The Government has expressed a commitment to improving levels of UK corporate transparency but a recent Private Eye article , documenting the extent of ownership of British Land through offshore entities, shows just how far there is to go.
By far the most common reason for owning UK property through an offshore vehicle is tax avoidance. As Private Eye comment in their article, property investment and development companies routinely do this as a way of minimising exposure to tax liabilities. Tax avoidance is, of course, an issue that has been very much in the spotlight with a number of high-profile celebrities having been criticised for their use of tax avoidance schemes. Walker Morris have previously written about the controversial new powers given to HM Revenue & Customs in the Finance Act to issue "accelerated payment notices" requiring disputed tax liabilities to be paid upfront, something which could result in individuals who have used a tax planning scheme that is now being challenged by the Revenue, substantially out of pocket and even facing bankruptcy.
The Private Eye article talks about ownership of property in London by Russian oligarchs and it is almost a cliché that some of the more exclusive parts of the capital have become the preserve of largely absentee overseas businessmen. The buoyant overseas demand for these more desirable residences has, of course, a knock-on effect on house prices throughout the London housing market and, ultimately, on the rest of the country.
The Private Eye article suggests more nefarious reasons for using an offshore entity, suggesting arms dealing and money laundering. Terrorist financing would fall into the same bracket. It is in part concern over such criminal activities that has prompted the Government to legislate to require companies registered in the UK to provide details of their beneficial ownership. The legislation is contained in the Small Business, Enterprise and Employment Act 2015 and is currently scheduled to come into force in April 2016.
The legislation will require UK companies to maintain a register of persons with significant control (PSCs). This will be separate from the register of members recording legal ownership of a company's shares. The aim of the new PSC register is to ensure that individuals with significant beneficial interests or other controlling rights in a company are easily identifiable. Details of PSCs will be publicly available at Companies House.
An individual will be a PSC if he or she, directly or indirectly:
- owns or controls more than 25 per cent of the shares or voting rights; or
- has the ability to appoint or remove a majority of the board; or
- has the right to exercise significant influence or control over the company.
There will be exceptions, for example, UK companies whose shares are admitted to trading on a regulated market and which are subject to the specific disclosure obligations contained in Rule 5 of the Financial Conduct Authority's Disclosure Rules and Transparency Rules.
Unsurprisingly, given that it probably won't help sales, the Private Eye article did not discuss the Small Business, Enterprise and Employment Act. However, it will be interesting to see if the entry into force of the Act's provisions helps to tackle the mischief identified by Private Eye.