Register of overseas entities that own UK property - impact on the private wealth market

Beneficial owners of non-UK companies that own UK property will be included on a publicly accessible register under provisions included in the Economic Crime (Transparency and Enforcement) Bill, which is now being fast-tracked through Parliament. The register of overseas entities is the UK's latest tool in the global drive towards transparency, as part of the fight against money laundering, terrorist-financing and tax evasion.

Non-UK companies and other non-UK legal entities ("overseas entities"), but significantly not non-UK trusts, will have to register with Companies House and provide information on their beneficial owners if they own, or want to acquire, UK land. This will apply to freehold interests in UK land and leasehold interests granted for more than seven years from the date of grant. An overseas entity that fails to register with Companies House and provide the required information on its beneficial owners will not be registered as the legal owner of its interest in UK land and will, therefore, be unable to sell or lease the land, or create a charge over it (other than in limited circumstances, such as where a sale is ordered by a court or is in exercise of a power conferred on a bank with a registered charge against a property). The draft Bill provides that non-UK entities that already hold UK land will have 18 months from the date on which the rules come into force to register, however, following exchanges in Parliament on 2 March suggesting that this period of grace was far too generous it seems likely that this period will be significantly reduced. There are criminal penalties for failure to register.

The draft provisions define 'beneficial owners' in the same way as for the register of people with significant control (PSC register) which UK companies are required to maintain. Beneficial owners include those persons who hold more than 25% of the shares or voting rights of the entity, or control the board of directors, or have significant influence or control over the entity. Where shares in an overseas entity that owns UK land are held by a nominee the shares will be treated as if they are held by the person for whom the nominee holds them such that the true beneficial owner of the shares is recorded on the register of overseas entities. What is more common is for a non-UK company to hold the UK property which it is the registered owner of as nominee for (or on bare trust for) a non-UK trust or an individual. This type of arrangement will not be apparent from the register of overseas entities. However, such an arrangement will be within the scope of the UK trust register such that the beneficial owners of the UK property must be identified and their identity will be accessible to revenue authorities and law enforcement agencies.

Significantly, non-UK trusts are not within the scope of the register of overseas entities; a non-UK trust that owns UK land directly will not be required to register with Companies House on the register of overseas entities. However, a non-UK trust that owns UK land directly (including where there is a nominee or bare trust arrangement) must register the trust with HMRC on the UK trust register and provide HMRC with details of the beneficial owners. There are important differences between the register of overseas entities and the UK trust register and it is, therefore, crucial to understand which register or registers will apply to any property-holding structure. The 'beneficial owners' for the purposes of the register of overseas entities are those persons who hold more than 25% of the shares or voting rights of the entity or control the board of directors or have significant influence or control over the entity; for the purposes of the UK trust register the beneficial owners are the trustees, the settlor, the named beneficiaries and those beneficiaries who have actually benefitted from the trust, and any person who has significant influence or control over the trust. Another key difference is public access to the information on the register. While public access to the beneficial ownership information on the register of overseas entities will be unrestricted, the beneficial ownership information on the UK trust register is in most cases only accessible to those who can show a 'legitimate interest', and information will, generally, only be accessible where the applicant can evidence that access to the information furthers work to counter money laundering or terrorist financing activity.

The introduction of the register of beneficial owners of overseas entities owning land in the UK, and the recent extension of the scope of the UK trust register, are the latest additions to the 'tool-kit' aimed at ensuring revenue authorities and law enforcement agencies around the world, and others involved in preventing money-laundering, have access to accurate and up-to-date information on the true ownership of assets. Those potentially impacted should consider what their obligations will be and start to compile the information that will need to be reported.  If you have any questions on the proposed changes, please get in touch.