In April 2017 the Department for Business, Energy and Industrial Strategy issued a call for evidence on proposals for a register of beneficial owners of overseas entities that own property in the UK (see update). Having reviewed the responses to that consultation, the government has now outlined how it intends to take implementation of the register forward.
The government intends to publish a draft Bill for scrutiny this summer before introducing it to Parliament early in Parliament's second session. The government wants the register to go live in 2021, which does not allow much time for overseas entities to adapt and comply.
The following are some of the other key points clarified in the response:
- All legal entities that can hold property will be within the scope of the new register's requirements. There will be adaptations for those overseas entities that are not similar to UK companies limited by shares so that their beneficial owners are identified.
- While it has been clear that the register will apply to overseas entities that own UK freehold property, the application of the register to overseas entities that own leasehold interests has been less clear. The original proposal was to only include leasehold interests of 21 years or more. In a step that will significantly expand the scope of the register, the response confirms that overseas entities that have leasehold interests of registrable duration (i.e. more than seven years) will fall within the regime. This is so the policy works effectively with the land registration process.
- The definition of beneficial owner will be aligned with the definition of "persons with significant control" used in the PSC regime which currently applies to companies and LLPs incorporated in the UK. The information required for the new register will also be the same as that which is required under the PSC regime.
- The government thinks it is appropriate to afford overseas entities that already own UK property a transition period in excess of one year to comply with the new regime or sell the property in question. Exactly how long that period will be has yet to be decided.
- The registration regime will be enforced by a system of statutory restrictions and notes against Land Registry title to property backed up by criminal offences. The criminalisation of non-compliance is an indication of how seriously the government intends to treat the register.
Interestingly the government has formed the view that a transfer to an overseas entity that has not complied with the registration requirements would not be rendered void. Instead, such a transfer would only pass the beneficial interest in the property, and not the legal title, to the transferee. This could cause significant issues for those who fail to comply, as without legal title overseas entities will be restricted in what they can do with the property (for example, please see our recent update on the registration gap), which in turn could have an impact on value.
- The government is considering increasing the frequency of the requirement to update the information held on the register beyond the original proposal of once every two years. Failure to update the register will amount to a criminal offence.
- If an entity is unable to give information about its beneficial owners it will be asked to provide information about their managing officers.
- The position of lenders is unclear. In the call for evidence respondents were asked what was the best way of ensuring that only legitimate lenders were able to repossess and dispose of a property with a restriction against it. In the response the government states that it has come to the view that distinguishing legitimate lenders would be "impractical to create and implement". This suggests that there may not be any exemption for lenders.
The impact of these proposals will not be confined to overseas entities. Given the amount of overseas investment into the UK property market, domestic property stakeholders will also be taking a keen interest in how this legislation develops. The potential economic impact has not escaped the government. At paragraph 23 of the response it confirms that it has "commissioned research on the impact of the new register on overseas investment in the UK property market". We await with interest the outcome of that research, though the real proof of the concept will come in 2021 when the register finally goes live.