New Act requires overseas property owners to register the names of ultimate beneficiaries

Published on 15.08.22
Published on 15.08.22

New legislation introduced on 1 August prevents overseas property owners from hiding their ownership of UK property. There will be severe sanctions for those who do not comply, including restrictions on buying, selling, transferring, leasing or charging their land or property in the UK.

Overview

The Economic Crime (Transparency and Enforcement) Act 2022 (the Act) came into force on 1 August 2022.

The Act forms part of the government’s strategy to combat economic crime. Although it has been in the pipeline since 2015 to tackle “dirty money” being used to purchase UK property and improve ownership transparency, the Act was fast-tracked through the UK parliament following Russia’s invasion of Ukraine.

Under the Act, overseas entities who buy, sell or transfer property or land in the UK must register with Companies House on the register of Overseas Entities and report who their registrable beneficial owners or managing officers are.

From 5 September 2022, the Land Registry will refuse to register certain property transactions involving overseas entities if those entities are not registered on the Overseas Entities register or if they fail to comply with their obligations to update information on the register.

Transactions covered include sales and purchases of land by overseas entities and security over land granted by overseas entities.

Non-compliance with the Act will effectively freeze property dealings.

The Act makes no distinction between UK residential and commercial property, with both being caught.

Register of Overseas Entities

What the register consists of:

  1. List of registered overseas entities.
  2. Documents required under the new regulation.
  3. Information that must be included in the register – see Required Information below.

Required information:

  1. Information in relation to an overseas entity includes its name, country of incorporation or formation, registered or principal office, service address, email address, legal form, governing law, any public register on which it is entered, and, if applicable, its registration number in that register.
  2. Information in relation to registrable beneficial owners includes the date on which they became a registrable beneficial owner, which of the specified conditions is met in relation to them and a statement of why that condition is met and whether that person is a designated person.
  3. Information in relation to managing officers includes a description of the officer’s roles and responsibilities in relation to the entity.

Thereafter, there will be an ongoing annual responsibility for overseas entities to update their registration.

Who must apply?

Overseas entities (see definition below) that already own or lease land or property in the UK need to register with Companies House by 31 January 2023 or have a pending application for registration by that date.

The Act applies to overseas entities who bought property or land on or after:

  • 1 January 1999 in England and Wales
  • 8 December 2014 in Scotland

Overseas entities only need to register property or land bought in Northern Ireland on or after 1 August 2022.

Entities that dispose of property or land after 28 February 2022 must give details of those dispositions.

What is an overseas entity?

An overseas entity is any legal entity governed by the law of a country or territory outside the UK.

An overseas entity includes companies, partnerships, corporations and some foundations having a separate legal personality to its legal and beneficial owners. It will include companies and LLPs in offshore jurisdictions such as Jersey, Guernsey, the Isle of Man and the British Virgin Islands.

Trusts, having no separate legal personality, are not immediately captured, but other provisions within the Act may still apply.

Is every beneficial owner a registrable beneficial owner?

No. The test is similar to the People with Significant Control regime applying to UK companies. A registrable beneficial owner is:

  • that person who holds, directly or indirectly, more than 25% of the shares in the overseas entity,
  • that person who holds, directly or indirectly, more than 25% of the voting rights in the overseas entity, and /or
  • that person who holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the overseas entity.

The above classifications are not exhaustive. A person may have the right to exercise or exercise significant influence or control over an overseas entity through other means, for example, in the context of the trustees of a trust, or the members of a partnership and the members of unincorporated associations.

Penalties

Serious criminal penalties may be imposed against those who fail to comply with the new rules, including custodial sentences.

If you would like further information about the requirement to register overseas entities, please contact Carolina Rudd at [email protected].