The government has published its response to the April 2017 call for evidence on proposals for a register showing who owns and controls overseas entities that own UK property or participate in UK government procurement. The regime would catch any legal owner of registered land which is “overseas” and therefore would include commonly used Jersey and Guernsey, and Luxembourg structures.
The response also confirms the government’s previous announcement that it intends to publish a draft bill this summer and subsequently introduce it to parliament in the autumn. The intention is for the register to become operational in 2021.
What you need to know
Here are the 10 key points that come out of the government’s response:
- The compliance burden will catch not only freehold owners but also leasehold owners, including all leases that are registrable at the Land Registry. This would include occupational leases. The government originally suggested it would catch leases over 21 years only but their response indicates that this will be expanded to all registrable leases (all leases over a 7 year term or with a term that starts in the future).
- The definition of “beneficial owner” and the information that is required will be the same as under the PSC regime (persons with significant control) which requires UK corporates to maintain a register of individuals with “significant control”. This avoids any mismatch between the different registers and compliance requirements.
- Most respondents to the call for evidence thought that the new register could have a negative impact on the UK real estate market by deterring overseas investors. Whilst the government confirms in its response that it has commissioned research on the impact of the new register, this has not softened its intended approach.
- There is no change on the retrospective effect of the register although the transitional period (originally one year) will be extended to an as yet unspecified longer period of time. All overseas entities that already own UK property will, therefore, have to comply with the requirements after the transitional period.
- The response confirms that the “bite” will be in the form of restrictions on the relevant title, combined with statutory restrictions backed up by criminal offences.
- Transferring a property to an overseas entity that does not yet have a valid registration number (the number supplied by Companies House once the beneficial ownership information has been supplied) will not void the transfer; instead, an overseas buyer will not be able to register its transfer without the registration number meaning that it will remain as a beneficial owner only (and not the legal owner) of the property until the registration is completed. In practice, overseas buyers will still need to have complied with the register’s requirements and obtained the registration number in advance as remaining in limbo as beneficial owner comes with significant risks.
- Where overseas entities are unable to obtain information about their beneficial owners (in circumstances that mimic the PSC regime), they must instead provide information about their managing officers.
- There will be an ongoing obligation on overseas owners to keep the register up to date. The government has reserved its position on the preferred approach but has confirmed that it will not be triggered by particular events and instead will be a regular update requirement, likely to be more frequent than every two years. It will be a criminal offence to fail to comply with this.
- Despite some respondents (albeit the minority) objecting to the register being public, the government has strongly reiterated its view that one of the essential aspects of the register (which will be held at Companies House) is that it is publicly and easily accessible so as to improve transparency and accountability.
- It is not yet clear how the proposed restrictions on the title might impact on more complex commercial transactions such as options, pre-emption rights, joint ventures. The government’s response states that it is confident that pre-existing contractual and statutory rights will be protected but no further detail on the wording of the restrictions has been provided.
The detail of the draft bill will need to be pored over when it is released to understand exactly how the regime will work and how the intricacies of the protections (both statutory and by way of restrictions on the title) might impact more complex transactions. The register may also presage an intention by the Government to start levying SDLT on transfers of shares in UK-property rich companies since it could provide much of the toolkit for enforcing such a charge.