As part of an ongoing commitment to ensuring that company and property ownership in the UK is more transparent, a new public register – proposed by the Government – will look to record information regarding the beneficial ownership of overseas entities that own UK property.
The Crown Dependencies and British Overseas Dependencies have, generally, adopted an approach to beneficial ownership registers that stops short of making them accessible to the public. The UK Government recently ran a consultation, which closed on 15 May, on a separate but inextricably linked exercise relating to the beneficial ownership of UK land. Feedback is being analysed by the Department for Business, Energy & Industrial Strategy and draft legislation is awaited, but the UK Government’s call for evidence indicated that it is planning to introduce a condition requiring all overseas entities to register beneficial ownership information at Companies House. They will also be required to obtain a registration number before being allowed to register new purchases of, or acquisitions of, long leasehold interests in UK property, or any sale, long lease or mortgage of UK property already owned at the Land Registry.
What will the register look like?
This register will be accessible to anyone who wishes to see it, although the consultation indicated that it would be possible, in limited circumstances, to make an application for certain information to be held but not made publicly available. The circumstances are likely to be limited to situations where an individual is at risk of violence or intimidation, where the individual’s attributes (when associated with the entity or property) could put them or someone who lives with them at risk of violence or intimidation, where publicly linking an individual to a property could give rise to public safety risk, and for the protection of minors or those with diminished responsibility. The granting of anonymity is proposed to be put into the hands of “an appropriate enforcement agency” acting on its assessment of whether the threat is credible and verifiable.
Who qualifies as a beneficial owner?
A beneficial owner essentially means the ultimate owner or controller of an overseas entity and its assets. The test of beneficial ownership will be similar to the test for “persons with significant control”. This seeks to establish who holds more than 25% of the voting rights in companies, controls the appointment or removal of the majority of the board, or otherwise exercises significant influence or control over the company. The rules will therefore need to be developed to cover individuals and joint arrangements.
The information will include the name, date of birth and home address of the beneficial owner. The entity will also have to provide information about itself and in some cases its managing officers where a beneficial owner, as defined, cannot be found.
How will registration work?
Where an overseas entity already owns UK property, it will have one year in which to register. Some such entities may have no plans to do anything with their land and so may have no reason to register; the Government is therefore considering imposing criminal sanctions for failure to register or keep the register up to date.
Failure to submit information and update it every two years will result in the entity being blocked from being registered with title to all relevant interests and from disposing of them. What happens to the title to the interests that are blocked in this way is unclear at this stage, but the general law is that registration confers title. One suggestion in the consultation paper is that any disposition in breach of the restriction will itself be void. Issues regarding the payment of any consideration to someone who is non-compliant will arise and there should be a reliable means of finding out whether or not a party to a transaction is or is not at risk of being non-compliant.
Registration of beneficial-owner information in an overseas jurisdiction with an equivalent form of registration, including public access, will meet the registration requirements. (Arrangements under discussion in Scotland, for example, would be likely to be acceptable.) At present, the arrangements in the Crown Dependencies and Overseas Dependencies are not considered equivalent, particularly as they are not publicly accessible.
It is unclear when the new register will be in force, but it would be wise to ensure that structures are in a position to comply.
Lenders will want to ensure that their ability to achieve effective security on loans to overseas entities cannot be frustrated and sellers will need to consider the impact if they are proposing to sell to an overseas entity who needs to register. The consultation indicated that accredited and legitimate lenders (not defined) would have their rights to enforce their existing security in the event of default protected, but how this will work in practice is as yet not explained. This protection will almost certainly not cover loans by most private trusts. Compiling beneficial-owner information can sometimes be a time-consuming process and so this should ideally be done pre-contract. Property funds will also have to take steps to work out how they can comply, bearing in mind their structure and membership, to avoid the risk of being blocked, and the position as between members could become difficult if not all of them comply.
There are perfectly respectable reasons for desiring anonymity of ownership of UK property. However, it will not be achievable simply through the use of an overseas entity. Once implemented, this requirement will take away part of the benefit of owning UK land through an overseas entity and some of the advantages of jurisdictions that have registers of beneficial ownership that are not equivalent to the UK’s.
It is believed that the Government may not need primary legislation to introduce these measures. The next stage will be the publication of the draft regulations.