Against the backdrop of the conflict in Ukraine and the imposition of widespread sanctions, the UK government in March 2022 fast-tracked legislation to create a register of overseas entities that own UK land (the Economic Crime (Transparency and Enforcement) Act 2022 (ECA).
Under the ECA, overseas entities that own land in the UK will need to be listed on a public register maintained by Companies House launched on 1 August and declare their beneficial owners and (in some cases) managing officers and any trusts that sit within its corporate structure. There will be severe sanctions for non-compliance including restrictions on buying, selling, transferring, leasing or charging UK land.
Which Entities Need To Register
Companies incorporated outside the UK and other legal persons governed by the law of a country or territory outside the UK (Overseas Entities) will have to register with UK Companies House on the "register of overseas entities" (RoE), and provide information on their registrable beneficial owners, if they own, or propose to acquire, registrable UK land. Broadly, this captures freehold estates or leasehold estates with a term of more than seven years, acquired since 1 January 1999.
Foundations, which are usually considered to have legal personality in the country whose laws govern them, are likely to be covered by the definition of Overseas Entities, although trusts, which do not have legal personality, are not. However, information about trusts may need to be declared, where they are a beneficial owner of an Overseas Entity.
Practical Implications – Land Registry
The Overseas Entity must make an application to register within the transitional period, which lasts for six months from the Act coming into force and sanctions for non-compliance for the entity and its officers include fines and imprisonment. This means that, from 1 February 2023, an Overseas Entity that holds registrable UK land and was registered as the owner on or after 1 January 1999 will not be able to dispose of, lease out or charge that land unless it registers under the new regime and obtains a registration number.
Similarly, an Overseas Entity that proposes to purchase registrable UK land will not be able to do so without registering on the RoE and obtaining a registration number. Where an Overseas Entity disposes of UK land between 28 February 2022 and the end of the transitional period, the Overseas Entity will still need to provide information regarding its beneficial owners immediately before the disposal to Companies House.
What Information Does An Overseas Entity Need To Provide When Applying To Register At Companies House?
The Overseas Entity will need to provide several confirmatory statements and information about itself (including the name and registered office of the Overseas Entity) and their registrable beneficial owners (RBOs) or managing officers. This must include confirmation that the entity has identified one or more RBOs and that it has no reasonable cause to believe there are any others. Otherwise, the entity must confirm that it has no reasonable cause to believe that there are any RBOs or that it reasonably believes that there is an RBO that it has not identified. If an Overseas Entity is not able to provide the beneficial ownership information because there are no beneficial owners falling within the categories described below, it will need to provide information about its ‘managing officers’, who will include directors, managers and secretaries.
Overseas Entities will then have an ongoing responsibility to update their registration within a 14-day annual update period. The Overseas Entity must also notify Companies House when a beneficial owner and/or managing officer is required to be removed from the RoE.
What Are Registrable Beneficial Owners?
RBOs include individuals, entities or government bodies that meet at least one of the following conditions:
“Significant influence or control” is not defined in the Act, but in the context of trusts, this likely includes the right to appoint or remove trustees, to direct the distribution of funds, or to revoke the trust.
Looking Up The Corporate Chain
Notably, the first three conditions refer to a person being a beneficial owner if they hold a share or a right “indirectly”. A person/entity holds a share or right indirectly if they hold the majority stake in a legal entity which holds the share or right itself or they hold a majority stake in a legal entity that is part of a chain of legal entities, each holding a majority stake in the entity below, and the last entity in the chain holds the share or right.
Broadly, a person or entity has a majority stake in a legal entity if they hold a majority of the voting rights, hold shares in the entity and can appoint or remove a majority of its directors or have the right to exercise or actually exercises “dominant influence or control” over the entity.
In practice, this means in most cases that where registrable land is held through a chain of companies, the Overseas Entity is required to work up through the structure and determine its ultimate beneficial owners.
However, an exemption applies in respect of any beneficial owner holding an indirect interest through a legal entity which is subject to its own disclosure requirements. The definition of “subject to its own disclosure requirements” includes companies incorporated in the UK and overseas entities required to register on the ROE. The result is that if there is, for example, a UK incorporated company within the structure, that company is the registrable beneficial owner for the purposes of the ROE - there is no obligation to then identify its beneficial owners.
What Information Will Be Public vs Kept Private?
Unlike the UK’s Trust Register, which is by default accessible only to HMRC and other law enforcement agencies, the RoE is publicly accessible via Companies House. However, some of the information held on the RoE is unavailable for public inspection. The information unavailable for public inspection includes the day of the month on which a registrable beneficial owner or managing officer was born (but not the month or year), as well as their residential address.
A crucial exclusion also applies where information is provided in relation to trusts, on the basis that a RBO is a trustee. None of the information provided in relation to the trust is publicly accessible; it can only be shared with HMRC or persons specified by the Secretary of State. The one exception to this is where information relating to a trust has also been provided under the RoE on some other basis, for example where an individual is both a beneficiary and is a registrable beneficial owner in his own right.
Draft verification regulations published on 30 June confirm that before an Overseas Entity can register its RBOs or managing officers on the RoE a UK-supervised ‘relevant person’ will need to verify the required information about them.
Broadly, a “relevant person” for these purposes includes credit and financial institutions, auditors, insolvency practitioners, external accountants, tax advisers, independent legal professionals, trust and company service providers, estate agents and letting agents.
The “relevant person” will itself need to register with Companies House and obtain its own registration number, before it can verify information on the Overseas Entity.
What Should Overseas Entities Be Doing Now?
As the process may take some time, Overseas Entities proposing or committed to a registrable UK land purchase should be immediately taking steps to ascertain what information it needs to provide on the RoE, identify a relevant person to verify the information and consider the implications for the transaction.
Overseas Entities already holding registrable land should be reviewing their ownership structure and collating the information they are required to submit to Companies House so that they are registered within the transitional period and any HM Land Registry restrictions on preventing the disposing of, leasing out or charging the registrable land do not adversely affect them.
As the registration may take longer to process if the Overseas Entity completes the registration themselves, it may be expedient for the registration, as well as the verification process, to be carried by the relevant person for the Overseas Entity.
Disclaimer: This content is provided for general information only and does not constitute legal or other professional advice. Appropriate legal or other professional opinion should be taken before taking or omitting to take any action in respect of any specific problem.
Matthew Radcliffe TEP
Matthew provides advice to offshore, onshore and multi-jurisdictional individuals, families, trustees and beneficiaries regarding taxation, trust and estate planning matters. He is familiar with devising and coordinating tax and estate planning across a number of jurisdictions and in particular specialises in tax and estate planning where there are US, UK and Canada cross-border issues. He also has expertise in advising on the UK tax treatment of foreign entities including foundations and trusts and UK residential property holding structures.