE
A UK corporate trustee with direct ownership would not be required to register on the ROE, on the basis that it is not an overseas entity. However, as a UK entity, the trustee would be subject to the PSC regime, requiring details to be registered of any persons who meet any of the Conditions above in respect of the corporate trustee entity, but not in respect of the trust itself.
Requirements for the TRS
A trust with a sole UK resident trustee will satisfy the definition of a Type A trust and therefore be registrable on the TRS. This is the case whether or not the trust holds a UK property.
Scenario B: Ownership via an underlying company
Non-UK underlying company:
If the qualifying interest is held via an overseas underlying entity, there will be a requirement for that entity to be registered on the ROE. As the trustee meets Condition 1 through its shareholding in the entity, it will be a registrable beneficial owner.
As explained for Scenario A above, there is no requirement to provide information in relation to a trust where the overseas entity is itself the trustee. However, where a trustee is a registrable beneficial owner of the overseas entity that holds the qualifying estate (as is the case for Scenario B), specific information on the trust itself must be provided. This includes:
- the name of the trust
- the date on which it was created
- details of the following beneficial owners:
- current and previous trustees
- all beneficiaries
- individuals or entities with control over the trust
- “interested persons”, being those with rights in respect of appointing or removing trustees or the exercise by the trustees of their functions
The extension to all beneficiaries under the trust goes beyond those simply named in the trust or letter of wishes and description of any class of beneficiaries, as is the case for the TRS. Importantly, however, any information provided in respect a trust as a result of the trustees being registrable beneficial owners is not available for public inspection.
To qualify as a Type B or Type C Trust under the TRS, at least one trustee must become registered on the legal title as the proprietor of a freehold interest or leasehold interest. Ownership via an underlying company will therefore not trigger a registration requirement. Note, however, that a registration requirement will be triggered under the TRS if the trust incurs a UK tax liability, with more extensive reporting requirements than for a non-taxable trust.
UK underlying company:
If the underlying company is a UK entity, it will not be required to register on the ROE but will be subject to the PSC regime. Any PSCs (i.e. those satisfying any of the Conditions above) of both the underlying company and the trust will therefore need to be identified. This includes persons with the right to appoint or remove trustees, to direct the distribution of funds, or to revoke the trust. However, the specified information in respect of the trust for the ROE above is not required. Details of the trust’s beneficial owners will therefore not need to be reported unless they also happen to fall within the definition with a PSC.
As for a non-UK underlying company, there is no registration requirement for the TRS where ownership is through a UK underlying company.
Scenario C: Ownership via a nominee company
Non-UK nominee company
A final structure to consider is one in which the legal title is held by a company as nominee for the trust. What would be the reporting requirements under the ROE where the trustee of a trust (X Trust) use a company (N Co) to acquire an interest in land on or after 6 October 2020, and N Co is beneficially owned by an offshore corporate services firm (O Co)?
If N Co is a non-UK company, it would need to provide details of its registrable beneficial owners. In the example, above O Co would be registered as a beneficial owner of N Co. As the trustee is not a registrable beneficial owner, there is no requirement to include any details in respect of the X Trust on the ROE.
However, it is highly likely that a nominee arrangement such as the one above counts as an express trust, for the purposes of the TRS. Only “express trusts” are subject to registration requirements under the TRS, though rather unhelpfully, the regulations do not include a definition of this expression. HMRC’s views are set out at TRSM21030 states:
“An express trust is a trust created deliberately by a settlor, usually in the form of a document such as a written deed or declaration of trust. Express trusts can be created:
- to take effect during the settlor’s lifetime, or
- by will, to take effect on death.
Express trusts can be contrasted with trusts that come into being through the operation of the law and that do not result from the clear intent or decision of a settlor to create a trust or similar legal arrangement (for example, implied or constructive trusts).”
Any claim that a nominee arrangement is not an express trust for the purpose of the TRS is therefore unlikely to be accepted by HMRC. Furthermore, despite recommendations from practitioners in the government’s consultation process that bare trusts should be excluded from registration on the TRS, no such exclusion is provided in the regulations. As TRSM10030 states:
“Trustees of a bare trust are often referred to as ‘nominees’, especially if the assets held by the nominee are shares in a limited company. There is no specific exclusion from registration for bare trusts. In general, if a bare trust is an express trust it should register on TRS. However, there are several exclusions that may apply to common bare trust arrangements.”
As a result, it is likely that holding the property through a non-UK nominee company would trigger a registration requirement for the TRS but only where the property has been acquired since 6 October 2020. This is on the basis that the arrangement satisfies the definition of a Type C Trust. Note that such an arrangement cannot be required to register on the TRS as a result of a UK tax charge. As TRSM10030 goes on to state:
“Bare trusts are not required to register for taxable purposes, because any UK tax liability is incurred by the beneficiaries rather than the trustees.”
Where a nominee is authorised by the Financial Conduct Authority (FCA) under the Financial Services and Markets Act 2000 and is carrying on the business of safeguarding and administering investments, the nominee arrangement is not registrable. If the nominee company is not FCA authorised, a registration requirement would be triggered. Note, however, that it is the nominee arrangement which is within scope. The requirements for the TRS in respect of beneficial owners will therefore need to be applied in respect of the arrangement (not the X Trust itself).
For these purposes, N Co would be the trustee, and the X Trust would the beneficiary. The regulations are particularly unclear on which details to provide where a beneficial owner is a trust. However, there is no specific requirement to trace through to the beneficial owners of the trust which is beneficiary. TRSM32050 also confirms that where the beneficiary of a trust is itself a trust, only the name of that trust and its country of residence are required.
The result is that the details of the beneficial owners of the X Trust would not need to be included on the TRS. However, details of the settlor of the X Trust would be required, on the basis that he/she must also be regarded as settlor of the nominee arrangement.
If N Co (being the trustee for the purpose of the TRS) is non-UK resident, the arrangement would be a Type C Trust, and so any information provided would not be publicly accessible.
UK nominee company:
If the nominee company is a UK entity, it falls outside the scope of the ROE but is subject to the PSC regime. Any PSCs of the nominee company therefore need to be identified. Provided the trustee is not able to exercise “significant influence or control” over the nominee company, and does not satisfy any of the other Conditions, it will not be reportable under the PSC regime. Consequently, the PSCs of the X Trust do not need to be registered.
For the purpose of the TRS, a UK company acting as nominee would mean the arrangement falls within the definition of a Type A Trust, meaning the information is publicly available to those who request access and can demonstrate a “legitimate interest”.
Summary and deadlines
A summary of the information required for the ROE and the TRS for direct ownership and ownership via an underlying or nominee company is set out in the table below. The following observations can be made:
- Direct ownership by a non-UK resident corporate trustee may result in a dual reporting requirement for the ROE and TRS (though information in respect of the trust itself will not be required for the ROE).
- Ownership via a UK underlying company will result in no reporting requirement for either the ROE or TRS (though the company will be subject to the PSC regime).
- Only ownership via a non-UK underlying company will result in a requirement to register details of the trust’s beneficial owners on the ROE.
- Information on the beneficial owners of trusts will not be publicly accessible on the ROE (except those beneficial owners which also satisfy one of the Conditions).
- An interest in land which was acquired before 6 October 2020 will not trigger a registration requirement for the TRS.
- An interest in land will only result in a requirement to register details of a trust’s beneficial owners under the TRS where it is held directly by the trustee (though details of the settlor, plus the name and country of residence of the trust, are required for ownership via a UK nominee company).
- Information on the beneficial owners of trusts registered as a result of direct ownership will not be publicly accessible if there are no UK resident trustees.
Trustees of arrangements which fall within the scope of the ROE will need to ensure that they have applied for registration on the ROE before the deadline expires, being six months from the commencement date under the Act (still to be confirmed).
The deadline for registration on the TRS for non-taxable trusts which fall within the definition of a Type A, Type B or Type C trust is 1 September 2022.
Charles Russell Speechlys can advise as to whether a trust structure falls within the scope of the ROE, TRS and/or PSC regime, and where necessary, deal with the registration process to ensure the correct information is provided.
“X Trust” with sole trustee
Register of Overseas Entities (ROE)
Trust Registration Service (TRS)
Direct ownership by corporate trustee
If trustee is non-UK resident:
Ownership via underlying company
If U Co is non-UK resident:
If U Co is UK resident:
Ownership via nominee company
If N Co is non-UK resident:
If N Co is UK resident: