PRIVACY AND PROPERTY – Recent legal developments increase the transparency of non-UK trusts and structures holding interests in UK property
29 / 06 / 2022
Increasing the transparency of UK property ownership is part of a wider drive by the UK government to combat money laundering, tax evasion and fraud. There have been three recent developments in this sphere that affect non-UK trusts and overseas entities that hold UK property:
- the expansion of the UK’s register of beneficial owners of trusts (“the Trust Register“) to encompass a far wider category of non-UK trusts regardless of whether they incur UK tax – with a registration deadline of 1 September 2022 in many cases;
- the introduction of a new publicly searchable register that records the beneficial ownership of non-UK entities owning land in the UK (“the Register of Overseas Entities“); and
- the introduction of a new publicly searchable Scottish Register of Persons Holding a Controlled Interest in Land (“the Scottish Register“) which requires the owners (and tenants of leases of 20 years or more at the date of grant) of Scottish land to register by 1 April 2023 and provide information about persons who influence or control them.
The Trust Register
The Trust Register legislation is set out in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (and amending regulations) and derives from EU anti-money laundering legislation. It implements a central register of “beneficial owners” of certain trusts and is maintained by HM Revenue & Customs. The term “beneficial owner” includes settlors, trustees and protectors, as well as beneficiaries of a trust.
Data that needs to be filed on the Trust Register includes the name of the relevant beneficial owner, along with their month and year of birth, residence, nationality and the nature of their beneficial interest. Affected trustees also need to maintain their own accurate written records of the trust’s beneficial owners containing similar data.
Any trustee found to have deliberately failed to register (as opposed to failing to register through lack of awareness) may be subject to a financial penalty. There are separate criminal penalties for trustees found to be involved in money laundering or terrorist financing.
Which non-UK trusts are affected?
Due to changes to the Trust Register legislation that came into force on 6 October 2020, non-UK trusts with UK connections are potentially affected, whether they incur (or have incurred) UK tax (a “taxable” trust) or not. A “non-UK trust” for these purposes is one where: all trustees are non-UK resident; or there are a mixture of UK and non-UK resident trustees and the settlor was non-UK resident or non-UK domiciled at the time the trust was set up or constituted.
The circumstances in which a non-UK trust could be required to be registered are where the trust is:
- taxable and receives income from a UK source or has UK assets on which it is liable to pay UK tax;
- taxable or non-taxable and the trustees acquire an interest in UK land; however, in the case of a non-taxable trust, only where that acquisition takes place after 6 October 2020; and
- taxable or non-taxable, with at least one UK resident trustee and:
- the trustees enter into a business relationship with a UK service provider (such as a lawyer, accountant or investment manager) in circumstances where the trust is not registered elsewhere in the EEA; or
- acquire an interest in UK land;
however, in the case of a non-taxable trust, only where the entering into such new relationship or acquisition of land takes place after 6 October 2020.
Prior to the expansion of the Trust Register, non-UK “dry” trusts (set up before 6 October 2020) that held UK property directly but generated no income and gains would not have needed to register unless or until the trustees triggered a UK tax charge (typically on disposal of the property or at the ten-year anniversary of the trust). This will remain the case under the expanded rules but trustees will need to be wary of the consequences of acquiring further UK land, or appointing a UK trustee and (where the trust has a UK trustee) engaging a UK service provider, as these developments can now trigger registration in some circumstances.
Where non-UK trustees use nominees to hold UK property, the nominees are treated as bare trustees of the trust fund. As such, they will be subject to the Trust Register rules in a similar way to general trustees who hold UK property directly.
Do any exemptions or exclusions exist?
There are some exclusions that can apply to non-taxable trusts (although generally not taxable trusts); however, these have limited application to non-UK trusts holding UK property. The exclusions that may apply are those for: non-UK trusts created by Will and that are wound up within two years of the testator’s death; and non-UK trusts established by court order or to meet legislative conditions.
In addition to these exclusions, registration of a non-UK trust on an equivalent trust register in another EEA country will effectively exempt the trust from needing to register in the UK in some cases (but not all).
Is the Trust Register publicly accessible?
The Trust Register is available to HMRC, law enforcement and other competent authorities, and those entering into a business relationship with a trust (such as a bank). The Trust Register is not publicly searchable but information can be requested by a member of the public in two limited situations:
- in the case of some non-UK trusts (but not all), where that member of the public can demonstrate a “legitimate interest” in the beneficial ownership information; for example, in connection with an investigation into money laundering or terrorist financing. Information on beneficiaries who are minors, lack capacity or are at risk of harm can be withheld by HMRC; and
- in the case of some non-UK trusts (broadly those with at least one UK-resident trustee), where the request relates to a trust that has a controlling interest in an entity in a “third country“. An entity in a “third country” is one that is registered in a non-EEA country and therefore not required to be registered on a corporate beneficial ownership register in an EU member state.
When is the registration deadline?
For non-UK trusts that are affected by the expansion of the Trust Register rules and in existence and within scope before 4 June 2022, the registration deadline is 1 September 2022 in most cases.
Non-UK trusts that first come within the scope of the Trust Register rules on or after 4 June 2022 will need to be registered within 90 days.
The Register of Overseas Entities
Announced in March 2016, with a draft published in July 2018, the legislation implementing the UK’s Register of Overseas Entities was eventually fast-tracked through Parliament in a two-week process in March 2022 in response to events in Ukraine.
Amongst other things, the Economic Crime (Transparency and Enforcement) Act 2022:
- establishes a public Register of Overseas Entities containing information about the entities and their beneficial owners; and
- requires overseas entities that hold, or which wish to acquire or mortgage, UK land to register. Title restrictions will be entered where UK land is held, or acquired, by overseas entities that do not meet the registration requirement.
Data that needs to be filed on the Register of Overseas Entities includes basic details about the overseas entity, as well as information about the overseas entity’s beneficial owners and managing officers. The information required on beneficial owners will depend on whether they are individuals, companies or trustees. Where a trustee is a beneficial owner, the information to be disclosed includes details of the trust, the settlor, beneficiaries and anyone with powers of control over the trust (e.g. a protector). The register must be updated annually.
Failure to register (or submitting false information) is a criminal offence punishable by a fine and/or imprisonment and prevents the entity from being able to buy, sell or mortgage UK property.
Which overseas entities are affected?
Legal entities governed by the law of a country or territory outside the UK that hold a “qualifying estate” in UK land must register.
Non-UK companies, partnerships and other entities that are legal persons under their governing laws will therefore be caught. Trusts are not legal entities so do not have to register, but non-UK corporate trustees and nominees will be caught.
A “qualifying estate” is a freehold interest or a leasehold granted for a term of more than seven years.
Who is a beneficial owner?
The definition of “beneficial owner” mirrors that used in the register of people with significant control (the “PSC Register“) which applies to UK companies. Broadly, this means that details of any beneficial owner of an overseas entity who either directly or indirectly holds more than 25% of the shares or voting rights in an entity; can appoint a majority of its directors; or has significant influence or control over it (including through a trust or partnership structure), must be disclosed.
Do any exemptions or exclusions exist?
A beneficial owner does not need to be identified if it is subject to its own registration requirements under the Register of Overseas Entities or the PSC Register.
The Secretary of State can make regulations to exempt certain entities from registration (e.g. if a jurisdiction has its own equivalent beneficial ownership register, overseas entities from that jurisdiction might be permitted to provide details of that register rather than be required to submit the information again in the UK). However, no such regulations have yet been passed.
Additionally, the Secretary of State can grant an exemption from registration in limited circumstances where it is in the interests of national security or necessary to prevent or detect serious crime.
Is the Register of Overseas Entities publicly accessible?
Like the PSC Register, the Register of Overseas Entities will be maintained by Companies House and be publicly searchable. However, certain personal information (e.g. full dates of birth and residential addresses where the beneficial owner is an individual and details of a trust where the beneficial owner is a trustee) will not be made publicly available.
When is the registration deadline?
The requirement to register applies retrospectively to overseas entities holding land bought on or after 1 January 1999 in England and Wales (or 8 December 2014 for land in Scotland) where that land was held on or after 28 February 2022.
A registration deadline has not yet been confirmed. A six-month transitional period will start to run from the implementation of yet-to-be-published regulations. It is expected that these regulations will come into force imminently.
How does the Register of Overseas Entities interact with the Scottish Register in the case of Scottish land?
In 2021, the Scottish devolved government passed the Land Reform (Scotland) Act 2016 (Register of Persons Holding a Controlled Interest in Land) Regulations 2021. This implemented the Scottish Register which has been operational since April 2022 and requires owners (and tenants of leases of 20 years or more at the date of grant) of Scottish land to register by April 2023.
The owners/tenants, and the persons who can influence or control them, have an obligation to provide information for inclusion on the Scottish Register.
Offshore companies owning Scottish land will be subject to duplicate reporting under the Register of Overseas Entities and the Scottish Register; however, it is expected that once the Register of Overseas Entities is operational, they will be granted an exemption from reporting under the Scottish Register, mirroring the exemption for UK companies holding Scottish land which already report on the PSC Register.
It is not possible to opt out of these transparency regimes; however, for those for whom privacy is a concern, limited steps can be taken within the current legal framework to reduce their footprint on the public registers connected with owning UK property.
For non-UK trusts not currently within scope of the Trust Register rules, it is possible for trustees to keep the trust off the Trust Register for so long as the trust does not incur UK tax liability, but with direct holdings of UK land this is only a matter of time. Careful management will be needed and precautionary advice taken on the Trust Register rules before any acquisition of new interests in UK land, appointment of a UK trustee or (where the trust has a UK trustee) engagement of a new UK service provider, is actioned. Where the need for registration is likely to be triggered, trustees should have the necessary information collated in advance and advisers in place to pick up on this compliance obligation promptly, as registration must be completed within 90 days.
As the Register of Overseas Entities was introduced with retrospective effect, overseas entities and their beneficial owners cannot avoid their reporting obligations by restructuring or selling the relevant UK property interests now. If a registrable overseas entity ceases to hold UK land, it will remain on the register for two years before being removed.
The last word?
Despite the already greatly increased transparency of beneficial ownership of UK land – through the expanded Trust Register, the new Overseas Entities Register and the new Scottish Register regimes discussed above – there are likely to be further changes in this area. A second Economic Crime Bill (which the Government has committed to introducing in the current parliamentary session) is expected to include reform of Companies House, potentially affecting both the existing PSC Register and the new Register of Overseas Entities. Additionally, a Levelling Up and Regeneration Bill which is currently going through Parliament would allow regulations to be passed requiring individuals and entities to provide information about interests and dealings in UK land and potentially permitting such information to be shared or published. While neither measure is yet in force, they demonstrate the UK Government’s commitment to enact measures that ensure meaningful transparency of ownership of UK land, to the extent this is not achieved by existing legislation.
We can advise you on the Trust Register and/or Register of Overseas Entities and any other privacy matters connected with owning an interest in UK property, whether directly or through a trust, company, partnership, or other arrangement or structure.