UK expands Russian sanctions to trust services – Introduction
The EU introduced trust sanctions in respect of Russia last year. However, the effect of these sanctions has had international impact.
Despite announcing its intention to introduce trust sanctions some time ago, the UK trust sanctions, provided for in Russia (Sanctions) (EU Exit) (Amendment) (No. 17) Regulations 2022 (“The Regulations”), only came into force last month.
However, there are some important differences between the regimes.
The UK sanctions include a prohibition on providing trust services to or for the benefit of a person connected with Russia or to a ‘designated person’ (unless the services were provided immediately prior to the regulations coming into force).
What do the latest sanctions mean?
The Regulations came into force on 16 December 2022. They amend the Russia (Sanctions) (EU Exit) Regulations 2019 (SI 2019/855).
The amendments define “trust services” as follows:
- creation of a trust or similar arrangement,
- provision of registered office, business address, correspondence address or administrative address services for a trust or similar arrangement,
- operation or management of a trust or similar arrangement,
- acting or arranging for another person to act as trustee of a trust or similar arrangement, where “trustee”, in relation to an arrangement similar to a trust, means a person who holds an equivalent or similar position to a trustee of a trust.
A person is broadly considered “connected with Russia”:
- if they are located or resident in Russia, or
- for a corporate entity, if the entity incorporated in Russia, constituted under the law of Russia or domiciled in Russia
Key differences
The EU’s sanctions focus on the nationality or residence of a trust’s settlor or beneficiary. As such, there are some notable differences.
Firstly, under the UK’s rules, a private individual who is a Russian national but is resident elsewhere will not automatically be considered connected with Russia for these purposes.
The UK rules also provide helpful guidance about when trust services are “for the benefit” of a person. This includes circumstances where services are provided to a person:
- who is a beneficiary;
- is referred to as a potential beneficiary in a document from the settlor (such as a letter of wishes); or
- is otherwise expected to obtain or be able to obtain a significant financial benefit from the trust.
Exceptions
The new rules are ‘forward-facing’. As such, these sanctions won’t apply to trust services that are already being provided under an existing relationship at 16 December 2022. A key question is whether additional or different work can be provided under this existing relationship or whether a ‘new instruction’ is a new relationship?
Additionally, The Office of Financial Sanctions Implementation (“OFSI”) has confirmed that it will consider granting licences for trust work if that work falls within certain exceptions. This might include charitable pursuits.
Conclusion
Of course, UK trust provides, and those providing services in Crown Dependencies and British Overseas Territories, will need to be mindful of these sanctions. In terms of how they might apply to new relationships and the extent to which new instructions by existing clients within the scope of these rules might constitute a new relationship.
If you have any queries on UK expands Russian sanctions to trust services or UK tax matters more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article