A new UK register of beneficial owners of overseas entities

On April 5, 2017 the government published a “call for evidence” inviting comments on a proposed new register of beneficial owners of overseas legal entities that own or want to buy property in the UK, or want to participate in UK government procurement.  

The government is committed to making company and property ownership more transparent. In 2016, it introduced a public register of company ownership, recording information about who owns and controls UK companies (the People with Significant Control or PSC Register). At the International Anti-Corruption Summit in London in May 2016, then Prime Minister David Cameron committed to creating a new public register showing the beneficial owners of overseas companies that own or want to buy property in the UK.

On April 5, 2017, the government published a “call for evidence” inviting comments on proposals for a new public register that would record information about the beneficial ownership not only of overseas companies but of any overseas legal entity owning or wanting to buy property in the UK. The deadline for responses is May 15, 2017.

A key driver for the new register is to ensure that the UK property market is seen as fair, transparent and clean in order to attract the right investors and owners. In particular, the government is concerned about the potential for illegal activity through anonymous overseas entities investing in the property sector.

On the other hand, the government is conscious of the need to strike the right balance and to ensure that the register is workable, proportionate and does not act to deter foreign investment in the UK. The call for evidence therefore invites comments on the precise way in which such a register should operate in order to achieve that balance: one of the 28 questions asked is “What (if any) impact do you think the proposed policy will have on the UK property market, both residential and commercial?” The government also intends to commission research on how the proposals might influence those planning to invest in the UK and what impact that might have on the UK economy. The outcome of that research will be taken into account in finalising the features of the new register.

What seems clear, however, is that whatever its final form, the government intends to press ahead with the introduction of such a register. The call for evidence gives us a general indication of how the new regime would operate.

There is no equivalent register elsewhere in the world. The government has therefore taken the UK company PSC Register as its starting point so that many, if not most, of the proposed features of the new register resemble those of the PSC Register.

Like the PSC Register, the new register will be held by Companies House, the registrar of companies in the UK, with the information on the register available to the public without charge through the Companies House website.

It is proposed that the scope of the register should extend to all overseas legal entities capable of holding UK property, or bidding on central government procurement contracts. The call for evidence invites comments on this proposal and whether there are any entities that should be exempt.

The register will record details of the beneficial ownership of overseas entities who wish to buy, or who already own, property in the UK. “Property” includes leases with a term of more than 21 years so that any overseas entity that is a tenant under such a lease would be required to register their beneficial ownership information.

By “beneficial owner” the government means the person who benefits from the legal entity and who exercises control over it and the assets it holds. Where another legal entity, rather than a person, is the beneficial owner, disclosure of beneficial ownership further up the ownership chain would be required until the ultimate individual beneficial owner is identified, unless that information is already publicly available (for example if the beneficial owner is a UK company with its own PSC Register).

It is proposed that the precise definition should be based on that used to identify people with significant control for the purposes of the PSC Register. Broadly, this states that a person is a PSC of a UK company if they:

• Directly or indirectly hold more than 25 per cent of the shares in the company; or
• Directly or indirectly hold more than 25 per cent of the voting rights in the company; or
• Directly or indirectly hold the power to appoint or remove a majority of the board of directors of the company; or
• Otherwise have the right to exercise, or actually exercise, a significant influence or control (as defined) over the company; or
• Have the right to exercise, or actually exercise, a significant influence or control over a trust or firm (or similar non-legal arrangement) where that trust or firm meets one or more of the above conditions.

This definition would be adapted to accommodate different types of entity.

There would also be provision for situations where individuals hold rights or shares collectively or in a joint arrangement, to ensure that a beneficial owner cannot disguise their control or ownership by diluting their shareholding (or equivalent) amongst family members or other individuals.

The government asks whether this approach to beneficial ownership would be sufficiently flexible for overseas entities.

The intention is that overseas entities will not be able to buy, sell, charge or grant a long lease of property in the UK unless they are registered in the new register.

The application for registration entails providing the overseas entity’s beneficial ownership information to Companies House. If the application is successful it will be allocated a registration number. Third parties wishing to buy from or sell to an overseas entity will be able to check the online register free of charge to ensure that the entity is registered. It will be a criminal offence to provide false or misleading information when applying to register.

Property already owned by an overseas entity

Overseas entities who already own property will be given a year to register their beneficial ownership details in the new register – or to sell their property if they do not wish to disclose information about their beneficial ownership. The government intends to write to all overseas entities that own UK property before the law comes into force, setting out the requirements and the consequences of not complying. At the end of the transitional year, any overseas entity owning property in the UK will be prohibited from selling the property, or creating a long lease or legal charge over it, if they have not complied with the new register’s requirements. A note to that effect will be added against the registered title of the property.

Some overseas entities who already own property may have no plans to sell, grant a long lease or charge their property so may have no incentive to register. The government is considering whether to make it a criminal offence to fail to register or, where registration has taken place, to fail to keep the information on the register up to date.

Overseas entities wishing to buy or take a lease of over 21 years

Entities wishing to buy or take a long lease of property will have to apply to register their beneficial ownership information at Companies House before they do so. If the application is successful they will be allocated a registration number which must be provided when applying to register their title to the property at HM Land Registry. The Land Registry will not register the title of an overseas entity without a valid registration number, which would mean that the entity would not become the legal owner as it is registration that confers a legal title.

The government is also exploring the option of making the transfer of title document void if an overseas entity buying a property does not have a valid registration number at the time of completion.

On registration at the Land Registry, a note will be added against the title reflecting the restriction on selling, granting a long lease or charging the property if the new register’s requirements have not been complied with.

The new register will operate in a similar way in relation to government procurement contracts. Overseas entities that wish to take part in central government procurement contracts would need to register beneficial ownership information at Companies House. The proposal is that this should only apply to procurements valued over £10million.

The government considers that the beneficial ownership information currently required by the PSC Register strikes a good balance: it provides transparency without being unduly burdensome to businesses. It therefore proposes that the new register should require similar information.

That information would therefore include: the name of the individual beneficial owner, date of birth, nationality, service address, country or state where they usually reside, the nature of their control of the entity and the date that control was acquired. This information would be freely available in the online register. However there would be a protection regime allowing an individual to apply to have certain information suppressed in limited circumstances, for example if disclosure in the register could put the individual at risk of violence or intimidation. The overseas entity would be required to confirm beneficial owner information with the beneficial owner before disclosing it.

In very limited circumstances an overseas entity would be permitted to record that they are unable to provide beneficial ownership information. These circumstances include that they: have not been able to obtain the confirmation of the beneficial owner despite taking reasonable steps to do so; have not been able to establish if there are any beneficial owners; or have concluded that they have no beneficial owner as no person meets the criteria for being so. However it will be an offence for anyone knowingly or recklessly to provide false or misleading information.

Where entities do not give beneficial ownership information they will be required to provide information about their managing officers instead.

It is also proposed that beneficial ownership information on the new register should be updated at least every two years and that it should be an offence not to do so.

We do not yet know when the register will be introduced, but once in place, compliance with its requirements should not be seen as a last-minute tick box exercise. Looking at a few scenarios:

• Sellers will want to ensure that a potential sale to an overseas entity is not delayed by a failure to register in the new register in good time. While the registration process at Companies House should not be time consuming (registration in the PSC Register takes a day or so at most), collating the necessary beneficial ownership information for submission, then obtaining the beneficial owner’s confirmation that the information is correct, could take a considerable amount of time. An application to suppress information about an individual might delay matters further. An overseas entity wishing to buy or take a long lease of property in the UK should therefore ensure that they are registered before the start of negotiations.
• Third party buyers, lessees and mortgagees dealing with on overseas entity will not want to run the risk of their transaction not being registered at the Land Registry - and thus not taking effect at law - because of a failure to comply with the requirements of the new register. They will insist that this is done before contracts are exchanged.
• Anonymity may be required for perfectly legitimate reasons. For example on a site assembly for a new development it is not unusual to acquire different parts of a site in the names of different overseas entities to preserve confidentiality. Information about the beneficial ownership of each entity will be in the public domain through the new register if one of the beneficial owner conditions outlined above is met. Overseas entities will need to take this into consideration when structuring a transaction.              

While much of the detail of the new register is yet to be finalised, sufficient information is given in the call for evidence to give us a good idea of the big picture and it is clear that the government wants to proceed with it come what may: it is not a question of “if”, but of “how” and “when”. The government has said that it will run an extensive awareness campaign ahead of implementation.