We consider below some of the issues which may arise for trustees where they have beneficiaries and/or assets in the UK and EU post Brexit.
Business:
- The UK is no longer subject to EU Regulations and Directives and therefore new UK legislation may be in substantially different form from previous legislation and/or from existing EU law on the same topic. This could see trusts with underlying businesses in both the UK and EU member states having to operate to different standards. This point will also operate in reverse with EU legislation potentially changing at any time.
- One example of where UK legislation has changed post Brexit is the UK's Buildings Safety Act 2022 which enables significant and punitive financial awards to be made against developers and landlords in circumstances where buildings for which they are responsible fail to comply with the necessary building standards. The Act contains aggressive mechanisms by which applicants can pierce the corporate veil and pursue the ultimate entity / person holding the funds.
This is likely to be significantly more onerous on developers and landlords than any such regulations in any EU member state and is legislation which may bite and be enforceable against corporate entities even if owned within a trust structure.
Real Estate:
- In August 2022, the UK introduced the Register of Overseas Entities, which is a public register of beneficial owners of non-UK entities owning land in the UK. This went further than had been required under the EU Fifth Anti-Money Laundering Directive and is just one instance of the UK's transparency requirements exceeding those in the EU, on which please see further below.
Enforcement:
- The question of enforcement of judgments is dependent on which jurisdiction a judgment has been obtained from and where one seeks to enforce it and therefore is very fact specific. However, as an overarching point, since 1 January 2021 (the end of the UK-EU transition period) the UK is no longer part of the European enforcement regime for proceedings instituted after that date.
Practically this means that enforcement of any judgment between the UK and an EU member state must take place by other means, namely pursuant to the Hague Convention or local law of the relevant state in which enforcement is sought. Judgments are still likely to be enforceable in these circumstances (provided they meet certain requirements) but enforcement will take longer, be subject to more uncertainty and be more costly.
X on the ballot paper:
- The UK is due to hold a general election no later than 28 January 2025. Current polling indicates that the opposition Labour Party is likely to win. Senior Labour figures have indicated an intention to abolish the existing tax regime for non-domiciliaries and potentially to introduce a new regime for those coming to the UK for 'short' periods. This would impact on the UK tax position for benefits to UK trust beneficiaries. We await further details.
Issuing proceedings outside UK:
- Before Brexit, service of English court proceedings on defendants in other EU member states was governed by the EU Service Regulation ensuring service was effected in a quick and cost-effective manner. Mindful of the adverse impact it would have on the UK once this Regulation no longer applied to the UK, the Civil Procedure Rules were amended to remove the requirement for claimants to seek permission to serve a claim on a defendant out of the jurisdiction in circumstances where there is an English choice of jurisdiction. This amendment encourages businesses (including those within trusts) to continue to choose England & Wales as their selected forum.
Transparency:
- The UK has demonstrated a commitment in recent years to making corporate ownership fully transparent to the public (although confidentiality in relation to trusts has so far been respected, through the non-public nature of the UK's trust register). Whilst this approach has largely mirrored EU legislation (though gone further in relation to UK land), the EU Court of Justice, on 22 November 2022, held public access to registers of beneficial ownership of companies to be invalid.
It was found to be a serious interference with fundamental rights to respect for private life and protection of personal data, and neither limited to what is strictly necessary nor proportionate to the objective pursued. Subsequent debate amongst MEPs concluded that access should be restricted to persons with a legitimate interest and such access should not be unfettered. By contrast, the UK government has stated that it regards current UK legislation as compatible with the European Convention on Human Rights.
- So, the UK has not shown any sign of aligning with the likely EU position on public registers, and the recent Parliamentary debates on the Economic Crime and Corporate Transparency Bill do not indicate any change in this regard.