Under new legislation which we anticipate will apply from some time in 2021, overseas entities which own land in the UK, or wish to acquire land, will need to register at Companies House. In order to register, an overseas entity will have to provide details of its beneficial owners.
If an overseas entity attempts to purchase land without first registering, it will not acquire valid legal title. There will be a window for registration by overseas entities which already hold land in the UK. If an overseas entity fails to register within the window, it will not be able to dispose of the land and may be the subject of a notice requiring it to register.
Overseas entities holding, or planning to purchase, land in the UK should find out now who their beneficial owners are, so that they are ready to apply for registration when the new legislation comes into force.
The purpose of the proposed new legislation is to create greater transparency regarding the ownership of UK land and the persons who actually control overseas entities. Ultimately it is aimed at deterring the use of UK land transactions for money laundering purposes.
The draft Registration of Overseas Entities Bill was published in July 2018, and subsequently scrutinised by a Joint Committee of the House of Commons and House of Lords which reported on the Bill in May 2019. The government's response to the Committee's report was published on 18 July 2019. Since then, the government’s attention has understandably been elsewhere, but a Written Statement published in July 2020 indicated that the government has accepted many of the recommendations set out in the Committee’s report and has been exploring how best to implement them.
Who will be affected?
The new legislation will apply to all overseas entities which own land in the UK, or intend to do so. "Overseas entity" is broadly defined to include foreign companies and also partnerships and other legal entities which are legal persons governed by the law of a country or territory outside the UK.
What will registration at Companies House involve?
The draft Bill sets out the framework for a new register at Companies House. An overseas entity will have to apply for registration at Companies House before it can complete the purchase of a freehold estate in land or a leasehold estate with a term of more than seven years. An overseas entity applying to be registered will need to provide information about itself, its beneficial owners and, if applicable, its managing officers.
The new beneficial ownership regime will be similar to the UK's existing disclosure regime for the beneficial ownership of UK companies – the people with significant control, or PSC, regime – and will be interpreted and applied in a similar way. The categories of registrable beneficial owners will include individuals and legal entities who:
hold more than 25% of the shares or voting rights in the overseas entity;
hold the right to appoint a majority of the board of the overseas entity;
have the right to exercise, or actually exercise, significant influence or control over it; or
have the right to exercise, or actually exercise, significant influence or control over a trust or unincorporated entity whose trustees or members meet any of the other conditions in relation to the overseas entity.
The government intends to publish guidance to help overseas entities and third parties transacting with them to understand the requirements. However, there will be no "pre-clearance" mechanism to indicate whether an entity is required or eligible to register.
Existing landowners (freehold or leasehold with a term of more than seven years) will be obliged to register and provide details of registrable beneficial owners within 18 months of the Bill coming into force. If they fail to register during this transition period, they will not be able to sell or otherwise dispose of the land, and the Secretary of State may issue a notice requiring them to register.
Once registered, an overseas entity will be required to update the information annually, including the details of its registrable beneficial owners. The register will be publicly available (although certain personal details will not be visible to the public).
Penalties for non-compliance
There will be criminal penalties for non-compliance with the new legislation, and the government has said that it will also consider whether there should be further civil penalties.
The government recognised that there were concerns that trusts might be used in attempts to circumvent the requirements of the new legislation. One aspect of addressing these concerns has been via the expansion of the UK’s Trust Registration Service, established by HMRC (TRS) which now includes non-EEA trusts which acquire real estate in the EU. (The TRS had to be expanded in order to transpose the requirements of the Fifth Money Laundering Directive into UK law.) Following this expansion, two categories of express non-UK trust will be required to register. These are:
“Type B” trusts, which are express non-UK trusts with at least one trustee resident in the UK (not already registered in the EEA) where the trustees enter into a business relationship with a relevant person, or acquire an interest in UK land; and
“Type C” trusts, which are express non-UK trusts with non-resident trustees who acquire an interest in UK land.
An “interest in UK land” in England and Wales for these purposes is a freehold or a leasehold estate granted for a term of more than seven years. Trustees of trusts that fall within the extended TRS need to provide details of the beneficial owners to HMRC by 10 March 2022 (if the trust existed before 9 February 2022) or within 30 days of the trust falling within the extended TRS (if the trust is created after that date).
Currently, information held by HMRC under the TRS is private and can be provided only to law enforcement agencies. From 10 March 2022, any member of the public will be able to access information on the TRS register if they can show they have a “legitimate interest”. This is an intentionally high bar and applicants will need to provide quite detailed information about their suspicions that a trust is being used for money laundering or terrorist financing before beneficial ownership information will be released.
These developments are potentially very significant for overseas clients holding or buying real property in the UK. For further information, please contact Anthony Hunt (Anthony.firstname.lastname@example.org) or your usual Howard Kennedy LLP contact.