New transparency rules for overseas entities owning land in the UK
An ‘overseas entity’ is a legal entity that is governed by the law of a country or territory outside of the UK and includes any entity which is a legal person under the law by which it is governed (for example, non-UK incorporated companies, LLPs, foreign foundations and non-UK partnerships with a legal personality).
The draft proposals for such a register were first published in July 2018, but the progression stalled. However, this has been accelerated with Russia’s invasion of Ukraine and has now culminated in the Economic Crime (Transparency and Enforcement) Act 2022 which received Royal Assent on 15 March 2022.
Part 1 of this Act relates to the requirement for overseas entities owning UK property (commercial and residential) to register at Companies House and provide details of their beneficial owners. The register will be publicly available, and HMRC will be able to access additional information at Companies House. This requirement will apply where the entity holds freehold property or leasehold property where the lease was originally granted for a term of more than seven years.
Offshore trusts owning UK land directly are not required to register with Companies House, as they must already be registered through the Trust Registration Service. However, offshore trusts which own UK property indirectly through an overseas entity will be caught by these rules.
Some 97,000 properties in England and Wales were held by overseas firms as of January 2018, a quarter of them owned by entities registered in the British Virgin Islands (BVI), according to Land Registry data.
There will be legitimate commercial and protection reasons why UK properties are acquired through overseas entities, and the Government is not trying to block this – the purpose of these rules is to enhance transparency of ownership and to discourage illicit funds from finding their way into the UK property market.
Overseas entities that acquired property in England and Wales after 1 January 1999 or that acquire it in the future must apply for registration on the Register of Overseas Entities (there are corresponding provisions in Scotland and Northern Ireland).
The transitional rules broadly require offshore entities which own such UK property to join the Companies House register within six months of the rules coming into force. Even where the land is sold within this transition period, there are administrative issues. Until an overseas entity owner is registered at Companies House, the Land Registry entry for the property will show a restriction preventing it from being sold (in most circumstances). If a sale occurs after 28 February 2022 but before a company is registered (eg before the regulations are issued or before a restriction is placed on the Land Register), the selling entity still has an obligation to register with Companies House by the end of the transition period.
The registrar will publish the data on the Register of Overseas Entities and issue an Overseas Entity ID to registered overseas entities (which the overseas entity will need to deal with any registered property in the UK). To maintain a valid Overseas Entity ID the entity will need to comply with its updating obligations, which include reconfirming the required information and statements to Companies House at least every 12 months.
As with the existing rules on “persons with significant control” of UK companies, share ownership or voting rights of more than 25% of the overseas entity will put someone in the “beneficial owner” category, along with all directors.
When will the new rules come in to effect?
HM Land Registry have advised that the work is progressing at pace on the creation of the new register, and Companies House and the UK’s land registries have been collaborating with the Department for Business, Energy and Industrial Strategy (BEIS) to make sure the new register is implemented as soon as possible.
Companies House will soon be writing to all overseas entities captured by the Act who own land in England, Wales and Scotland to make sure they know about their new responsibilities.
The launch date for the new register will be confirmed once the secondary legislation is laid. The secondary legislation will fill in the details of the new regime and will provide the practical measures required for the legislation to come into effect, including a commencement date for the new register.
Criminal offences may be committed by those who fail to comply or who provide incorrect information, resulting in significant fines and prison sentences of up to 5 years.
Please contact us immediately if you believe that you are affected by the new legislation or would like to seek further clarification.
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