In light of recent news coverage pointing the finger at offshore trusts with high-profile political leaders as beneficiaries, we must remember to not condemn the structure as unethical or inappropriate.
There are many different types of trusts. They are legal and authorised within their respective jurisdictions. A country's government decides on which trusts to acknowledge. Trusts do not hoodwink the collective purse; they are mostly used to enable wealth transfer to the next generation. Who likes the idea of transferring half of their assets to the state upon death? Hence, one of the main reasons why trusts exist.
The question of ethics comes up when politically exposed people or influential leaders, are seen to avail of them. As private citizens, there's no restriction, but as public figures, the real purpose of establishing offshore structures is increasingly being questioned. Are they set up for wealth transfer, or are they to protect from adverse geopolitical winds?
Then, the more precise question is whether offshore trusts present a moral hazard; i.e., used to provide the highest level of benefit disregarding the spirit that the trust legislation intended. Because what is legal is not always ethical, and what is ethical is not always legal, we must constantly re-examine legislation to deem it's fairness in current times, and whether its spirit is aligned with society's collective values.
New rules were recently introduced in light of the above, where HMRC now requires trusts with UK obligations to register on the newly established HMRC UK Trust Register. This increases transparency as well as captures necessary information for national security purposes. The UK is increasing monitoring efforts for investments made within its shores, as was also evidenced by the recent enactment of the National Security & Investment Act, which I discussed in my earlier blog called "National Security and Investment Act: Fund Implications".
Most trusts now need to be registered, but there are exceptions. In general, you must register your trust with HMRC if it becomes liable for any of the following:
- Capital Gains Tax
- Income Tax
- Inheritance Tax
- Stamp Duty Reserve Tax
- Stamp Duty Land Tax or Land and Buildings Transaction Tax (in Scotland)
- Land Transaction Tax (in Wales)
You must also register a trust to claim tax relief.
Trusts imposed by a court or created through legislation do not need to be registered.
You must register your trust even if it’s not liable for UK taxes.
Whereas many SEIS / EIS funds rely on bare trust structures set up by the fund's custodians, we believe they are currently exempt from requiring registration due to their ‘commercial’ nature and because they were created for the purpose of simply holding client money.
Note that the deadline for registration is the 1st of September 2022, so please check with your tax advisor whether you, your trustee, or your agent are required to take action and register.