If you are a non-UK resident trustee or are otherwise involved with a non-UK entity that owns or hopes to own UK land, you need to be aware of the UK’s Economic Crime (Transparency and Enforcement) Act 2022 that received Royal Assent on 15 March 2022.
The Act was originally branded as the Registration of Overseas Entities Bill in 2018, but this was fast tracked through the UK Parliament in light of the Russian invasion of the Ukraine.
Brief history of the legislation
The UK government issued a discussion paper in March 2016 due to concerns about the lack of transparency afforded to certain owners of UK real estate, who could hide their identities using overseas entities and structures.
After the 2016 ‘call for evidence’ and the UK government’s response in March 2018, the draft Registration of Overseas Entities Bill was published in July 2018. Some adjustments were made in 2019 and then the world changed, placing this on the backburner.
Recent events brought it back into focus, and the UK government reintroduced this legislation in February 2022 to be fast tracked through Parliament as part of their urgent response to the Russian invasion of Ukraine.
There are three parts to the Act, but here we focus solely on the Register of Overseas Entities. The other two aspects relate to Unexplained Wealth Orders and Sanctions.
The Register of Overseas Entities
Information currently available on overseas entities that own UK land is limited to the entity’s name and where it was incorporated, rather than who ultimately owns the land. The intention behind this new register is to stop the use of illicit funds to buy UK land by increasing transparency for (and hopefully public trust in) overseas entities who own, or aim to own, UK land by identifying who ultimately owns and controls them.
The new legislation will require any overseas entity that wishes to own UK land (or indeed, has since any time after 1 January 1999) to:
- Identify its beneficial owner(s)
- Register its beneficial owner(s) with Companies House in exchange for an overseas entity ID number; and
- Keep the register up to date each year. This is much like the Persons of Significant Control register that already applies to UK companies.
Overseas entities that already hold UK land will only have 6 months to either register or sell the land but the details still need to be provided for sales post 28 February.
Failure to register or provide the relevant information to Companies House will result in the UK’s Land Registry not registering title to any UK land for an overseas entity, which will effectively freeze the UK land for any non-compliant entity because they will not be able to buy, use or sell it.
Who is a beneficial owner?
A registrable beneficial owner is broadly an individual or another entity that directly or indirectly owns 25% of the shares or voting rights in the overseas entity or can appoint/remove a majority of the board.
For trustees who hold any of those rights, the beneficial owner will be an individual or other entity that has the right to exercise, or actually exercises, significant influence or control over the activities of their trust. This will be crucial given that the managing officers are held liable for errors.
What information is required?
Individuals who are beneficial owners must provide the register with the following:
- Name
- Date of birth
- Nationality
- Usual residential address
- A service address
- Date they became a registrable beneficial owner.
As a result of considerable personal information uploaded to this public register, certain protections will be implemented, including the permanent suppression of the date of birth and usual residential address, as well as the protection regime for individuals that may be placed at risk as a result of being identified on the public register.
In providing this information, each relevant overseas entity must confirm that it has taken reasonable steps to identify all its beneficial owners and file the relevant identification information with Companies House.
The onus is placed firmly on the overseas entity to check for any registrable beneficial owners and declare one of the following:
- That it has identified all beneficial owners and has no reason to believe there are others, and that it is able to provide the required information about those identified;
- That it has no reason to believe that it has any registrable beneficial owners and instead provide required information about its managing officers;
- That it has reasonable cause to believe that it has a registrable beneficial owner, but has been unable to identify the beneficial owner and therefore cannot provide the required information; or
- That it has identified beneficial owners but cannot provide all of the required information about all or one of them.
Who is responsible?
It is a criminal offence by the entity and every officer, including ‘shadow directors’, to fail to comply with the annual updating duty. It is worth noting that professional advisers to an entity are not within the scope of the legislation.
Potential relaxation?
There is room for regulations to be introduced to limit what must be provided, where there is an equivalent local company register. This would be a very helpful limitation, so keep your eyes open for future developments.
What action should you take?
Companies House now have to implement the register as soon as possible. However, in the meantime, any foreign entity selling UK property between 28 February 2022 and the register implementation date is required to submit their details at the point of sale.
For fiduciary service providers who have look after such entities in any capacity and directors or shareholders of such companies, we would suggest a thorough review of your records to identify those with UK properties and consider whether you need to register the entity and how to do it.
The penalties are very steep with fines at up to £2,500 per day, per relevant person and a risk of five years in prison in some circumstances.
For more information, please contact your usual Haysmacintyre contact or James Walker.
