In April 2017, the Department for Business, Energy and Industrial Strategy launched a call for evidence seeking views on proposals to introduce a new register showing who owns and controls overseas companies and other legal entities that own UK property. The response to the call for evidence has now been published and sets out how the Government plans to implement the register.
The Government is currently working on legislation to create the new register and intends to publish a draft Bill in the summer of 2018. It is currently envisaged that the register will be up and running in 2021 which does not allow much time for overseas entities to get their affairs in order.
The main points from the Government’s response are as follows:
1) The Government intends that all legal entities which can hold or own properties will be within the scope of the new register’s requirements (save in relation to trusts). The Government has said that publishing the beneficial owners of trusts would not be reasonable and would undermine family confidentiality putting UHNW families at risk.
2) All freehold property will fall within the scope of the new register’s requirements. Furthermore, leases which must be registered at the Land Registry (i.e. leases with a term of more than 7 years in England and Wales, 20 years in Scotland and 21 years in Northern Ireland) will also fall within the scope.
3) As with UK companies, the register of beneficial owners will be held at Companies House and the information on beneficial owners will be available to the public free of charge.
4) The definition of beneficial owner for the new register will be aligned with the definition of People Significant Control (PSC) in the PSC regime which requires UK corporates to maintain a register of individuals with “significant control” (See our previous article here).
5) Overseas entities that currently own UK property will be required to supply beneficial ownership information to Companies House within a certain amount of time after the legislation comes into force. It is likely that overseas entities will have between 18 months and two years to supply information on beneficial owners to Companies House. Once this information is provided to Companies House the overseas entity will be issued with a unique registration number.
6) Once overseas entities submit their beneficial owner information and receive their unique registration number from Companies House, there will be an ongoing obligation to keep the register updated regularly. The Government has not said how often the register will need to be updated but the Government’s response has indicated that owners will need to update the register more frequently than once every two years.
7) The Government’s proposal to prevent the transfer of a property and “void” the transfer of a property for not complying with the legislation has been abandoned which will come as welcome relief for overseas entities and their advisors. Instead, it is proposed that overseas entities will not be able to register a purchase, lease or mortgage at the Land Registry without their unique registration number. The new legislation will therefore allow the transfer of the “beneficial” interest in a property but not the “legal” title at the Land Registry.
8) As well as the measure above which prevents the transfer of legal title to a property at the Land Registry for failing to comply with the new register’s requirements, enforcement will also come in the form of restrictions and notices registered against properties at the Land Registry. By registering restrictions and notices against the title to a property, this will affect the overseas entities ability to transfer, lease or charge their property. Further, the Government will also be introducing a new criminal offence for failing to comply with the new register’s requirements.
It is encouraging to see that the Government is determined to tackle criminal activity in the Real Estate sector and make the Real Estate market as open and transparent as possible.
However, it is worth noting that most of the respondents to the Government’s consultation thought that the new register could have a negative impact on the UK Real Estate market by deterring overseas investors. The plans for the new register combined with measures such as the introduction of the Annual Tax on Enveloped Dwellings mean the Government will need to proceed carefully so as to strike a balance between an open and transparent Real Estate market and the need for continued investment into the UK from overseas entities.