Clear as day: The drive towards corporate transparency
The Government has recently issued proposals for a register of beneficial ownership information for overseas companies or other legal entities that own or buy UK property or participate in UK central government procurement. This would make it easier to trace the owner of an asset that is shrouded in the secrecy of an overseas corporate body.
The proposal follows the 2016 introduction of a central, publically accessible register of beneficial ownership for UK corporate bodies. This register identifies the people with significant control (“PSC”). The PSC rules require UK companies and LLPs to gather, maintain and provide Companies House with certain personal details of any person who either directly or indirectly holds (or controls) more than 25% of the company or LLP.
The proposals now under discussion would apply a very similar regime to overseas entities, whether they already hold or are attempting to purchase UK real estate. By way of summary, the regime would:
- be applicable to all legal entities, i.e. not just companies;
- apply to freehold properties and to leases over 21 years;
- require registration of beneficial ownership at Companies House in order to buy or sell UK property;
- for overseas entities already holding UK real estate, require that the entity supply the beneficial ownership information within a 12 month transition period, after which any sale or any mortgage will be prohibited until the owner has complied; and
- require overseas entities seeking to partake in new central government procurement contracts valued over £10 million to supply beneficial ownership information before the contract is finalised.
The information to be submitted will be similar to that required by the PSC regime, including the name, home address and date of birth of the beneficial owner(s). The overseas entity will also be required to provide information about itself including; its name, contact details, registered office, country of incorporation and any national registration number.
Failure to provide the beneficial ownership information and to update it every two years will result in a note being placed on the title of the property which blocks the sale, purchase or granting of new mortgages by the relevant entity. Anyone considering buying, leasing or taking a charge over the relevant property will be alerted to the note. The Government is also considering views on imposing criminal sanctions on entities who fail to comply with the new regime.
The rationale behind the Government’s efforts is clear: shedding more light on complicated corporate ownership structures encourages confidence and trust, and plays a key role in deterring corrupt originated funds or money laundering activities being orchestrated through foreign based vehicles which take stakes in UK property.
Circumstantial evidence suggests that the PSC regime has not been too burdensome for UK companies, from either a cost or a confidentiality perspective. It therefore seems unlikely that extending the PSC transparency rules in this way will significantly damage the UK’s international real estate.
However, the Government needs to tread a fine line by not deterring overseas investors from investing in the UK or creating disproportionate burdens for overseas entities when it comes to complying with the system. Margot James, Parliamentary Under Secretary of State for Business, Energy and Industrial Strategy, has acknowledged that the government needs to proceed with care so as to ensure that the UK remains an attractive place for foreign investment.
The additional transparency is likely to be welcomed by those dealing with overseas landlords or tenants, as it will be possible to put a face to the name. Whether this will be off-putting to investors will remain to be seen.
A list of 28 questions were raised in the initial call for evidence. Responses were requested by 15 May and we now await the feedback.