Whilst the regulation of overseas ownership of UK property has been under discussion for years, it was Russia’s invasion of Ukraine that ultimately fast-tracked the passage of the Economic Crime (Transparency and Enforcement) Act (“the ECA”) in March of this year. Part 1 of the ECA seeks to deliver greater transparency regarding overseas entities’ land ownership in the UK through the establishment of a publicly accessible register. Companies House have announced that this new register will launch on 1 August 2022, bringing into force an ongoing duty for qualifying overseas entities to disclose the details of their beneficial owners.
The new rules mirror many provisions of the Persons of Significant Control (PSC) register introduced in 2016, whereby UK-incorporated companies became subject to more stringent disclosure requirements. In a similar vein, a non-public register of beneficial ownership for trusts was established in 2017 as part of the UK’s implementation of the fourth Anti-Money Laundering Directive. The ECA can therefore be interpreted as part of a wider effort to clamp down on economic crime and, in particular, growing concerns over ill-gotten wealth being hidden and laundered through land.
Who is affected by the new requirements?
The ECA applies to any legal entity governed by a non-UK jurisdiction that wishes to own land in the UK and requires that entity to take reasonable steps to identify and declare its beneficial owners. Once successfully registered, Companies House will issue an ID to the overseas entity. Without such an ID, an overseas entity will be prevented from being registered as the legal owner of the property. Domestic buyers, lenders, tenants and other parties may also be affected since any transaction involving an overseas entity will not be registrable until there has been due compliance with the ECA .
The registration requirement will be applied retrospectively to any ‘relevant interest’, defined under the ECA as a freehold or lease of more than seven years. Where an overseas entity was made proprietor of such an interest on or after 1 January 1999 in England and Wales, it will be subject to the new disclosure rules. The trigger date in Scotland will be 8 December 2014, however the registration requirement will only be applied prospectively in Northern Ireland.
With only a six-month grace window to comply with the ECA once the register is launched, companies must swiftly take action to consider any potential new obligations. The threat of criminal sanctions, ranging from fines to five years imprisonment, will presumably ensure widespread compliance.
How extensive are the new provisions?
The new duty to disclose is however perhaps not as far-reaching as it first may seem. Notably, the ECA does not extend to trusts relating to ownership of land. Therefore, both non-UK trusts as well as UK entities holding property on trust for any overseas entities will not be captured by the new requirements.
As well as many trust arrangements falling outside the ECA, it is also significant that not all beneficial ownership need be disclosed. In parallel with the existing PSC regime, the registration requirement will only apply to beneficial owners holding more than 25% of the shares or voting rights in an entity, to those with the power to appoint or remove a majority of directors, or to those with some other significant influence or control over the entity. However, the ECA does contain an ongoing obligation on the entity to update the information at least once a year so there will be an administrative compliance burden.
Set amongst the PSC regime and the trust register operated by HMRC, the introduction of registration requirements for overseas entities with UK property interests is evidently symptomatic of the current political climate. Whilst it is still too early to assess the impact of the new disclosure rules, it is clear that the administrative burden faced by legitimate overseas investors must be weighed against the ECA’s potential to tackle criminal activity involving land in the UK.
Authors: Melissa Dix and Teresa Edmund