The UK Government has introduced to Parliament the Economic Crime (Transparency and Enforcement) Bill. Among other measures, the Bill provides for a "Register of Overseas Entities".
Describing the rationale for the new Bill, the Government has stated that the new register "will require anonymous foreign owners of UK property to reveal their real identities to ensure criminals cannot hide behind secretive chains of shell companies, setting a global standard for transparency."
The mechanics of this new public register, which would include details of the beneficial owners of overseas entities owning UK property, were first crafted in the Registration of Overseas Entities Bill in 2019. The new Economic Crime Bill builds on that draft legislation, with some important changes.
Restrictions on acquisition of UK land
The Bill provides that if the beneficial owner or controller of an overseas entity that owns UK land has not registered their identity at Companies House, a restriction will be placed on the title that will prohibit that entity from selling, leasing or mortgaging that land.
The requirements would apply retrospectively to overseas entities that own land in England and Wales that has been acquired since 1 January 1999 (different requirements apply for Scotland and Northern Ireland). As currently drafted, there would be an 18-month transition period for those overseas entities that already own land.
An overseas entity will also be prohibited from buying UK land, or taking a leasehold interest of more than seven years, unless the identity of its beneficial owner or controller has been registered at Companies House.
Each entity that completes the necessary registration will be allocated an "overseas entity ID" number. Any ordinary individual or UK company selling UK land to (or buying from) an overseas entity will need to be satisfied that the entity holds a valid ID, otherwise completion of the transaction will be held up. Similarly, a delay in registering beneficial ownership or control of an entity at Companies House, which could result, for example, from a surge of initial applications, may also delay completion of transactions.
Every overseas entity must update its beneficial ownership and control details at least once every 12 months. If it does not, it will be banned from buying, selling, mortgaging or leasing UK land until this is remedied. A purchaser buying from an entity with a valid ID will therefore check when the 12 month renewal falls and will stipulate that the entity's details must be duly updated in time for the completion date.
If an overseas entity has owned UK land in the past, but has ceased to own any such land by 18 months after the new law comes into force, then it will not be required to register its beneficial ownership and control.
For all these purposes, "owning" land is defined as being registered as proprietor at the Land Registry. This could lead to anomalous results where an entity has sold the land and collected the sale proceeds but is still shown as proprietor due to delays in processing at the Land Registry.
There is some provision for the Secretary of State to validate certain dispositions to innocent third parties that would otherwise breach the new rules, where fair to do so. Nevertheless, the overall impression is that the Government is now minded to make things difficult and time-consuming for those acquiring UK land through overseas entities, even where motivated by legitimate concerns such as safety and privacy.
Who will need to appear on the new register?
Under the UK's current "People with Significant Control" (PSC) regime, all UK companies already have to register the identity of controllers and beneficial owners. The register of overseas entities owning UK land will be closely modelled on the PSC regime. Very broadly, overseas entities owning UK land will be required to register details of those who hold, directly or indirectly, more than 25% of the shares or voting rights, those who can appoint or remove a majority of the board or those who have the ability to exercise significant influence or control over the entity.
The register focuses on "legal entities" with legal personality under local law and does not therefore require the registration of trusts. Trustees of a trust with the requisite control over an overseas legal entity would need to be registered, along with anyone else who has the right to exercise, or actually exercises, significant influence or control over the trust, but not the trust itself. The separate mechanism of the Trust Registration Service (TRS) requires beneficiaries and controllers of UK express trusts and other trusts acquiring UK land to be identified and registered with HMRC. The TRS is not a publicly available register, although law enforcement agencies and individuals who have a "legitimate interest" in a specified trust can apply for the relevant information.
A key consideration for purchasers will be the accuracy of the information regarding beneficial owners on the register. In a significant change since the earlier iteration of the legislation, the Bill now provides that the Secretary of State must by regulations make provision requiring the verification of information before an overseas entity applies for registration (or updates information on the register).
Timing and next steps
The timing of the introduction of the new register is yet to be confirmed. The Government fact sheet accompanying the new Bill states it is expected that the register will have "an immediate dissuasive effect on those who were intending to buy UK property with illicit funds." It also acknowledges that in practical terms system changes will be required at Companies House to implement the register, noting that Companies House has received increased funding to transform its operations, including delivering the new register.
In the same week as the new legislation was published, the Government has also published a White Paper on corporate transparency and register reform. This confirms the Government's intention to proceed with a wide range of reforms to Companies House, including new statutory powers and responsibilities for the Register of Companies, identity verification requirements for directors, beneficial owners and agents, increased data sharing powers, privacy mechanisms with respect to the abuse of personal information on the register and changes to the reporting of financial information to Companies House.