The Economic Crime (Transparency and Enforcement) Act received royal assent on 15 March 2022. The Act creates a framework for a new register of overseas entities which hold UK land (which we will refer to in this briefing note as the ‘Register').
The Register is now in force from 1 August 2022, but much still remains to be finalised.
We set out below some of the key features of the Register of which advisers and their clients will need to be aware. It is not possible for us to cover all the provisions of the Register in this note (which, naturally, does not itself constitute legal advice) nor all permutations which may or may not lead to a registration obligation. We would urge individuals who own UK land through overseas entities to seek advice from their legal advisers in order to ensure their compliance with the new regime. Failure to do so can result in civil and criminal sanctions.
Registration and identification of beneficial owners of foreign entities
The key point to highlight is that the register is not a register of beneficial ownership of UK land. Rather, as with the PSC register for UK companies, it is a register of the controllers of foreign entities owning UK land. An overseas entity will need to apply to be registered on the Register in order to become the legal owner of UK land and overseas entities which are already the legal owners of UK land will need to make an application to register under the new regime before the end of January 2023.
An overseas entity is a body corporate, partnership or other entity governed by the law of a country or territory outside the UK (as long as the entity is a ‘legal person' under the law by which it is governed). ‘UK land' for these purposes means freehold land or leases originally granted for a term of more than seven years.
The overseas entity will need to take reasonable steps to identify and/or confirm its registrable beneficial owners and relevant information about them before making an application to register. It will do this by sending an information notice requiring the relevant information to any person that it knows, or has reasonable cause to believe, is a registrable beneficial owner or is a person who knows, among other things, the identity of a registrable beneficial owner. Failure to respond to an information notice will be an offence.
An application for registration must include the details of all registrable beneficial owners which the overseas entity has identified. Those details include for individuals, for example, the individual's name, date of birth, nationality, usual residential address and which of the below beneficial ownership tests is met (among other things). As is the case for UK companies, certain information about an individual will normally not be disclosed (such as date of birth and residential address).
Five categories of person must be registered as beneficial owners of an overseas entity. A ‘person' for these purposes can be an individual, legal entity (in certain circumstances) or government or public authority. The following are registrable beneficial owners in relation to an overseas entity:
- A person who holds, directly or indirectly, more than 25% of the shares in the overseas entity.
- A person who holds, directly or indirectly, more than 25% of the voting rights in the overseas entity.
- A person who holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the overseas entity.
- A person who has the right to exercise, or actually exercises, significant influence or control over the overseas entity.
- Where the trustees of a trust, or the members of a partnership, unincorporated association or other entity, that is not a legal person under the law by which it is governed meet any of the conditions specified above (in their capacity as such), a person who has the right to exercise, or actually exercises, significant influence or control over the activities of that trust or entity.
A number of additional rules qualify, broaden and add to the meaning of the above terms (for example, what it means to hold shares ‘indirectly', among other things) and the potential for complexity in this area means we would recommend that advice be taken on the application of the conditions to any given ownership structure.
The overseas entity will have an ongoing obligation to update the registrar annually with information about its registrable beneficial owners (whether any person has become or ceased to be a beneficial owner or whether there have been no changes). The entity will have a rather narrow window of 14 days from each anniversary of its registration to provide this update to the registrar.
Where the registrable beneficial owner is registrable under one of the above tests as a result of being a trustee, then this fact must be disclosed to the registrar.
Furthermore, if the registrable beneficial owner holds as a trustee, then details of the trust must also be provided to the registrar, including the name of the trust, the details of the settlor, beneficiaries and those of the trustees and any protector (depending on the protector's powers), among other things. These details are expressly excluded from public disclosure and as such will not appear on the Register, but will be shared with HMRC and other government bodies.
Verification of identity
Information uploaded to the Register is required to be independently verified by a UK regulated entity – as such, it will not be possible for an overseas entity to complete the registration solely itself. Guidance as to how verification will need to be carried out is still awaited.
One indirect but key way in which the new rules will be enforced is that overseas entities will be restricted from registering or disposing of title to UK land if they are not registered on the Register. No application will be able to be made to register an overseas entity as the proprietor of the UK land unless the entity is a registered overseas entity (or exempt). Similarly, a restriction on the Register will prohibit the disposal of the land owned by an overseas entity unless it is registered at the time of the disposal (or exempt, albeit this restriction will not apply in certain circumstances such as a transfer on insolvency). If a disposal is made despite such a restriction, the overseas entity and every one of its officers in default will have committed a criminal offence, liable to imprisonment for up to five years plus a fine.
Further, in England and Wales, overseas entities owning UK land of which they became registered proprietor pursuant to an application made on or after 1 January 1999 will need to make an application to register within six months of the law coming into force, i.e. by 31 January 2023. Failure to do so will be a criminal offence by the entity and every officer in default.
Failure to comply with the updating duty will also result in a fine for the overseas entity and any officer who is in default.
Delivering a document to the registrar which a person knows is misleading, false or deceptive in a material way is also a criminal offence with a maximum potential penalty of two years imprisonment and a fine.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.