On 12 May 2016, ahead of the anti-corruption summit in London, David Cameron announced proposals for legislative reforms which will introduce a new public register revealing the “true owners” of UK property bought by foreign companies. This new register constitutes just one of a number of measures aimed at tackling money laundering, as London tries to dispel the perception amongst some that it is the “money laundering capital of the world”.
According to government figures, more than 100,000 properties in England and Wales are owned by foreign companies, and approximately 44,000 of those are located in London. Last year, it was estimated that, since 1999, as much as £150 billion worth of UK property has been purchased by overseas companies.
Foreign companies seeking to buy will have to disclose their details in the register before being permitted to purchase any UK property. Significantly, Downing Street has confirmed that the new rules are to have retrospective effect so that they will also apply to overseas companies who already own property in the UK as well as prospective purchasers.
It was announced in the Queen’s Speech last week that, following the anti-corruption summit, legislation will be introduced to tackle corruption, money laundering and tax evasion. However, no timetable has been published regarding when these measures will be enacted, so it is not clear yet when the register will be introduced. Likewise, the government have not said whether there will be penalties for non-compliance.
We also do not yet know exactly what information will be required from foreign companies. The government has referred only to “beneficial ownership information”. It is not clear at this stage how far the government will go with the information requirements. For example if the shares in a foreign company are held by a trust, will details of the ultimate beneficiaries need to be disclosed or will recording the trustees’ information on the register be deemed sufficient. As the proposals for this beneficial ownership register develop, it will be interesting to see how far the government intends to go to achieve transparency in the UK property market.
This new proposal is part of a trend towards increasing transparency. Since April 2016, UK companies have been required to maintain a register of people with “significant control” over the company and ensure that the register is kept up to date. The registers are open to the public on the condition that a proper purpose must be provided for carrying out an inspection.
The announcement of these proposals continues the trend of legislative reform to make the ownership of UK property through foreign corporate structures less advantageous, and it supplements current initiatives such as the introduction of ATED (the annual tax on enveloped dwellings) in 2013 and the announcement in the 2015 Summer Budget that from April 2017, UK residential property held by foreign domiciled persons through an indirect structure such as an offshore company or partnership will be subject to inheritance tax.
Whilst these proposals have been welcomed by transparency campaigners as progress in countering money laundering and corruption, they will also have an impact on businesses and individuals who own assets through overseas company structures and may wish to protect their anonymity for legitimate reasons.
Implementation and enforcement of these new rules is certain to be a challenging task. It is likely that the government will hold a consultation on the proposals following which it will become clearer how the scheme is intended to operate in practice and when the rules will likely take effect.
Practically, owners who own UK property through foreign corporate structures should begin to look carefully at how these proposals will affect the way in which they own their property and whether there are potential merits to re-structuring how their property is held.