Payne Hicks Beach

Payne Hicks Beach

25 March 2022

Register of overseas entities owning UK property

The new Economic Crime (Transparency and Enforcement) Act 2022 (the "Act") received Royal Assent on 15 March, at unusual speed in the context of the Russian invasion of Ukraine. 

The Act will create a register of overseas entities which hold UK property.  The register will record the beneficial ownership of the overseas entity – but not details of the beneficial ownership of the underlying property. 

What is an overseas entity?

An "overseas entity" is a legal entity governed by the law of a country or territory outside of the UK.  This includes companies, partnerships or other entities that have legal personality. 

It does not include individuals or offshore trusts which directly own UK property.  However, an offshore corporate trustee would be an overseas entity in its own right.

What triggers registration?

An overseas entity which already holds UK property will have to register within six months of the new rules coming into force (unless it has held the property since before 1 January 1999). 

For new purchases or transfers of UK property, an overseas entity will need to:

  • register with Companies House;
  • provide the necessary information about its beneficial owners; and
  • be issued with an ID,

otherwise the overseas entity will be unable to register its ownership with the Land Registry.

Are there ongoing obligations?

Once registered, the offshore entity must submit annual returns either providing updates to its beneficial ownership or confirming that there have been no changes. 

What are the consequences of failing to comply?

In effect, the overseas entity will be unable to buy, sell or otherwise deal with the UK property (with some exceptions for short leases). The Act also includes offences both for the overseas entity itself and for its officers, punishable by fines and in some cases conviction and imprisonment.  

Who are the registrable beneficial owners?

The new regime mirrors the requirements of the current PSC regime for UK companies.  A person will be a beneficial owner of the overseas entity if it meets any of these five conditions:

  1. -  Holding directly or indirectly more than 25% of the shares;
  2. -  Holding directly or indirectly more than 25% of the voting rights;
  3. -  Holding the right, directly or indirectly, to appoint or remove a majority of the board of directors;
  4. -  Having the right to exercise, or actually exercising, significant control or influence over the entity; or
  5. -  Having the right to exercise, or actually exercising, significant influence or control over the activities of a trust or entity which is not a legal person under the law by which it is governed but  meets any of the conditions 1-4 above.

What information needs to be provided?

Details about the entity itself (such as name, registered address and country of incorporation) and about the beneficial owners of the entity (such as name, date of birth, nationality and which condition of ownership is satisfied).  

If the beneficial owner is acting as a trustee, then this triggers disclosure about the trust itself, including details about the trustees, settlor, beneficiaries and interested persons (those with rights in respect of appointment or removal of trustees or the exercise of their functions). This will affect any trust holding an offshore company which in turn holds UK property. 

What about nominee arrangements?

If an overseas entity holds UK property as a nominee, the entity itself will still need to register and provide details of its beneficial owners but there is no requirement to disclose the underlying beneficial ownership of the actual property.

If the property is held (directly or indirectly) by an offshore trust, using a nominee owner will circumvent the requirement to disclose details of the trust, settlor and beneficiaries. 

This lacuna rather defeats the purpose of the legislation so may be tightened up in the future but, for the time being, using a nominee to hold UK property will continue to provide privacy (and of course a UK nominee would not even need to register in its own right under the Act as it would not be an overseas entity).

Will all of the details on the register be public?

No - residential addresses and full dates of birth will not be available to the public, nor will the information provided about trusts.  However, Companies House can pass the details about trusts directly to HMRC. 

When does all this take effect?

The new register is not yet in force.  The register and registration process still need to be set up by Companies House and so the commencement date for the new rules has not yet been announced. 

In the meantime, offshore entities which already hold UK property (or are in the process of purchasing UK property) may want to review their current holding structures.

 

Authored by Verity Sherwin, Solicitor in the Private Client Department, who regularly advises individuals, families and trustees on a range of tax, trust and estate and succession planning issues and is involved in the preparation of wills for both UK-domiciled and non-UK domiciled individuals. If you would like to discuss any of the issues raised, please do not hesitate to contact Verity or your usual Payne Hicks Beach contact.

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