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The Economic Crime (Transparency and Enforcement) Bill 2022 received Royal Assent on 15 March 2022, however the Act is not yet fully in force as further Regulations are required to support the legislation. A key measure introduced by the Act is the creation of a new register of overseas entities. Overseas entities will be given six-months to comply once the Register has been launched, but the commencement date is still not yet known.
Although the commencement date is not yet known, there is a transitional period so that any overseas entities disposing of land between 28 February 2022 and the end of the transitional period will be caught. The overseas entity will need to provide details of the beneficial owners before the disposal date. This will apply whether the overseas entity still retains any UK land or not by the end of the transitional period.
The Government states that it is introducing the new register “to crack down on foreign criminals using UK property to launder money.” It will do so by:
1 The Act imposes a requirement on all overseas entities which own UK property to provide certain information about their beneficial owner(s). This information will be recorded in a new register held at Companies House in the UK.
2 An “overseas entity” includes any company or similar legal entity which is governed by the law of a country or territory outside the UK. It does not include trusts (non-resident trusts which acquire UK property are instead required to register with the Trust Registration Service (TRS) and disclose certain information about its beneficiaries by 1 September 2022).
3 A “beneficial owner” includes any person who holds, directly or indirectly, 25% or more of the shares or voting rights in the overseas entity. It also includes any person who can exercise significant influence or control over the overseas entity. If ownership is through a chain, the ultimate beneficial owner will need to be identified. If the beneficial owner is a trustee, further details will need to be included. Nominee companies are also caught.
4 For England and Wales “Property” includes freehold property or a leasehold interest of more than seven years.
5 The new register will be accessible by the public, although certain sensitive information about individuals (e.g. dates of birth, residential addresses, etc. of beneficial owners) will not be made available.
6 The requirement to register will apply to all disposals and acquisitions of UK property by an overseas entity.
7 The new rules also include a retrospective registration requirement on all overseas entities which already own UK property. This will apply to properties acquired in England & Wales since 1 January 1999 and to properties acquired in Scotland since 1 January 2014. There will be a six-month grace-period during which overseas entities will need to register their beneficial owners.
8 Any property now purchased by an overseas entity will first need to register on the Register of Overseas Entities. Registration is not automatic following a purchase. Registration must be carried out by the overseas entity itself.
9 Information to be included in the registration includes:
10 Failure to register will mean that:
11 Compliance with the new rules will also be enforced via the entry of restrictions on the titles to UK properties held by overseas entities who fail to register or comply with the requirement to update the register on an annual basis.
12 Non-compliance with the new rules will be a criminal offence, which will attract fines of up to £2,500 per day and up to 5 years imprisonment. Additionally, the overseas entity will not be able to register with the Land Registry as the legal owner. If the overseas entity is already registered as a legal owner, then they will not be able to sell, charge or grant a lease of more than seven years. There are also criminal sanctions for providing false or misleading information when registering.
13 There is an exemption for overseas entities to register under the “exempt overseas entities”, however, the definition will be included in the Regulations which are yet to be published.
The UK tax advantages of owning UK property through overseas entities have now largely disappeared. One of the remaining reasons to continue holding UK property through an overseas entity was the measure of confidentiality this afforded to its beneficial owners. This is about to be significantly undermined as a result of the new requirement placed on overseas entities to disclose certain information about their beneficial owners in the new public register.
1 This is an opportunity to review existing structures, through which UK properties are held and to consider generally, whether these are still fit for purpose and/or continue to confer any meaningful benefit.
2 If the decision is taken to unwind a structure which already holds UK property interests, we can assist.
3 We can advise on how the new rules apply to overseas entities which will shortly have an obligation to register their beneficial owners.
4 Steps should be taken to gather together details of relevant beneficial owner(s) in readiness to complete the registration process once it comes into effect (or during the transitional period where overseas entities have disposed of land between 28 February 2022 and the end of the transitional period).
Should you require assistance with any or all of the above, please contact Patrick Wooddisse or Sarah Rust.
09 May 2022