Trustees of trusts created in corporate transactions must be alert to and comply with new record keeping requirements imposed on them by the The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (as amended) ("the AML Regs"). The AML Regs introduce new legal registration obligations in the UK which apply to non-taxable express trusts arising in corporate transactions. The new legal obligations are required to be satisfied by the trustees of the trusts, who are most likely to be the seller of the shares or assets in a company.

In 2017, HMRC established the online Trust Registration Service (“TRS”), a digital platform designed to allow trustees to comply with their registration obligations. The aim of the TRS is to reduce the risk of money laundering and make it more difficult for people to use trusts as a vehicle for committing financial crime. Consequently, failure by a trustee to fulfil their registration obligations in relation to their trust and its beneficial owners is a criminal offence and is punishable with a fine and/or prison sentence.

Trusts in corporate transactions

Trust arrangements arise during many corporate transactions and are used in various ways to hold sums of money, assets or documents belonging to a person other than the trustee. For example, express trusts commonly arise:

In a share sale where:

  • shares are held by the seller pending registration of transfer to the purchaser
  • consideration sums are held by the purchaser in an escrow account or retention amounts until the agreed warranty claim period has ended

In a business sale where:

  • the Seller holds the benefit of contracts for the purchaser pending third party consents
  • 'wrong pocket' provisions assign ownership of assets held by one party but belonging to another

TRS Exclusions

It is unlikely that trusts created in corporate transactions will require TRS registration because of the comprehensive list of applicable exclusions available in Schedule 3A of the AML Regs. The exclusion most likely to apply to trusts arising in corporate transactions is the 'commercial transaction' exclusion. This covers trusts created for the purpose of "enabling or facilitating a transaction effected for genuine commercial reasons; or protecting or enforcing rights … where the use of the trust is incidental to the principal purpose of the transaction." Where the transaction involves an escrow agent, any trust would not require to be registered either as there is a specific exclusion for trusts over property held in escrow.

The extent of the exclusions means that the majority of trusts in corporate transactions (including those listed above) are likely to be classified as 'excluded trusts', provided they are non-taxable and are therefore not registrable with the TRS.

Ultimately, it is the record keeping requirement, not the reporting requirement, that will impose more onerous obligations on trustees of trusts that arise during corporate transactions.

Trustee record keeping requirements

The key takeaway for trustees of express trusts which are used in corporate transactions is the record-keeping requirement which requires them to maintain accurate and up to date written records of all trusts and their beneficial owners. It is the obligation of trustees alone to maintain these records and it should be noted that failure to do so is a criminal offence punishable by a fine and/or prison sentence. The information held on the TRS is not publicly available, but records must be provided when requested by a law enforcement body. For further information, HMRC has produced a guide outlining the details they require to be recorded.

Our previous blogs by Claire Scott on the TRS have discussed the registration and disclosure requirements in relation to trusts in personal and private client matters, the most recent of which can be found here.

How Brodies can help

If you have any queries relating to the impact of the Trust Registration Service on trusts arising in corporate transactions, please contact a member of our Corporate team or your usual contact at Brodies.


Emma Greville Williams

Practice Development Lawyer

Scott Brooks

Trainee Solicitor