Contributors
On 1 August the government introduced a new register which will show who owns and controls overseas entities which own land in the UK. Any overseas entity which already owns or plans to acquire land in the UK must make it a priority to register in this new register, or it will not be able to deal effectively with its UK land.
Our article will tell you how this register and the associated land registration changes will affect overseas entities entering into land transactions in England and Wales. Equivalent changes apply to Scotland and Northern Ireland but we will not cover them here.
Key points
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What is the background to the new register?
There have long been concerns about the lack of transparency in the foreign ownership of UK property. The Government first proposed a register of overseas entities in 2016, but this was shelved until the war in Ukraine and subsequent sanctions against Russia catapulted the issue to the top of the political agenda.
The new register has been introduced as part of the Economic Crime (Transparency and Enforcement) Act 2022 (the Act) and went live on 1 August 2022. It is maintained by Companies House and requires overseas entities which own land in the UK to disclose details of their beneficial owners. The register is modelled closely on the register of persons with significant control (PSC Register) introduced for UK corporate entities in 2016.
What is an overseas entity?
An overseas entity is a legal entity governed by the law of a country or territory outside the UK, so will include (for example) companies incorporated in Jersey, Guernsey or the Isle of Man. It does not include individuals.
Key dates
- 1 August 2022 – the register of overseas entities went live, and the start of the transitional period
- 5 September 2022 – associated land registration changes took effect
- 31 January 2023 – end of the transitional period.
Which overseas entities are affected?
The Act affects overseas entities which:
- apply to the Land Registry on or after 5 September 2022 to register their acquisition of a qualifying estate. A qualifying estate is a freehold or a lease granted for a term of more than 7 years from the date of grant
- already own a qualifying estate and became registered owner of it at the Land Registry on or after 1 January 1999
- owned such a qualifying estate but disposed of it on or after 28 February 2022, or currently own such a qualifying estate but dispose of it before 1 February 2023.
What is a registrable beneficial owner?
A registrable beneficial owner is an individual, legal entity or government or public authority that:
- directly or indirectly owns more than 25% of the shares or voting rights
- can appoint or remove a majority of the board of directors
- has the right to exercise or actually exercises significant influence or control over the overseas entity.
How does an overseas entity apply to the new register?
The application must be made using the online service provided by Companies House.
What information does the overseas entity have to provide?
The overseas entity must supply information about itself (registered office, country of formation or incorporation etc) and about its registrable beneficial owners. Registrable beneficial owners can be individuals, other legal entities, or government or public authorities. If there are no registrable beneficial owners or it is not possible to identify them all, information about the managing officers of the overseas entity will need to be given.
Before applying to register, the overseas entity must take steps to identify its registrable beneficial owners. This includes giving an information notice to any person the entity knows, or has reasonable cause to believe, is a registrable beneficial owner in relation to the entity. Any person given an information notice has one month to reply, so this needs to be factored in to the timetable for preparing an application
As part of the application the overseas entity must also state whether or not it has made any relevant dispositions during the period beginning on 28 February 2022 and ending on the date of the application. A relevant disposition is a transfer, grant of a lease for a term of more than 7 years from the date of grant, or grant of a legal charge. If it has made any relevant dispositions it must supply the relevant title number and the date of the disposition in each case.
Does the information need to be verified?
Unlike information for UK companies (although this is likely to change soon), the information submitted must be verified by a UK-based agent regulated by a body which is subject to the UK anti-money laundering regulations. The list of possible agents includes independent legal professionals, credit institutions and financial institutions, external accountants and tax advisers. These regulated agents must obtain an assurance code from Companies House before they can verify or file on behalf of an overseas entity. Companies House suggests that it will be quicker and easier for a regulated agent to make the application to register on behalf of the overseas entity as well as verifying the required information.
What about overseas entities which have disposed of all their property before 1 February 2023?
They do not need to register. However, overseas entities which have disposed of any property since 28 February 2022 must supply the date of disposal and the relevant title number to Companies House before the end of the transitional period, in paper form (this is an anti-avoidance provision, targeting any overseas entity which disposed of all its UK property before the register of overseas entities went live, in an attempt to avoid having to disclose details of its beneficial ownership.) Relevant dispositions are transfers, grants of leases of terms of more than 7 years from the date of grant, and legal charges.
Even if the overseas entity plans to dispose of all its property before 1 February 2023 we would still recommend making an application to register. This avoids the risk of realising too late that the entity will still be the registered owner of property on 1 February 2023, because it has not in fact disposed of all its property or because the new owner has not yet applied to register the disposal or has applied but the registration has not been completed.
Once the entity is on the register, does it have to do anything else?
Yes. Registered overseas entities are required to update the information held at Companies House at least annually. If an overseas entity fails to comply with the updating duty it will cease to be a registered overseas entity until it does comply. In the meantime it will be prevented from registering any new property acquisitions, and any relevant disposition it makes will be caught by the restriction entered by the Land Registry, unless one of the exemptions applies (see below). Breach of the duty to update is a criminal offence.
Will all the beneficial ownership information supplied to Companies House be open to public inspection?
Details of the beneficial owners will appear on the register at Companies House. However, individuals can apply to protect their information from public disclosure if they believe the activities of their overseas entity, or the characteristics or personal attributes of the individual when associated with that overseas entity, will put them or the people living with them at serious risk of violence or intimidation. The supervised agent's details will also appear on the register.
Associated Land Registry changes and the impact on transactions
Acquisitions by an overseas entity
From 5 September 2022, the Land Registry will not accept an application to register an overseas entity as the registered owner of a freehold property, or a leasehold property where the lease was granted for a term of more than 7 years from the date of grant, unless the overseas entity is a registered overseas entity.
When registering the overseas entity as the owner of the property, the Land Registry will add a restriction to the title preventing registration of any future transfer, grant of a lease for a term of more than 7 years or grant of a legal charge unless the overseas entity is a registered overseas entity or one of a limited number of exceptions applies (see below). In this situation the restriction will take effect immediately.
Disposals by an overseas entity
Where an overseas entity is already the registered proprietor of a qualifying estate (and became the registered proprietor on or after 1 January 1999), the Land Registry will enter a restriction on the title at some point during the transitional period ending on 31 January 2023. However, in this case the restriction will not take effect until the end of the transitional period.
This means that if an overseas entity transfers the property, grants a lease for a term of more than 7 years from the date of grant or grants a legal charge, on or before 31 January 2023, the restriction will not operate. However, if the transaction completes on or after 1 February 2023 then the overseas entity must be a registered overseas entity at the time of the disposition, otherwise Land Registry will not register the disposition unless one of the limited number of exceptions applies.
Exceptions include where the disposition is made pursuant to a contract made before the restriction was entered on the title, or made pursuant to a statutory obligation or court order.
If an overseas entity completes a transfer, lease or charge in breach of the legislation, it will commit a criminal offence and the completion monies may be the proceeds of crime.
