Due to the recent heightened threats surrounding money laundering, the Government expeditiously passed the Economic Crime (Transparency and Enforcement) Act on 15 March 2022 and launched a new register of overseas entitles (the ROE).
The ROE seeks to document the true beneficial owners of all non-UK companies already owning UK properties - since January 1999 - and those seeking to invest in UK property; all in a bid to promote transparency and prevent overseas investors concealing illicitly acquired money through UK property transactions.
Overseas entities must therefore provide Companies House with details of their true beneficial owners, even if the transaction completed over 20 years ago.
Broadly speaking, beneficial owners include:
- Individuals or legal entities who hold more than 25% of the shares or voting rights in the overseas entity.
- Individuals entitled to appoint or remove directors holding a majority share of the voting rights at board meetings on all or substantially all matters.
- Individuals who have the right to exercise significant influence or control over the overseas entity.
It is essential for all non-UK companies to comply with the new rules and obtain an Overseas Entity ID from Companies House, which is pertinent for any Land Registry applications. Failure to comply will prevent an overseas entity from registering their acquisitions at Land Registry, ultimately halting their ability to transfer, lease or secure a charge over the property.
Daily fines of up to £2,500 per day and prison sentences up to five years are enforceable against those failing to comply with the new legislation.
Overseas entitles will also be required to update or confirm the information provided annually to ensure the publicly available register remains accurate. Whilst future compliance is essential, it is imperative that all existing property owners review their portfolios to establish whether they will be caught by the rules. Overseas entitles who currently hold properties in England and Wales only have until 31 January 2023 to register with Companies House, prior to being hit by any of the heavy penalties.
Critics claim the new rules could be deemed unnecessarily cumbersome for international investors; however, the new legislation is arguably essential, and to quote the Government: “will ensure anonymous foreign owners of UK property reveal their real identities to ensure criminals cannot hide behind secretive chains of shell companies, setting a global standard for transparency”.
Overseas investors are now therefore in the same playing field as UK companies, who have been required under the “People with Significant Control” regime to declare the identity of controllers and beneficial owners since 2016.