How HMRC's guidance on money laundering rules helps trustees
At a glance
- HMRC draft guidance has clarified some of the new rules
- Most schemes will not have to sign up to trust registration service
- Concerns remain about complying with record-keeping requirements
Michael Klimes examines whether clarification on new money laundering rules will ease additional obligations on schemes.
Last month, HM Revenue and Customs (HMRC) issued draft guidance to third-parties about how schemes can comply with the new money laundering regulations that came into force at the end of June.
The guidance answers some of the concerns raised back in the summer about how schemes should comply.
The regulations say trustees must keep up-to-date and accurate records and disclose information about the scheme's members and any potential beneficiaries of a member to third-parties such as an auditor. Here, a trustee must inform the auditor they are acting as trustee and provide information about the members and other potential beneficiaries if requested.
Schemes must disclose relevant information about these individuals to HMRC if the scheme pays tax on any income, which covers income and capital gains tax and stamp duty among others.
One of the initial areas of uncertainty was how many schemes would have to sign up with HMRC's trust registration service, which went live in July. (The deadline for new trusts to register has been extended to 5 January 2018.)
Also, information trustees must keep on file such as date of birth is easier to obtain than details of an overseas member or potential beneficiaries which covers individuals such as a member's spouse.
Strong points
Burges Salmon partner Alice Honeywill says the guidance provides clarity on the scope of the registration service.
"HMRC does not expect most occupational pension schemes to need to take the extra step of registering with it since they would not usually be subject to the relevant taxes," she says.
"Helpfully, it confirms that only tax on income and assets is counted and liability in relation to contribution and benefit payments (for example under PAYE or for lifetime allowance or annual allowance charges) does not trigger the registration obligation."
The guidance also helps trustees understand their record-keeping requirements.
"The guidance confirms that occupational trust-based schemes are expected to hold the required records, in line with other trusts, and to do so for each known beneficiary," she continues.
Where the total number of members and their potential beneficiaries exceeds ten, trustees will only be required to identify the class of beneficiary and record a description of that class rather than the more detailed information required for individuals.
Weak points
However, Aries Insight director Ian Neale thinks the wording on this classification could be clearer.
"While it still seems to me that the final section exempts other than very small pension schemes - i.e. those with no more than ten beneficiaries - from the detailed record-keeping requirements, I think it is possible to reach a different conclusion from a close reading of the regulations themselves."
It is also disappointing HMRC's guidance has not yet been published on gov.uk, he said.
Irwin Mitchell partner Penny Cogher also says there is still uncertainty over how the rules apply to potential beneficiaries.
The guidance states HMRC does ‘not expect [scheme records] to include all potential beneficiaries to whom a trustee may pay a benefit at their discretion after the member's death unless they are known to the trustees'.
For Cogher this phrasing is too vague. "It remains unclear what is meant by ‘known' - is it meant to covers all beneficiaries named in a member-nomination form?" she asks.
"If so, this would be quite a burden for pension trustees and as it relates to sensitive personal data - not the sort of information trustees may be comfortable in distilling down into a list - this shows a lack of understanding of how occupational schemes are usually administered in practice."
Pitmans Law partner David Hosford thinks there are two more requirements which could be complicated for schemes to comply with.
"Finding the original settlor or employer that started the scheme might be difficult. Also, if you are a small trust paying benefits oversees, the information you need about the overseas beneficiary might be hard to obtain."
Future developments
Squire Patton Boggs pensions partner Matthew Giles warns the industry is behind the curve.
"It is fair to say that the pensions industry is still coming to terms with these new requirements, even though they technically took effect in June. Many seem to have hoped that a historic exemption for pension plans would be carried forward but sadly this is not the case.
"Others seem to have missed the development altogether - I was at a recent trustee meeting where representatives of a major firm of administrators said that they were unaware of the issue."
The money laundering rules appear to contradict the demands put on trustees through the General Data Protection Regulation (GDPR).
"In most cases, this [complying with regulations] will involve administrators starting to capture more data," says Giles. "However, this development flies in the face of the GDPR (which schemes are also currently grappling with) which encourages a reduction in data storage wherever possible."
An HMRC spokesperson said in an email: "We have been collating views and comments from trustees, lawyers, and other stakeholders and the information about registering a trust on gov.uk will be updated shortly."
Trustees are in a better position now HMRC has provided some clarification on the new money laundering regulations. But there is still a lot of work involved to adhere to them.
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