The government has consulted on proposals requiring overseas companies to register at Companies House if they own land in the United Kingdom.

The purpose of the proposed legislation is to hinder the use of land transactions for money laundering. If a UK company owns land, it is usually possible to find who controls the company from Companies House. But this is seldom the case for companies registered abroad, with the result that individuals may conceal their ownership of land by holding it through an overseas entity. The proposed legislation will address this issue by requiring foreign companies which own or purchase land to disclose details of their beneficial owners.

Background

The principle of improving transparency in relation to overseas entities owning land in the UK was first consulted on in March 2016. In April 2017, the government proposed a register of overseas entities’ beneficial ownership and published a call for evidence. The government confirmed its plan to create such a register in March 2018, and published draft legislation alongside an overview document, research paper and impact assessment on the potential impacts of the proposed register in July 2018.

Overseas entities affected

The Registration of Overseas Entities Bill will apply to all overseas entities which own land in the UK or propose to do so. The definition of ‘overseas entity’ is broad, encompassing not only foreign companies but also any other legal entity that is governed by the law of a country or territory outside the UK and is a legal person under that law. This will include companies registered in the Channel Islands, the Isle of Man, the Cayman Islands and the British Virgin Islands.

Registration at Companies House

Once the Bill has been brought into force, an overseas entity will have to apply for registration at Companies House before it can complete the purchase of a freehold estate in land or a leasehold estate with a term of more than seven years. The overseas entity will have to provide details of its beneficial owners when applying for registration.

Beneficial owners

The definition of the registrable beneficial owners of an overseas entity is similar to the definition of people with significant control over a UK company (PSCs). It includes individuals, legal entities and public authorities holding more than 25% of the shares or voting rights in the overseas entity; holding the right to appoint a majority of its board; having the right to exercise, or actually exercising, significant influence or control over it; or having the right to exercise, or actually exercising, significant influence or control over a trust or unincorporated entity whose trustees or members meet any of the other conditions in relation to the overseas entity. These conditions are interpreted in a similar way to the conditions under the PSC regime.

An overseas entity will be obliged to take reasonable steps to identify its registrable beneficial owners. In taking such steps it may serve an information notice on any person that it knows, or has reasonable cause to believe, is a registrable beneficial owner. It may also serve an information notice on any person that it knows or has reasonable cause to believe knows the identity of a registrable beneficial owner. If the overseas entity has no registrable beneficial owners, or cannot identify them, it must instead file certain required information about its directors or other managing officers.

If an overseas entity attempts to purchase land without registering at Companies House, it will not acquire legal title to the land.

Existing landowners

An overseas entity which already owns land, whether as a freehold or as a leasehold with a term of more than seven years, will be obliged to register itself at Companies House and provide details of its registrable beneficial owners within eighteen months of the date on which the Bill comes into force. If it does not do so, it will not be able to dispose of the land, and the Secretary of State may issue a notice requiring it to register.

Annual updates

Once registered, an overseas entity will have to update its details annually, including details of its registrable beneficial owners. The register of overseas entities will be publicly available via the Companies House website (subject to the redaction of certain personal details).

Penalties

It will be an offence not to comply with the provisions of the Bill. In particular, if a person does not comply with an information notice issued by an overseas entity, they may be sentenced to imprisonment for up to two years. The same penalty will apply to an officer of an overseas entity which does not comply with a notice issued by the Secretary of State requiring the overseas entity to register.

Effect on buyers and sellers

The proposed legislation will not only affect overseas entities and individuals holding land through such entities; it will also affect prospective buyers and sellers of land more generally. Anyone seeking to buy land from, or sell land to, an overseas entity will need to carry out appropriate due diligence to determine whether the overseas entity concerned has complied with the legislation. If the overseas entity has not registered, the proposed purchase or sale will not be able to be completed.

Next steps

The draft Bill is currently being considered by a joint select committee of members of the House of Commons and House of Lords, and the government will publish the results of its consultation in due course. Since the consultation questions were largely technical, it is not expected that the draft legislation will be subject to substantial amendment. It is intended to introduce the Bill early in the second session of the current Parliament, which will begin later in the year. Subject to parliamentary approval, the new register is expected to become operational in 2021.

Overseas entities holding land in the UK may want to take steps now to ascertain who their beneficial owners are, so that they will be ready to register when the new legislation comes into force.