The global tax transparency drive is plotting a dangerous course that might bring more unfairness to HNW taxpayers, says Spear's law columnist Ceris Gardner
Given that most of our clients prefer confidentiality for a myriad of legitimate reasons, the trend towards enforced and global transparency is a theme close to my heart and theirs. Here I will consider the register of Beneficial Ownership for trusts, which came into force over the summer.
My impression is that HMRC is trying to ‘sell’ it as an online version of the current obligation on trustees to submit a form 41G, which alerts HMRC to the existence of a taxable trust. But the information which trustees must now provide to HMRC in relation to every trust which incurs a UK tax liability goes beyond many other forms of information disclosure. Where the beneficiaries are described by reference to a class (eg ‘my grandchildren’), then it is sufficient to report a general description of that class.
However, if the members of the discretionary class are actually named in the deed (eg ‘my grandchildren James, John and Jo’), then all the required information – name, address, date of birth, NI or passport number – for each named beneficiary must be disclosed. Of more concern is that, if the trust merely identifies a class, but any letter of wishes signed by the settlor indicates a preference for one or more named individuals from that class, then those people must be specifically reported. This would be a concern if it deters settlors from setting out their wishes clearly.
In principle, HMRC’s register is private and information from it can only be disclosed to other law enforcement agencies on request. However, if the Fifth Anti-Money Laundering Directive is implemented in its current or similar form, the trust register (and the essence of the settlor’s confidential wishes) will become public.
The requirement is that the trustees maintain their own register and provide information to HMRC on the same date as a tax return. The increased burden on trustees has significant repercussions. The first goes to a core duty of trusteeship – to act in the best interests of the beneficiaries. Of course, it is in their best interests to be compliant, but there is a risk of over-disclosure.
For the beneficiaries (or the settlor), it is hard to see what the remedy for over-disclosure against the trustee might be (although in some jurisdictions it is a criminal offence). Sometimes the default or minor beneficiaries of a trust (or objects of a power) may not even know they are potential beneficiaries, and it is not hard to see how disclosure (legitimate or excessive) could cause disharmony, particularly if the register ever does become public.
If the government follows the following ideas, it will be much easier for taxpayers can plan their lives without constant reference to an ever more convoluted tax code:
1 The creation of trusts is penalised by the tax system, because trusts have come to be seen as a tax planning tool, rather than the sensible succession planning tool that they have always been. I can give my spouse £1 million outright (during my life or on death) and there is no tax, but if I want to safeguard the money (or my spouse) by putting it into trust, there is a 20 per cent IHT charge on creation and 6 per cent every ten years after that. Trusts should be tax-neutral.
2 We must make it easier for non-doms to bring their money into the UK. Non-residents can spend their foreign money in the UK without any barriers (buying property or businesses), but foreigners who live here face huge restrictions. With Brexit, we should actively be encouraging foreign nationals to come here and bring their money – to invest, spend, and have it managed and banked in the UK.
3 Taxpayers are confused by the practice of new tax laws being announced in November or March and signed off in July, implementing rules which take effect from the previous 6 April. What happened this year was an extreme example of how this can be unfair: the legislation was pulled before it could be passed, and then reintroduced retrospectively months later. In the interim, clients will have taken steps, or just carried on living their normal lives (or died), not knowing what law applied to them. Let’s be fair to taxpayers.
4 I can’t finish this wish list without reference to Stamp Duty Land Tax, but words fail me. Any change would be an improvement.
Ceris Gardner is a founding partner of Maurice Turnor Gardner and a winner of both the Spear’s and STEP Trusted Adviser awards