The government has issued a response to its consultation on proposals to introduce a register of beneficial owners of overseas companies that own UK property or that participate in public procurement.
The response sets out government plans for legislation to implement the register, in the light of the feedback it received to its proposals and the wider consultation process about them.
This is the latest development in a series of proposals which began in March 2016. The consultation, or 'call for evidence' as it was termed, was issued in April 2017. We reported on this in our article 'Overseas companies owning UK property will have to provide details of their owners'.
The new register will be the first of its kind in the world and it builds upon the UK's global leadership in tackling corruption. This has the drawback that the government has no existing model from which to work and so it is taking a cautious approach, sensible of the need to strike the right balance between tackling corruption through improved transparency while at the same time minimising burdens on legitimate commercial activity.
This is a summary of what we know of the government's current proposals:
Scope and operation
- All legal entities that can hold property or that can bid on central government procurement contracts will be within the scope of the new register's requirements. There will also be flexibility to permit exceptions for certain types of entities, where that is appropriate.
- The proposal is that overseas entities that own or wish to acquire UK property will have to supply beneficial ownership information to Companies House.
- The definition of beneficial owner for the new overseas register will be aligned to the definition of 'person with significant control' (PSC) in the PSC regime which applies to UK companies. This definition is based on international best practice and has been adopted in EU anti-money laundering legislation. The government says that using the same definition is necessary to avoid mismatches with information on UK companies and prevent manipulation of holding structures.
- The information on the new register for overseas entities will also be the same as that required under the PSC regime.
- Overseas entities bidding on UK government contracts will not be required to specify their beneficial ownership as part of the bid process - this is perceived as being disproportionate to the aim of knowing more about the suppliers the government is doing business with - but the government will require the preferred supplier to provide its beneficial ownership information as a condition of being awarded the contract.
- As yet there is no decision on the frequency with which the information on the register should be updated. The government had proposed that this should happen every two years but most respondents to the consultation thought that this was too long a period. The government will consider this further but it is clear that there will be a regular updating requirement, because this means that there will be a predictability to the update process. It has rejected calls for an event-driven update. Failure to update information when required will be a criminal offence.
Specific proposals relating to property
- The proposals apply to freehold properties and 'to leases of registrable duration'. All leases granted for a term of more than seven years out of registered or unregistered land are now compulsorily registrable with their own title. But some much shorter leases (reversionary leases, for example) are also subject to the compulsory registration requirement. It is not clear from the government's response whether the proposals will apply to all registrable leases or only to those of seven years or more. We will need to wait to see the draft legislation to find out.
- An entity wishing to buy property in the UK will be able to apply to Companies House to participate in the new register. Once it has registered its beneficial ownership information successfully, it will be allocated a registration number which will be required in order to register title to the property at the Land Registry.
- Where a property has transferred to the new overseas owner, a note will be put on the title register recording any restrictions over the property if the entity is not fully compliant with the register's requirements.
- If a registration number from Companies House is a pre-requisite to registration of title, this suggests that the Companies House registration might be successful notwithstanding some non-compliance with the register's requirements. No doubt this will be clarified by the legislation.
- Where an overseas entity already owns property in the UK at the time when the new requirements take effect, the period within which it must comply with the new requirement for registration has yet to be decided. The proposal had been that it should have one year within which to sell or comply but responses to the consultation have persuaded the government that this should be longer and so it will be considered further.
- At the end of this transitional period, an overseas entity owning property will be prohibited from selling, leasing or charging it where it has not complied with the register requirements. A restriction will be noted on the title at the Land Registry for this purpose.
- The statutory restrictions are expected to act as a considerable incentive on overseas entities to comply with the new requirements but these will have most impact on entities that want to realise a property's value or to deal with it in some way. Some entities may have no plans to do so and so the government plans to back up its system of restrictions and notes by criminal offences for non-compliance.
- Where an overseas company does not have a valid registration number at completion, the government has decided that it will allow the beneficial interest in a property to pass to that entity, but it will not acquire legal title. This means that the seller will be put into the position of trustee for the overseas entity until such time as it has a valid registration number and legal title can be vested in it. This could mean that sellers too will have an interest in overseas buyers complying with the registration requirements, so they can be sure that the buyer will be able to become registered with legal title following the acquisition.
In its response the government says that it expects to publish a draft bill for scrutiny this summer before introducing it to Parliament. It intends that the register should be operational in 2021.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.