The separation of legal and beneficial ownership has been under the transparency spotlight for some years now and the creation of beneficial ownership registers to fight economic crime has been one of the most significant compliance changes of the last decade.
Beneficial ownership registers have been implemented by the UK in a somewhat piecemeal way although the intention was always to have a triumvirate of registers. First off the blocks was UK corporate beneficial ownership and the Persons with Significant Control (PSC) register, introduced by the Small Business, Enterprise and Employment Act 2015. This was followed by the introduction of the Trust Registration Service, establishing a register for the beneficial ownership of trusts in 2017, for trusts with a UK tax liability. The trust register was extended in 2020 to require all UK express trusts and some non-UK trusts to register by 1 September 2022. But the third register, a public register of overseas entities that hold UK property with details of their beneficial owners (ROE), despite the introduction of the Registration of Overseas Entities Bill in 2018, has taken much longer to reach the statute book.
The catalyst for bringing the legislation into place was the invasion of Ukraine by Russia. The legislation to introduce the ROE and to expand the unexplained wealth orders regime was fast-tracked and on 15 March 2022, the Economic Crime (Transparency and Enforcement) Act 2022 (the Act) received Royal Assent. The Act has been followed by a raft of regulations – the Register of Overseas Entities (Verification and Provision of Information Regulations 2022) (2022/725) and Register of Overseas Entities (Delivery, Protection and Trust Services) Regulations 2022 (2022/870) – and guidance from the Department of Business, Energy & Industrial Strategy, Companies House, and the Land Registry.
Different aspects of the legislation came into force in August and September 2022 and, while the overall structure is relatively clear, some aspects of the implementation and interpretations rules are not. Some small changes are already being proposed for clarity in the Economic Crime and Corporate Transparency Bill 2022 (and see HMRC’s factsheet of 24 October 2022).
The aim of the ROE is to capture information about beneficial ownership of overseas entities that own UK land. At this stage, it is concerned with land, purchased in England and Wales after 1 January 1999, in Scotland on or after 8 December 2014 and in Northern Ireland on or after 1 August 2022. The ROE will be kept by Companies House. An overseas entity is a legal entity that is governed by the law of a country or territory outside the UK and a legal entity is a body corporate, partnership or other entity that is a legal entity under the law where it is governed. Trusts are excluded as they do not have legal personality, but that does not mean that they are not affected (see further below).
There are two stages of work in relation to the ROE which must be done before the deadline of 31 January 2023, although perhaps that deadline will be extended as we saw with the deadlines for the extension of the trust register. The first stage, assuming that the land was acquired after the relevant start dates (and that might depend on if the title changed through extension or enfranchisement or surrender and re-grant) is to identify the registrable beneficial owners of the overseas entity. The registrable beneficial owners will be individuals, legal entities or government and public authorities. The conditions for registration follow those of a PSC so the key is to identify:
But it will then be necessary in many cases to go further and identify if there are trustees of a trust, members of a partnership, incorporated association or other entity which meet any of the conditions above and if there is any person or entity who has the right to exercise or actually exercises significant influence over the activities of the private trust or entity. There is provision for the exemption of overseas entities if the overseas entity itself is already subject to its own disclosure requirements.
The advisory work at this first stage is likely to be complex. Some structures will be relatively simple to categorise, e.g. the offshore company owning UK land which is beneficially owned by a single shareholder. But any structure involving a trust element is likely to require more detailed analysis, e.g. where UK land is directly held by a professional trustee company, where UK land is held by an overseas company the shares in which are owned by an overseas trust, where UK land is directly or indirectly held by a private trust company or where UK land is held by an overseas nominee company.
Once the analysis about the structure is in place, it is possible to establish what information is needed. The overseas entity must provide basic information about itself – name, country of incorporation or formation, registered or principal office, e-mail address, legal form, and the law by which it is governed, any public register where it is registered and the registration number applicable. It also must produce one of the following statements:
Depending on the statement made, further information must be provided. If there is no registrable beneficial owner, the overseas entity must provide information about its managing officers. Where a trust meets the beneficial ownership conditions, extensive information must be provided about the trust, the date of creation, the settlor, current and previous trustees, all beneficiaries (which may be a significant exercise in itself) and individuals or entities with control over the trust and interested persons such as protectors.
Generally, the register will be available to the public. At the same time, there has to be some data protection and privacy for the beneficial owners identified. So dates of birth and residential addresses of individual registrable beneficial owners will not be available. Nor will trust information be publicly accessible. It is also possible to apply for details relating to registrable beneficial owners or managing officers to be protected if there is serious risk of violence or intimidation to the individual or a person living with them. While the UK is not bound by EU judgments, the EU Court of Justice's recent ruling in Joint Cases C-37 & 601/20 of 22 November 2022 has opened up the debate on public registers again everywhere and it remains to be seen if there will be any further restriction on public access.
Why is it necessary to be so precise about the analysis? This is because the second stage is the verification and application process. The overseas entity must serve an Information Notice on any person it knows or has reasonable cause to believe is a registrable beneficial owner. Any person in receipt of that notice must confirm whether it is correct or not and supply any of the information the overseas entity does not already have. The recipient has a month to reply; hopefully in many cases that length of time will not be needed but it does mean that notices need to be served as soon as possible.
In some cases, overseas entities are receiving communications to prompt them. Companies House issued notices in August, and most recently the Land Registry has issued notices of restrictions it has added to titles under the Act. At the end of September HMRC also started a campaign of sending ‘nudge’ letters to property owning offshore corporate bodies where there are concerns about their offshore tax compliance, a reminder that one of the crimes the Act is seeking to tackle is tax evasion.
The information and supporting material must be verified by a relevant person who has applied for and received an agent assurance code from Companies House. Acting as a relevant person without having also done the analysis is likely to be quite high risk until some of the difficulties around the analysis and collating the right information have been ironed out.
Once an overseas entity is successfully registered, an overseas entity ID will be issued, which will enable land transactions to take place. This sounds simple enough, but the impact for overseas investors and UK property and lenders taking security over the property is significant. Third parties entering into property contracts with overseas entities should:
The overseas entity is required to update the information annually until such time as it successfully applies to be removed from the register. Within 14 days after each update period, the registered overseas entity must provide a statement confirming that it has no reasonable cause to believe that anyone has become or ceased to be a registrable beneficial owner during the update period (12 months starting with the date of the overseas entity’s registration and each period of 12 months thereafter) or provide details of any changes. There will be an ongoing need for checking, verifying etc.
The consequences for making a false statement are serious. The Act contains a false statement offence where a person, without reasonable excuse, provides documents which are misleading, false or deceptive in a material particular, or makes a statement that is misleading, false or deceptive in a material particular. It is aggravated if the person knows that is the case about the document or statement. The penalties are fines and possible imprisonment, which is why it is so necessary for the analysis to be precise and the verification process to be accurate. Given the time pressure, with the deadline of 31 January 2023, it is imperative for the analysis to start early enough.
It is, of course, the case that if beneficial ownership registers are to succeed in providing a more transparent position, they need to generate accurate data which can be relied on by those tackling money laundering problems, by businesses doing due diligence and by those gathering information globally for tax or compliance purposes. The verification process reflects some of the criticism which has been levelled at the PSC register now being addressed, along with other aspects, in the draft Economic Crime and Corporate Transparency Bill.
Once the ROE is in place, there will be significant amounts of reliable information about structures which a decade ago simply would not have been available.
Helen is a Consultant at BDB Pitmans LLP. She specialises in estate and tax planning for individuals, families and trustees, usually with an international dimension. She regularly writes and speaks on trust and tax topics.