This is the first in a series of commentaries from the law firm about private client challenges.

This news service is running a series of four articles from Taylor Wessing, the law firm, on matters relevant to private clients and their advisors. The editors are pleased to share this content, but do not necessarily endorse all views of guest writers. The usual disclaimers apply. Email tom.burroughes@wealthbriefing.com

The authors of the first article are Alexander Erskine, partner, Alison Cartin, senior counsel.

The global drive towards transparency is intended to provide the revenue authorities and law enforcement agencies around the world, and others involved in preventing money laundering, with access to accurate and up-to-date information on the true ownership of assets, wherever and however those are held. However, the increasing moves to allow public access to beneficial ownership registers, and the danger of information being leaked, pose risks to wealthy individuals and their families.

It is increasingly important for HNW individuals, and their families, to know what information on them and their financial accounts and asset-holding structures is being collected and shared, and especially what is available to the public. This is key to dealing with potential risks. 

Enquiries from tax authorities
Information collected and shared under international automatic exchange of information regimes can be misleading and may bear little (or even no) relationship to the tax position of the individual to whom it relates. For example, the protector of a trust may have the full value of the trust reported to their home revenue authority against their name even if they are unable to benefit from that trust. 

Fully tax-compliant individuals can, therefore, find themselves facing enquiries from revenue authorities as the information received by the revenue authority does not tally with the individual's personal tax reporting. Knowing what information is being shared under information exchange regimes enables individuals to explain these discrepancies appropriately to revenue authorities and avoid unnecessary and potentially intrusive and lengthy tax enquiries.

In the past, HMRC were reluctant to share what information they had that led to them to approaching a taxpayer for an explanation; this is, however, changing. In practice, HMRC may now be willing to share details of the information that they consider calls for an explanation. So, individuals, or their advisors, should consider approaching HMRC as a first step in response to an enquiry.

Risks from others accessing information  
Many, fully-tax compliant, wealthy individuals choose to keep their wealth private, albeit available to revenue authorities and law enforcement agencies. This is so that it is not available to the public, friends, and acquaintances. Governments and courts around the world recognise the rights of individuals to privacy in relation to their wealth. 

For HNW individuals, protecting their personal information may be vital in protecting them and their families from fraudsters, opportunists, theft (including identity theft), extortionists and, in extreme cases, violence or kidnapping. Publicly accessible beneficial ownership registers – and leaks following cyberattacks – may create (or enhance) an exposure to these risks. 

For the timing being, registers of beneficial ownership of trusts are, generally, only accessible to revenue authorities, law enforcement agencies and those who can show a "legitimate interest." However, in some jurisdictions, including the UK, there is unrestricted public access to registers of beneficial ownership of companies (and in the UK the register of overseas entities that own UK land – the ROE). The inclusion of certain individuals on beneficial ownership registers may paint an inaccurate picture, in the sense that that individual may have no real interest in, or control over, the trust or company, but being on the register could open the individual up to risks.

For example, an individual beneficiary of a trust who has power to direct the investment of specified assets within the trust will appear on the beneficial ownership register (the PSC register) of a UK company in which the trustees hold more than 25 per cent of the voting shares. This is even if the beneficiary's power relates to other assets, and the beneficiary has no information on the company. 

In November 2022 the Court of Justice of the European Union held that public access to registers of beneficial ownership of companies is invalid, and MEPs have subsequently decided that access should be restricted to persons with a legitimate interest, although this will include journalists and civil society organisations (with certain safeguards). The UK government, however, has not announced any plans to restrict public access to the PSC register or the ROE.

As to tax exchange between jurisdictions, HNWs should find out which institutions are reporting what information and whether there are any duplicate reports being made unnecessarily. This is with a view to eliminating any unnecessary data flows, each of which is potentially vulnerable. Additionally, if information may be exchanged with a jurisdiction suspected of having any shortcomings in protecting the sanctity of the data received, then it would be prudent to seek advice as to whether anything may be done to improve the position.   

What should wealthy families do?
Some of the steps which wealthy families might consider taking include:

-- Being aware that HMRC (and possibly other tax authorities) are using information reported automatically and available on public registers to identify potential discrepancies in tax reporting. So, families should carry out regular audits of the information reported and also take care of their online profiles more generally (including information visible on social media);

-- Consider possible steps to streamline the information reported publicly and privately, in order to create fewer vulnerabilities and to avoid inconsistencies with personal tax reports; and

-- Consider whether family structures remain fit for purpose in all relevant respects, bearing in mind any potential loss of confidentiality that such structures may create.