I have a client attempting to set up a Metro trust account for a discretionary trust.
They are having an issue with the AML side of things. The deed confirms the beneficiaries as the settlors children and descendants. No individual is actually named. As there are 2 children and 3 grandchildren currently alive the TRS has named these.
Metro are insisting on ID for the grandchildren, all except one are under 18. Due to the family dynamics the trustee (also the settlor) does not want the children to be aware the trust may benefit the g/children at this time so does not want to approach them for ID/birth certificates.
The regulations require a bank to identify beneficial owners (which includes beneficiaries) and take reasonable measures to verify them.
Our argument to Metro is that no payments are being (or will be made for the foreseeable) to the g/children and as not named in the deed then why do they need to ID them at the moment. Is it reasonable required as nothing being paid to them. It is stopping the account being opened.
It is too late now but it makes me wonder if we would have been better with a TRS with class of beneficiaries on, print the proof for Metro, then update it with HMRC for the names.
I expect that this is Metro policy and we are stuck.
However it adds a dificult layer of openign a trust account. Has anyone fared better with this or any ideas?
The alternative is the trustees will just open an account in their name and operate it as a trust account. Not ideal but when the banks make it so difficult what can trustees do!
If it is a discretionary trust and none of the beneficiaries have any entitlement then, in my experience, TRS will accept the description of a class of beneficiaries without any individuals being named. On that basis, Metro were happy to open an account simply running AML on the settlor and trustees. I’ve not tried amending a TRS entry, but that would be my first suggestion. If that can’t be done, has any substantial property been settled, or is it currently a shell trust which can be abandoned so you have a fresh run at it?
it is my understanding, that if the deed names a class and not specific individuals, and no payments have been issued, then they do not need to be named in the TRS. I would suggest changing the TRS, as per Chris’ note and providing the updated certificate to Metro.
Trusts are often set up for the benefit of a class of unnamed beneficiaries. To be a valid trust, this class must be distinguishable. For example, a trust could be set up for the benefit of “all descendants of Mr Silva”.
Beneficiaries should only be recorded as part of a class of beneficiaries if they cannot all reasonably be identified individually by the trustees. If all the members of the class can be identified individually by the trustees, they should instead be recorded as individual beneficiaries.
In the example above, if the trust had been settled by Mr Silva some generations ago it may not be reasonable for the trustees to now identify each descendent. The beneficiaries could therefore be recorded as a class of beneficiaries.
However, if the beneficiaries were instead a distinct group such as “the grandchildren of Mr Silva” , it is reasonable to expect the trustees to be aware of the identity of each individual. Therefore they should be recorded as individual beneficiaries rather than as part of a class of beneficiaries.
i accept that this is hmrc guidance so arguably it could be changed/left as a class.
as above if i knew it was an issue I would have left it as a class.
I’d have thought Metro would look at the deed not the TRS.
we have put this ‘argument’ to them and see how it goes before altering the TRS at all.
Just to note that, so far as I recall, the original HMRC guidance was much more liberal in relation to classes. I don’t recall HMRC ever justifying the change that made it mandatory to name individuals wherever they could be identified.
The law is so vague that there is no real way to decide the current or former guidance is actually correct but if you don’t wish to contravene the current manual, it’s now extremely difficult to use class definitions in most cases.
I’m finding banks have become increasingly difficult to deal with these days. We have a trust client where one of a dozen living but unnamed beneficiaries (an adult grandchild of the settlors) is currently living Dubai and because of this requirement to list beneficiaries virtually no banks will even consider opening an account - despite that grandchild not receiving any benefit ever from the trust.
yes i recall the ‘rules’ were more relaxed previously. It was a class unless a beneficiary received a benefit then you had to name them. Much easier
Overall there is likely no legal basis for HMRCs view, and worst case HMRC ask you to update it at a later date. If they tried to fine you for not being up to date (also unlikely I think) then it might be an interesting argument.
We have had the same AML problem with even local UK stockbrokers. This AML situation has just got out of control because even though it is obvious that money laundering is not involved, no-one in compliance will make a decision (probably because compliance is made up of people not trained properly to distinguish between money laundering and normal business transactions).
Foreign residents who have inherited UK assets have an extremely difficult time, simply because compliance says “no” without any thought as to the underlying beneficiary being a normal human being who wants his inherited assets and is being denied the same. Almost a theft of his inheritance.
In addition, opening any account at bank that that has no high street presence is to my mind negligent. If the bank collapses (i.e. the directors have run off with the monies, as has happened in the past) then who are you going to sue and against whom / which are you going to enforce any recovery judgment? I doubt the Bank of England is going to step in. I think opening such accounts is asking for law suits, and for the lawyers to be sued by angry clients for opening such accounts. It is simply not worth the risk.
We only ever use classes if the trust refers to a class, and Metro have not asked for beneficiary ID where a gift was to a class in a discretionary trust. I think it was their helpline who advised us to do this to save on administration, although it was a while ago.
I have had this exact same issue but I think the TRS Manual has it right and the rules are contained within S45, The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 as per below:
Register of beneficial ownership
45.—(1) The Commissioners must maintain a register (“the register”) of—
(a)beneficial owners of taxable relevant trusts; and
(b)potential beneficiaries (referred to in regulation 44(5)(b)) of taxable relevant trusts.
Anthony - the main problem lies with the HMRC interpretation of “not all of whom have been determined” under para 45(10F) and 45ZA(3)(b):
“(10F) Where the beneficial owners include a class of beneficiaries, not all of whom have been determined, the information to be provided under paragraph (10E) is a description of the class of persons”
HMRC originally had sensible/pragmatic/helpful guidance on this but then moved to a stricter interpretation to the effect that if you could identify all the living beneficiaries then you couldn’t use class descriptions. That doesn’t necessarily follow from the wording of the legislation. They also introduce the concept of what is “reasonable”, which again doesn’t feature in the legislation but seeks to soften the impact of their strict interpretation.
This stuff is legislation by proclamation. Unless that is you or your client is prepared to spend a lot of money to fight a point of principle.
I have never been involved with an TRS appeal but I have been with numerous appeals in relation to a wide variety of taxes.
Regs 99 and 100 of SI 2017/692 deal with appeals against a “decision” of the Commissioners i.e. HMRC. Extraordinarily 99(2)and (3) apply Part V of VATA 1994! The modifications in(3) actually disapply nearly all of Part V and given that 99(5) directs an appeal to be made to the VAT tribunal there is so little left of Part V applying that it probably would have been less complicated to repeat it verbatim. This is Parliamentary draftsman/woman archaic ossified practice. We must be grateful it is not still in Norman French.
Given the particular query here the first difficulty would be in getting the Commissioners to make a “decision” that can be appealed. The contents of the manual are, I say without direct authority, not such a decision. If they are not disposed to make a decision when invited to do so that is probably not such a decision either, so it would be necessary to follow the user-friendly and inexpensive JR route and seek a mandatory order.
I have no experience of trying to elicit a decision from the TRS branch of HMRC. In most tax matters eventually if HMRC want to secure specific behaviour from a taxpayer in the last resort they will issue some written official billet doux that specifies tax to be paid or some other concrete step to be taken or woe betide the target.
If a trust is registered on the basis of the applicant’s understanding of the requirements, one imagines that nothing will happen unless HMRC find out later and consider a penalty. Also one imagines that they will refuse registration if the application on its face discloses something to which they object. As they do not ask for a copy of the trust instrument, an application that names beneficiaries as A B and C but not D E and F may not raise an objection. The issue would presumably then only be joined on a later discovery and in the context of penalty proceedings.
The obvious first action is surely to write a letter saying what you propose to file and why; and seek their confirmation or disagreement. That may induce a decision. If it is ignored, file exactly as planned and bank the letter and any ignored follow up chasers to found a reasonable excuse in penalty proceedings.
TRSM80020 and 80030 indicate that a warning letter will be sent. Much of this content is also legislation by proclamation alone so JR will be your only friend if HMRC resile from it. The most important such edict is that penalties will not be applied automatically. Note in 80020 the “new and unfamiliar” caveat so this benevolent approach may only be available while stocks last.
This is a system devised by idiots and administered by other idiots but with theoretically draconian penalties. The latter idiots are reluctant to engage much as this would require effort and sometimes, ye gods forfend, expertise. It would also undermine Government policy for administering such systems which is maximum cost shifting to the citizen.