The UK government is closer to establishing a register to show the true ownership of overseas companies that own or propose to buy or take a lease of UK property, with the publication by the Joint Committee on the Draft Registration of Overseas Entities Bill (the “Bill”) of its pre-legislative scrutiny report (the “Report”). Directors, shareholders and managers of Irish or other non-UK corporate entities, which own or are planning to buy or take a lease of UK property will need to consider the implications of the Bill and what it will mean for them.

The Bill aims to improve transparency in UK property ownership with a view to limiting the potential for money laundering and other illegal activity through property investments by overseas companies. Our earlier briefings on the proposals are available here and here. The Report now makes a number of recommendations to enhance the effectiveness of the Bill.

Beneficial Ownership

The Bill currently defines a beneficial owner for whom details must be submitted to and registered with the UK Companies House as a legal entity that either (i) owns more than 25% of the shares or voting rights in another entity; (ii) exercises significant control over it; or (iii) has the right to appoint or remove the majority of the other entity’s board of directors. This closely aligns with the criteria applied to the information already required to be registered by UK companies in relation to their beneficial ownership on the people with significant control (or “PSC”) register, in place since June 2016. However concerns have been raised that the shareholding and voting thresholds are too high and the Report recommends lowering them for both regimes. It also recommends that statutory guidance should be given to the meaning of "significant influence or control" for overseas companies (which would mirror the equivalent guidance for the meaning of that term as it applies to UK companies for registration on the PSC register).

Registration and Integrity of the Register

Currently the Bill envisages that the overseas entity will have 18 months to take reasonable steps to provide the beneficial ownership information to Companies House who will process the application and notify the overseas entity of its ID number. The overseas entity can then apply to the Land Registry to add the registration ID number to its title. Overseas entities will have to register prior to purchasing UK property or taking a lease of UK property above a certain number of years (7 years in England and Wales, 20 years in Scotland, and 21 years in Northern Ireland). Overseas entities then have an ongoing duty to update the register every year, or confirm that the information on the register is accurate.

The Report recommends including a further specific requirement to update the register before disposing of property and including verification mechanisms to prevent criminals from submitting false information, such as a mechanism whereby users could “flag” suspicious or potentially incorrect information.

Exemption from Registration Obligations

The Bill outlines limited circumstances in which certain entities will be exempt from publishing their information and in some cases from disclosing the information at all. The Report recommends that the government should make it clear exactly which entities can be exempted and that there be some transparency surrounding the extent to which exemptions are used.

Trusts

The Report highlights that the Bill does not apply to trusts (which are not technically “entities”) and recommends that the government’s measures to ensure transparency of trusts under the Fifth EU Anti-Money Laundering Directive1 be introduced at the same time as the Bill to avoid the concern that trusts could be used to circumvent the law.

Penalties

The Report recommends that criminal penalties alone may not be enough of a deterrent and that civil penalties should be introduced for non-compliance with the legislation supported by further criminal sanctions for non-payment of those penalties.

Conclusion

The UK government’s response to the recommendations in the Joint Committee’s Report remains to be seen. We will be keeping an eye on developments but all indicators point towards an enhancement of the measures, which are expected to be in place by 2021.