Beneficial owners of non-UK companies that own UK land will be included on a publicly accessible register under provisions included in the Economic Crime (Transparency and Enforcement) Act, which was passed on 15 March 2022.
Here we discuss what this means for landowners and the impact on transactions in UK property.
Who has to register?
Non-UK incorporated companies and other legal persons governed by the law of a country outside the UK (such as foundations and non-UK LLPs) ("overseas entities") will have to register with UK Companies House on the "register of overseas entities", and provide information on their beneficial owners, if they own UK land (which has been acquired since 1 January 1999), or want to acquire an interest in 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.
Who is considered a "beneficial owner"?
The persons who will appear on the register are those that are considered to have "control" over the overseas entity.
The beneficial owners are, broadly, those individuals or legal entities that:
- hold, directly or indirectly, more than 25% of the shares or voting rights in the overseas entity
- are entitled, directly or indirectly, to appoint or remove directors holding a majority of the voting rights at board meetings on all or substantially all matters
- have the right to exercise, or actually exercise, “significant influence or control” over the overseas entity.
What if the overseas entity is a nominee only holding legal title?
If an overseas entity holds a UK property as nominee or bare trustee for another person, the persons that will appear on the register are those who are treated as the "beneficial owners" of the overseas entity in line with the rules explained above (ie have control over the overseas entity, such as a person holding more than 25% of the shares).
This is not necessarily the same persons for whom the overseas entity holds the UK property as a nominee (although it could be) and so not the persons who have the beneficial interest in the land.
However, nominee arrangements and bare trusts fall within the scope of the UK trust register (the "TRS") and non-UK nominee companies that are registered as the legal owners of an interest in UK land, on or after 6 October 2020, may also have to register the nominee arrangement on the TRS.
What about other types of trusts?
Non-UK trusts that own UK land directly are not required to register as an overseas entity (as the trust does not have a separate legal personality) – but a non-UK trust that owns UK land directly must keep a register of beneficial owners and register the trust with HMRC on the TRS.
However, where the trustee of a trust that holds UK land directly is a non-UK corporate trustee, that non-UK corporate trustee will fall within the definition of an overseas entity and will need to register on the register of overseas entities.
Where the beneficial owners of an overseas entity that holds an interest in UK land include the trustees of a trust, information on that trust and its trustees, settlor, beneficiaries and other persons with certain powers over the trust may need to be provided to Companies House. This additional information in relation to the trust will not be disclosed to the public but will be available to HMRC.
When do these rules apply from?
At the time of publishing this article, the UK government has not yet issued the regulations which will bring the rules into force.
What is the deadline for registration if an overseas entity already owns UK land?
Overseas entities that hold UK land that was acquired after 31 December 1998 will have six months from the date on which the rules come into force to register.
What if an overseas entity disposes of UK land between now and the registration deadline?
An overseas entity that currently holds UK land but disposes of it before the deadline for registration will have to provide Companies House with details of the disposal and of its beneficial owners immediately before the disposal.
These transitional rules apply to any disposal made on or after 28 February 2022.
What are the consequences of failing to register by the deadline?
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 and will, therefore, be unable to sell or lease the land, or create a charge over it (other than in limited circumstances).
The overseas entity and its officers will also be liable to civil and criminal penalties for failing to register, such as:
- daily fines
- prison sentences for managing officers
- limits on their ability to deal with land (see below).
How will non-compliance be policed at the Land Registry?
The Land Registry is obliged to enter a restriction on the title to any UK land where it is satisfied the registered proprietor is an overseas entity registered on or after 1 January 1999.
The restriction will broadly prohibit the registration of any:
- transfer
- lease for a term of more than seven years from the date of the grant
- charge, unless the overseas entity has fulfilled its registration requirements or is exempt at the date of such disposition.
An overseas entity purchasing UK land will be unable to be registered as proprietor of that land without demonstrating to the Land Registry that they have complied with the registration requirements (by producing an overseas entity ID).
Will the overseas entity have ongoing obligations?
Yes. Registered overseas entities will be given an overseas entity ID and will be required to update the information provided to Companies House annually (or confirm that the information previously provided is up to date).
Who will have access to the register?
As with the PSC register currently maintained by Companies House in respect of UK companies, members of the public will be able to inspect the register of overseas entities without charge and require a copy of some or all of the register.
What should we be thinking about now and what steps should we be taking?
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UK landowners and advisers should review existing property ownership structures to identify those overseas entities that will be caught by the rules.
- Overseas entities will need to put in place compliance arrangements to obtain the necessary information on the beneficial owners and complete the registration when the rules come into force (and review the position annually).
- Overseas entities that have disposed of, or will be disposing of, UK property from 28 February 2022 up to the registration deadline, should obtain details of the beneficial owners at the time of disposal as this will need to be reported in due course.
- Overseas entities that intend to complete on the purchase of UK property after the rules come into force, will need to obtain the necessary information on the beneficial owners and obtain an overseas entity ID in advance to avoid any issues.
- Buyers of UK properties owned by an overseas entity (and lenders) must be live to the rules and should ensure that they receive evidence that the overseas entity has complied with the requirements.
If you have any questions on the register of overseas entities regime and how it will affect you, please get in touch.
