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Flash update (UK, EU) Introduction of a Register of Overseas Entities – Shining a light on foreign investments in UK property

  • United Kingdom
  • Financial services disputes and investigations
  • Fraud and financial crime
  • Real estate dispute resolution

29-07-2022

Introduction

The government’s long standing commitment to introduce a public register showing the beneficial owners of UK property has finally come to fruition. In this article Ruth Paley and Adele Seclier consider the impact of the register on UK property ownership by overseas entities and whether the increased transparency will act as an effective mechanism to stem the flow of illicit funds into UK property.

Set to launch on 1 August 2022, the Register of Overseas Entities (ROE) requires that non-UK incorporated companies who already own, want to buy, sell or transfer property or land in the UK, or bid for UK public contracts must register with Companies House and disclose information regarding their beneficial owner(s) or managing officers by 31 January 2023.

The registration requirement also applies retrospectively to property or land bought on or after 1 January 1999 in England and Wales (8 December 2014 in Scotland, and 1 August 2022 in Northern Ireland).

A beneficial owner must register if any of the following applies:

(i). they hold more than 25% of the shares or voting rights in an entity;

(ii). can appoint a majority of its directors; or

(iii). have some other significant influence or control over it.

These criteria mirror the existing thresholds for registration under the People with Significant Control (PSC) regime for UK companies. Overseas entities will be required to provide information relating to each beneficial owner including their full name, date of birth, nationality, address, date of which they became a beneficial owner, the nature of the control and whether they appear on the UK Sanctions list.

Where the entity has no beneficial owner, information will instead need to be provided for their managing officers. A UK-regulated agent must then complete verification checks on all beneficial owners or managing officers before an overseas entity can be registered. A UK-regulated agent must be based in the UK and supervised under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017. They can be an individual or a corporate entity, such as a financial institution or legal professional, and they must request an agent assurance code from Companies House, which authorises them to file verification check statements for an overseas entity. 

Once the £100 registration fee has been paid and the application has been accepted by Companies House, the overseas entity and its beneficial owners and/or managing officers will be added to the ROE, and will receive an Overseas Entity ID, which must be provided to the Land Registry whenever the entity buys, sells or transfers land in the UK. Following registration, the overseas entity is required to file annual updates either confirming that the information held by Companies House is still accurate, or notifying them of any changes. The update must be filed no later than 14 days after the due date.

Impact and consequences of non-compliance

Without an Overseas Entity ID, an overseas entity cannot be registered as a legal owner of the property. The Land Registry will enter a restriction on existing titles of overseas entities which were registered on or after 1 January 1999, which will effectively prohibit the registration of any transfer where the overseas entity has not complied with the requirements of the register, including the duty to update its details annually.

In addition to the restrictions on the disposition of land or property, failure to register or update the information on beneficial ownership may constitute a criminal offence, which could entail penalties in the form of fines of up to £2,500 per day, or a prison sentence of up to five years.

Commentary

The creation of a Register for Overseas Entities forms part of the UK government’s strategy to tackle economic crime, with its implementation being fast-tracked following concerns regarding illicit money pouring into the UK from Russia, in response to the invasion of Ukraine. With the overarching aim of lending greater transparency to foreign investment in the UK, the implementation of the ROE is intended to expose shell companies or complex legal structures created with the intention of concealing their owners’ true identities, dissuading criminals from purchasing UK property using illicit funds.

While the beneficial ownership requirements are a welcome improvement on the status quo, there is ample opportunity to circumvent the measures, such as sidestepping the 25% share ownership threshold for beneficial ownership, for example, through arrangements whereby a family of five each owns 20% of shares in a company. Concerns were also raised during the Bill’s passage about whether “nominee” arrangements (in which an oversees entity owns UK property as a nominee for an individual) could be used to disguise the true beneficial owner(s). Given that the ROE focuses on the beneficial ownership of the entity as opposed to the property itself, it is therefore possible that in the case of nominee arrangements, the true beneficial owners of the property will not be reported on the ROE.

In light of these critiques, the Government has attempted to alleviate concerns by referring to the significant “regulation-making powers” in the Act that can be used to close any loopholes that might emerge. Whether the Government will in fact act with haste to remediate these loopholes, if and when emerge, is another matter which remains to be seen.

Next steps

Given the likelihood of the demand for registration, in combination with the potentially onerous and time consuming requirements, the Land Registry recommends that beneficial owners plan ahead for the launch of the ROE on 1 August 2022. Overseas entities, especially those with sophisticated ownership structures, would be well advised to ensure that applications are submitted as soon as possible to avoid delays which could lead to penalties. Regarding future purchases, additional due diligence will be required for prospective purchasers of property owned by overseas entities, who will need to ensure that the entity appears on the register, that there are no restrictions at the Land Registry, and that the current owners have complied with any reporting obligations.

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