In response to the events in Ukraine, the government is at long last introducing the register of overseas entities that own UK property which was first proposed in 2016.
There has long been concern about the UK property market being used to launder money from overseas. The register had originally been expected to become operational in 2021 but the proposals have been languishing for some time.
The provisions to introduce the register are included in the Economic Crime (Transparency and Enforcement) Bill 2022 which had its first reading in the Commons on 1 March. The Bill has cross-party support and is expected to be passed very quickly.
Key points to note:
- The register will be kept by Companies House. All non-UK entities which hold freehold titles or leaseholds of longer than seven years in England and Wales (qualifying estates) will have to register. Similar rules will apply where overseas entities hold property elsewhere in the UK
- The entity must supply information about itself and its beneficial owners. If there are no beneficial owners the entity must state this and provide information about its managing officers. The definition of beneficial owner and the information required is broadly the same as that required in relation to the PSC (persons of significant control) regime which already applies to UK companies
- The requirement to register will apply to overseas entities that already own land in the UK as well as those which first acquire land here after the new legislation comes into force. This will go back as far as ownership registered on or after 1 January 1999 for England and Wales and 8 December 2014 for Scotland
- Transitional provisions will allow overseas entities that already own UK land a grace period of 18 months to comply with the registration requirements. This period has been widely criticised as too long, so it may well be amended as the Bill goes through Parliament
- Once registration information provided has been verified, Companies House will issue the entity with an overseas entity ID and record this ID in the register. Without an overseas entity ID an overseas entity cannot be registered at HM Land Registry as the owner of any land it acquires
- There is an updating duty requiring the information to be updated at least every 12 months in order for the entity to retain its registered overseas entity status
- HM Land Registry will place restrictions on titles currently held by overseas entities to prevent sales, charges and leases of more than 7 years being registered unless the entity is a registered overseas entity at the time of the transaction
- The obligations are backed up by criminal sanctions on the entity itself and any officer in default (fines and imprisonment)
- It is not clear when the register will come into force, but the government has just said that implementation will follow "at pace" after Royal Assent.
Once the legislation is in force, it will affect any transaction involving an overseas entity. Due diligence will be increased and new contractual obligations required, for instance to require any overseas entity to attain/maintain its registered overseas entity status until completion.