Beneficial ownership of overseas entities holding UK property
Stephanie Henwood-Darts, Associate Director, Real Estate
In July 2015, the then Prime Minister spoke of the importance of addressing corruption and combating illicit financial flows. This led to the establishment of the UK register of People with Significant Control (the ‘PSC Register’), a public register which identifies and records the people who own or control UK companies, which was implemented in April 2016.
In March 2016, the UK Government (the ‘Government’) released a discussion paper outlining a range of proposals to enhance the transparency of beneficial ownership for foreign entities that are active in the UK, in particular those purchasing property or land. These assets have been specifically targeted as they are seen to provide a convenient way of hiding the proceeds of crime, with high values presenting an opportunity for criminals to launder considerable sums of money in one transaction. Following the discussion paper, the Government announced that it intended to introduce a register of the beneficial owners of overseas companies owning UK land or property. This was a key announcement of the International Anti-Corruption Summit in London in May 2016. In April 2017, following an analysis of responses received to the initial paper, the Government released a consultation paper where further details on the scope and approach were revealed.
Through the current PSC Register, the beneficial ownership and control of UK companies can be cross referenced to properties through the Land Registry. The Government believe that similar transparency should be required for foreign entities.
Under the proposals, which remain subject to change, overseas entities that wish to purchase UK land or property will be invited to apply to Companies House to participate in the new register and disclose their beneficial ownership and control information.
Once an application has been made, a registration number will be allocated. This registration number will be required to be included when the overseas entity is applying to register itself as the legal owner of a property on the land registry application form. Without this number, the application will be cancelled.
The Land Registry will use this registration number to check that the overseas entity has indeed provided its beneficial ownership information to Companies House.
The proposed register will be maintained by Companies House. It will be publically accessible, but
intends to also protect the information of those at risk of harm. The way those ‘at risk’ will be determined has not yet been defined. This may be a crucial point, as unless it’s possible to obtain confirmation of an exemption prior to initiating discussions and incurring costs in relation to an acquisition, the appetite for transactions of this type may be reduced.
The register will show all persons with significant control of overseas entities owning UK land or property. A person with significant control will be defined in the same way as the current definition per the PSC Register, which was based on international best standards. This includes any individual who holds more than 25% of the shares in the company (or equivalent if the entity is not a company limited by shares). To access the full requirements please visit: https://goo.gl/bBiku2
In line with the current PSC Register for UK companies, it is important to note that the register will not be permitted to be blank. Even if there are no PSCs identified, this fact will need to be noted in order to receive a registration number, and therefore purchase UK land or property.
While the original scope focused on companies only, the later consultation expanded this to include ‘all legal entities that can hold properties’.
As well as including all entities that enter into freehold arrangements, the scope will also include entities that enter into leasehold arrangements where the original lease is over 21 years.
Existing overseas entities owning UK land or property will also be required to provide a registration number to the Land Registry within a specified time frame. They will however, be given a transitional year in which they can decide whether to apply for a registration number and disclose the required information or dispose of the land or property held. If the entity does not comply, they will be prohibited from selling the property and land, creating a long lease or using the property as security for a loan.
The Next Step
We now await a response to the latest consultation, which may be accompanied with draft legislation which should provide more clarity over key area of uncertainty such as protection and process.