As part of its push on transparency of ownership, the UK Government is planning to create a new register of beneficial ownership information for overseas legal entities in certain situations.
All overseas entities will have to register beneficial ownership information at Companies House and obtain a registration number in order to register in the relevant land register (a) new purchases of, or acquisitions of long leasehold interests in, UK property; or (b) any sale, long lease or mortgage of UK property already owned by the overseas entity.
The Department of Business, Energy and Industrial Strategy published a Call for Evidence on a Register of Beneficial Owners of Overseas Companies and other Legal Entities in April 2017. The UK Government is concerned about the potential for illegal activity to take place through overseas companies investing in the property sector. It believes that greater transparency of property ownership will make the job of enforcement agencies easier and will discourage criminals and the corrupt from choosing to hide or launder their money in the UK.
Implications for property deals
If the proposals in the Call for Evidence go ahead, all overseas entities, not just companies, will need a registration number issued by Companies House in the UK before certain property deals to which they are party (whether granted to them or by them) can be registered at the Land Registry or Land Register of Scotland. Those that already own or have leased (for more than 21 years) land and property in the UK will be given one year to obtain a unique identifier number (or to dispose of the property to avoid the requirement).
Companies House will issue the registration number in exchange for a fee and the submission of information on the beneficial ownership of the overseas entity.
What is a beneficial interest?
The Government proposes that the test for beneficial ownership should be the same as the test for "persons with significant control" (PSC) which applies to UK-incorporated companies. This test seeks to establish who holds more than 25% of the shares or 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 be adapted where individuals hold rights or shares collectively or in a joint arrangement.
Information to be disclosed
The information to be submitted will be similar to that required by the PSC regime, including the name, date of birth and home address of the beneficial owner(s). In addition, the overseas entity will have to provide information about itself to Companies House (including its name, legal form, contact details, registered office address, country of incorporation and any national registration number). Where, for example, the overseas entity has no beneficial owners, it will instead have to supply certain information about its managing officers.
The Government is aiming to ensure that the register contains useful information that is publicly and easily accessible for free at Companies House. Protections will be provided for those who may be at risk if their association with the property becomes known publicly.
Sanctions for non-compliance
Failure to submit the beneficial ownership information and to update it every two years will result in a block being placed on property sales by the entity, purchases by it, the granting of long leases to or by the entity and the granting of new mortgages by it . Anyone considering buying or leasing or taking a charge over the property will be alerted to the block by a note on the title to the property. In addition, the Government is consulting on whether criminal sanctions should apply for failure to comply with the new regime.
Controlling interests in land in Scotland
A Scottish Government consultation on proposals for a public register of controlling interests in land closed at the end of last year. The results have yet to be published. There are a number of differences in approaches taken by the Scottish and UK Governments. For example, the Scottish consultation referred to “controlling interests” while the UK call for evidence refers to “beneficial ownership”. There is also a difference in their objectives. The Scottish Government is seeking to find out who benefits from and controls the land in question. The UK Government, on the other hand, wants to uncover who ultimately controls the land-owning entity.
At this stage, it is not known how quickly the new register of beneficial ownership of overseas entities would be introduced. However, it could take some time; the UK will be the first in the world to introduce this kind of register so there is no model to work from. As well as new legislation, which will in turn involve liaising with the devolved administrations, changes will need to be made to the systems at the various land registries and Companies House. There will also need to be a major awareness-raising exercise involving international partners.
The UK Government is aiming to strike the right balance between improving transparency and minimising burdens on legitimate commercial activity. It wants to avoid putting off overseas investors from investing in the UK or creating disproportionate burdens for overseas entities when it comes to complying with the system. In addition, the UK Government has undertaken to ensure that no entities will be required to report their information twice under the proposals of the Scottish and UK Governments.
The UK Government is keen to receive views and evidence on how best to achieve its objectives in an effective and efficient manner. Details are in the Call for Evidence ("A register of beneficial owners of overseas companies and other legal entities"). The deadline for comments is 15 May 2017 - click here for more information.