A new register of beneficial owners of overseas entities owning UK property – what you need to know about the proposals
Why the new regime?
The London property market is awash with overseas investors. The UK government is concerned that the UK property market may be used to hide illicit funds and launder proceeds of crime through the use of opaque overseas structures. UK companies are obliged to maintain good disclosure of both legal ownership and ultimate beneficial ownership. The government hopes that by making beneficial ownership information of overseas corporates holding UK property publicly available it will both increase market confidence and reduce the risk of UK property being used for illegal activity.
What has the government done so far to increase transparency of ownership by UK companies?
In April 2016 the government introduced a new Part 21A of the Companies Act 2006 which effectively extended beneficial ownership rules to all UK companies, LLPs and societas Europaea. Almost every company must now create and maintain a register of the name of persons with significant control (PSC Register) or the registrable relevant legal entities.
| The specified conditions
(as set out in Companies Act 2006) |
Summary description |
| Condition 1: Ownership of shares | directly or indirectly holds more than 25% of the share capital |
| Condition 2: Ownership of voting rights | directly or indirectly holds more than 25% of the voting rights |
| Condition 3: Ownership of right to appoint or remove directors | directly or indirectly holds the right to appoint or remove the majority of the board of directors |
| Condition 4: Significant influence or control | has the right to exercise or actually exercises significant influence or control |
| Condition 5: Trusts, partnerships etc. | has the right to exercise or actually exercises significant influence or control over a trust or firm that is not a legal entity, which in turn satisfies any of the above conditions |
The information contained on a company’s PSC Register is publicly available and free to access on the Companies House website.
What is the government doing to increase the transparency of ownership by overseas companies?
To ensure a level playing field for UK and overseas entities the government has proposed a further register of beneficial ownership for all overseas companies and legal entities that own or wish to own UK properties or that wish to engage in significant government procurement contracts. It is likely that the government will apply the same test as under the PSC Register.
How will the new register work in practice?
The proposal is that a new register will be created for all overseas companies and legal entities who own or wish to own a significant property interest: the call for evidence suggests a lease of 21 years or more, but this is likely to be refined as the proposal develops. There are approximately 100,000 properties which are currently registered to overseas proprietors.
Dealing with both the Land Registry and Companies House
The Land Registry knows who the overseas owners are. There will be an implementation period in which the Land Registry will need to write to all of the overseas owners advising of the new requirement. Those intending to buy an interest will need to apply. All overseas entities will have a specific entry placed on their Land Registry title.
Companies House will hold this ownership register as a companion to its other registers, including the register of companies. On production of the required information, the entity will be given a registration number by Companies House.
Possessed of the Companies House number, the overseas owner will then be able to inform the Land Registry. The information will need to be regularly refreshed, although timescales remain uncertain at present.
What are the sanctions for non-compliance?
The government proposes criminal sanctions for non-compliance, but the ‘teeth’ to the regime is that it will be impossible for overseas entities to obtain finance, deal with or charge a property and be registered with legal title at the Land Registry without a beneficial ownership registration number.
In practice an extra box will be inserted on the Land Registry forms and an application by an overseas entity will be rejected at the outset if the beneficial ownership registration number is not provided.
Confirmation of the seller’s registration number will become a routine extra step in due diligence on a property.
How will the new regime affect lenders, where their overseas borrowers default?
Where an overseas entity is non-compliant and it defaults on its loan finance, a lender must still be able to enforce its security by repossessing and disposing of the property, notwithstanding the restriction on the title of the property. The manner in which such third party rights are to be protected currently remains unclear.
Are there any ways for overseas entities to not be caught by the new regime?
The proposals will apply to all overseas legal entities that own UK properties, there will be no exceptions. However, the nature of the beneficial ownership register for overseas entities is the same as the PSC Register in that if full confirmed information is not available, a statement to this effect will be made in the register. Accordingly, whilst it will not be possible to not register, if the ownership arrangements are such that there are no disclosable persons, no disclosable information will be required.
Timescale
The UK civil service has worked to progress this through the 2017 General Election period. It has wide support from politicians. Accordingly, expect to see something in the next Queen’s Speech, and to see the parliamentary draftsmen working on the text of the law over the summer.
Questions
If you have any questions relating to the proposed new register or other elements of the UK’s rapidly developing transparency regime, please contact Edward Craft or your usual Wedlake Bell contact.
The register of beneficial owners of overseas entities – what does this mean for you?
|
Transaction |
Offshore company |
UK company |
|
Owner of a UK property |
Create a register, submit information to Companies House and keep the information up to date |
Nothing |
|
Selling a UK property to a UK company |
Supply your registration number to the buyer |
Nothing |
|
Selling a UK property to an overseas company |
Supply your registration number to the buyer Obtain the buyer’s registration number |
Obtain the buyer’s registration number |
|
Buying a UK property from a UK company |
Supply your registration number to your lender and the seller |
Nothing |
|
Buying a UK property from an overseas company |
Supply your registration number to your lender and the seller Obtain the seller’s registration number |
Obtain the seller’s registration number |