On 15th March 2022, the Economic Crime (Transparency and Enforcement) Act 2022 (the “Act”) received Royal Assent. According to the Government, the Act aims to tackle economic crime by delivering “transparency about who ultimately owns and controls overseas entities that own land in the UK” (an issue which has been highlighted by the Government’s response to the Russian invasion of Ukraine, causing the Bill to be fast-tracked through Parliament).
The Act creates the Register of Overseas Entities (the “Register”) which is the third register of beneficial ownership in the UK. It follows the “People with Significant Control Register” for companies and the Trusts Register kept by HMRC’s Trust Registration Service.
To whom does the Act apply?
The Act requires entities incorporated overseas, which own UK property, to reveal the identities of their Beneficial Owners, in order to deter criminals from using UK property to launder money.
Any non-UK entity (an “Overseas Entity”) that buys or already owns land in the UK, acquired since 1999, will need to register with the Registrar of Companies and identify the registrable Beneficial Owners of that Overseas Entity.
An Overseas Entity for these purposes means:
- a legal entity (including a body corporate, partnership or other entity that is a legal person)
- governed by the law of a country or territory outside the UK.
A registerable Beneficial Owner (a “Beneficial Owner”) means:
- an individual, legal entity or government/public authority
- holding more than 25% of the shares or voting rights in the Overseas Entity (or satisfying certain other ownership tests)
The Register, maintained by the Registrar of Companies, will be publicly available, however, certain information about the Beneficial Owner (including date of birth, residential address and contact details) will not be available for public inspection.
An Overseas Entity is exempt from registering a Beneficial Owner if:
- the person does not hold any interest in the Overseas Entity other than through one or more legal entities;
- the person is a Beneficial Owner of every legal entity through which the person holds such an interest;
- the shares or voting rights in the Overseas Entity are held indirectly through a legal entity which is a Beneficial Owner of the Overseas Entity and is subject to its own disclosure requirements and
- the shares or voting rights in the Overseas Entity are held indirectly through at least one of the legal entities in the chain which is a Beneficial Owner of the Overseas Entity and is subject to its own disclosure requirements.
The Secretary of State for Business, Energy & Industrial Strategy may also exempt a Beneficial Owner, in limited circumstances, by giving notice in writing, if it is necessary to do so for reasons of national security or the prevention or detection of serious crime.
On the Register
The Registrar of Companies will allocate an Identification Number (“ID”) to each registered Overseas Entity.
The Overseas Entity will need to keep a record of this ID as it will be required by the Land Registry. Without an ID (unless exempt from being on the Register) the Land Registry will put a Restriction on the property, preventing the Overseas Entity from dealing with the property. In the case of already owned properties, the Land Registry will impose a restriction when the Overseas Entity sells or grants a long lease on the property if they do not have an ID .
The Land Registry will not register an Overseas Entity as the owner of UK property unless the Overseas Entity has registered the Beneficial Owner with the Registrar of Companies and received the associated ID (or they are exempt from registering the Beneficial Owner).
What happens where the Beneficial Owners change?
The Overseas Entity has a duty to inform the Registrar of Companies annually of any updates to the information about the Beneficial Owners. The annual period is to be calculated from the date of first registration. The Overseas Entity must deliver to the Registrar of Companies annually one of the following:
- a statement that the Overseas Entity has no reasonable cause to believe that anyone has become or ceased to be a registrable Beneficial Owner during the 12-month period; or
- a statement that the Overseas Entity has reasonable cause to believe that at least one person has become or ceased to become a Beneficial Owner during the 12-month period.
If the Overseas Entity submits the second statement, it must provide information about the person who has ceased to be or become a Beneficial Owner and the date of this change.
Failure to comply with the duty to update could lead to a daily fine of £2,500 for a Managing Officer (defined as a director, manager, or secretary of the Overseas Entity).
Overseas Entities that have purchased property in England and Wales since January 1999 (or since December 2014 in Scotland) will need to apply for registration of their Beneficial Owners within 6 months of the relevant parts of the legislation (Part 1 of the Act) coming into force.
When Solicitors register ownership of property, they now need to declare who ultimately benefits from it. If the Solicitor registering the transfer of title to the property fails to identify Beneficial Owner(s) of the Overseas Entity, then there will be restrictions over dealing with the property until the Overseas Entity has complied with the requirements to register with the Registrar of Companies.
Lenders who have security over property owned by an Overseas Entity, in respect of which the Beneficial Owners are not registered, will not be able to enforce their security by selling the property.
Property owned by non-UK Trusts
Trusts, which do not have legal personality, are not subject to the Overseas Entity registration requirements. However, it’s already the case that a non-UK trust (which owns UK land directly) must keep a register of their Beneficial Owners and register the trust through HMRC’s Trust Registration Service.
If the non-UK trust owns the UK land through an Overseas Entity the Trustee may be a registerable Beneficial Owner which would then need to be registered under the new regime. The information required to be registered, at Companies House, would include information on the trustees, settlor, beneficiaries, and other persons who are deemed to have significant control/power over the trust.
Timetable and Impact
Companies House launched the Register on 1 August 2022 and other provisions of the Act, yet to take effect, will be brought into force by regulations to be laid before Parliament from time to time.
These registration obligations will have a significant impact on overseas investors who are legitimately purchasing UK land. Strict compliance with the new registration scheme is required and there are serious repercussions for non-compliance, in addition to the annual reporting obligation, regarding the Overseas Entity, to confirm that the Register is still correct.
If you think these changes might affect you and would like our advice on registering an Overseas Entity at Companies House please fill in our form below or contact: