A new register of overseas entities owning UK land

Summary

In broad terms, Part 1 provides that any overseas entity that owns, or wishes to own, land in the UK will be required to be registered in the new register of overseas entities

In summary, this will involve the overseas entity providing information about its registrable beneficial owners or confirming that it has none. This information must be updated annually. Additional information must be disclosed where a registrable beneficial owner is a trustee.

Overseas entities that acquired UK land on or after January 1, 1999 but before the date on which the relevant provisions of the Act come fully into force will have a limited transitional period (six months from that date) in which to register.

A failure to register or to comply with the requirement to update the register annually will mean that an overseas entity:

• cannot be registered at HM Land Registry as the legal owner of UK land; and
• where already registered as legal owner, cannot sell, charge or grant a lease of the land for a term of more than seven years as any buyer, chargee or lessee will not be able to register the disposition at the Land Registry.

Compliance will be enforced through restrictions on the title registers of land owned by overseas entities. There will also be criminal sanctions for non-compliance and for delivering misleading, false or deceptive information.

What is an “overseas entity”?

An overseas entity is any entity - including companies, partnerships, governments and public authorities – that has a legal personality under the non-UK law by which it is governed.

Unincorporated trusts without separate legal personality are not included in the definition of an “overseas entity” (although, as discussed below, where a trustee is a registrable beneficial owner certain information relating to the trust must be provided). However, a separate registration regime applies to non-UK resident trusts. Any such trusts that acquire UK land after October 6, 2020 will have to register with the Trust Registration Service (TRS). This is regardless of whether they are liable to pay any UK tax. The deadline for such registration is September 1, 2022. Under the TRS and subject to an exclusion for certain types of trust, trustees have to disclose to HMRC the identities/names of all actual or potential beneficiaries.

When will an overseas entity need to register in the new register?

Overseas entities must comply with the new registration requirements in order to be registered at the Land Registry as the owner of land and to make certain dispositions in respect of land.

Overseas entities wishing to own land in the UK

• Overseas entities will not be able to register at the Land Registry as the owner of a freehold estate in land or of a lease of over seven years, unless they are registered in the register of overseas entities and have identified their registrable owners - and where appropriate have complied with the duty to update that information - at the time that the application for registration is made to the Land Registry. One exception to this is if the entity is an “exempt overseas entity”, to be defined in regulations that have not yet been published.
• If not registered at the Land Registry, the entity will not become the legal owner as it is registration at the Land Registry that confers the legal title.

Property already owned by an overseas entity

• The new regime is retrospective.
• Overseas entities that are already registered at the Land Registry as property owners and which applied for registration on or after January 1, 1999 will have a duty to apply for registration in the register of overseas entities within six months of the relevant provisions of the Act coming fully into force (the Transitional Period).
• The Secretary of State will also have power to serve notice compelling registration.
• A failure to comply in each case will be an offence by the overseas entity and every officer in default will be liable to imprisonment, but again there is an exemption for “exempt overseas entities”.

What is the application process for registration?

The application is made by the overseas entity itself.

Applications for registration must include (amongst other things):

• A statement that the overseas entity has taken reasonable steps to identify its registrable beneficial owners.
• A statement that the overseas entity: 

1. has identified one or more registrable beneficial owners and has no reasonable cause to believe that there are others; or
2. has no reasonable cause to believe it has any registrable beneficial owners, in whih case information about the managing officers of the entity must be provided.

• Any information required by regulations to be made by the Secretary of State regarding verification of information in relation to registrable beneficial owners and managing officers.
• The required information (see below) in relation to each registrable beneficial owner that has been identified². Where a registrable beneficial owner is a trustee, the required information about the trust (or so much of that information as the overseas entity has been able to obtain) must also be included together with a statement as to whether the overseas entity has any reasonable cause to believe that there is required information about the trust that it has not been able to obtain.

If the application is successful, the overseas entity will be allocated an overseas entity ID.

Once registered, there is a further duty on overseas entities to update the information on the register every 12 months.

It is a criminal offence for a person, without reasonable excuse, to deliver information that is misleading, false or deceptive in a material particular or to fail to comply with the updating duty.

Applications for registration made during the Transitional Period

Additional information must be included with an application for registration in the new register made by an overseas entity during the Transitional Period:

• If the overseas entity has not made a “qualifying disposition of land” during the period starting on February 28, 2022 and ending with the making of the application, the application must include a statement to that effect; and
• If the overseas entity has made such a disposition during that period, the application must include prescribed details about each such disposition and also the statements and information mentioned above under “What is the application process for registration?” in relation to each such disposition, by reference to the state of affairs immediately before the making of the disposition.
  
  If, at the end of the Transitional Period, the overseas entity is not registered in the new register, has not applied for registration, is not an exempt overseas entity and has not otherwise supplied the required information about the disposition(s), the entity and every officer in default commits an offence.

A “qualifying disposition of land” means a transfer, lease or charge of freehold or leasehold land of which the overseas entity became registered proprietor at the Land Registry pursuant to an application made on or after January 1, 1999.

What information must the register of overseas entities contain

The Government has taken the existing “persons with significant control” regime under the UK Companies Act (PSC regime) as its starting point, so many of the features of the new register (which will be kept by the registrar of companies for England and Wales) will resemble those of the PSC.

The register will record certain details in relation to the registered overseas entity and certain “required information” on its registrable beneficial owners (if any) (see “Who is a registrable beneficial owner?” below).

The information required to be provided in relation to a registrable beneficial owner will depend on whether they are an individual, a legal entity or a government or public authority. For example, in relation to an individual it will include their name, date of birth, nationality, residential address and any service address. In relation to a legal entity it will include its name, registered or principal office, service address and its legal form and the law by which it is governed.

For all registrable beneficial owners, the information must include confirmation of whether the individual or entity is a designated person (within the meaning of s9(2) of the Sanctions and Money Laundering Act 2018) where that information is publicly available, the date on which they became a registrable beneficial owner, which of the conditions for being a beneficial owner is met and why it is met. In the case of individuals and legal entities (other than governments or public authorities) it must also include confirmation of whether the individual or entity meets that condition by virtue of being a trustee.³

Where the registrable beneficial owner is a trustee, information about the trust must also be provided. This includes (among other things) certain details in relation to the trustees, beneficiaries, settlors or grantors and certain other “interested persons” (being persons who, under the terms of the trust, have rights in respect of the appointment or removal of trustees or the exercise by trustees of their functions).

Most of the information provided in relation to registrable beneficial owners will be publicly accessible. However there are some important exceptions. In particular, information required to be provided in relation to trusts under the relevant provisions of the Act may only be disclosed by the registrar in limited circumstances – essentially to HMRC or such other persons with functions of a public nature as may be specified for the purpose by regulations made by the Secretary of State. More generally, there are certain categories of protected information not available for inspection (including dates of birth and residential address information) and a power for the Secretary of State to make regulations setting out a regime for protecting individuals who may be placed at risk as a result of being identified in the new register.

Who is a registrable “beneficial owner”?

Consistent with existing definitions relating to the PSC regime, and subject to some limited exemptions, a person will be a beneficial owner of an overseas entity if they meet one (or more) conditions – broadly that they:

• directly or indirectly hold (a) more than 25 per cent of the shares or voting rights in the overseas entity or (b) the right to appoint or remove a majority of the board of directors of the overseas entity;
• have the right to exercise, or actually exercise, significant influence or control over the overseas entity; or
• have the right to exercise, or actually exercise, significant influence or control over a trust, partnership or other entity that is not a legal person under the law by which it is governed and the trustees or members of the entity (in their capacity as such) meet any of the above conditions.

The Act covers situations where rights or shares are held in a “joint arrangement” or where shares are held by a nominee, to try to ensure that a beneficial owner cannot disguise their control or ownership. For example, if persons agree to act jointly in respect of their shares or rights, each person is treated as holding the combined shares or rights. Shares held by a nominee on behalf of another person are treated as held by that other person. Provision is also made in the Act for situations where an interest in an overseas entity is held through a chain of legal entities.

It is worth noting that, where a beneficial owner is a legal entity (other than a government or public authority), it will only be registrable where it is “subject to its own disclosure requirements” – for example, where it is subject to the PSC regime or is itself on the register of overseas entities. However, persons standing behind the legal entity may still be within the definition of registrable beneficial owners (for example, if they are treated as indirectly holding the shares or voting rights it holds in the overseas entity). An example of shares or rights held by a person indirectly for these purposes is where they have a “majority stake” in a legal entity that is a beneficial owner.

What steps have to be taken by an overseas entity to identify its registrable beneficial owners?

An overseas entity is required to take reasonable steps to identify any registrable beneficial owners before it applies to be included on (or removed from) the register of overseas entities and before it provides updated information. If an overseas entity identifies any registrable beneficial owners it must take reasonable steps to obtain the required information about them and, in respect of any registrable beneficial owner who is a trustee, the required information about the trust.

The requirement to take reasonable steps includes a requirement for the overseas entity to serve notice on any person it knows (or has reasonable cause to believe) is a registrable beneficial owner requiring them to confirm the position.

An overseas entity also has the power to serve notice on a person where it knows (or has reasonable cause to believe) that they know the identity of a beneficial owner or of a person likely to have knowledge of the identity of a beneficial owner.

Exemptions

The Secretary of State may exempt a person from the requirements of Part 1 if it is necessary to do so in the interests of national security or for the purposes of preventing or detecting serious crime.

When will the new regime come into force?

While the Act has received Royal Assent full implementation will be a little later as further regulations are required to underpin the new regime. However the Government has said that: “We expect the Register of Overseas Entities will have an immediate dissuasive effect on those who were intending to buy UK property with illicit funds”. 

How will compliance be enforced?

In addition to the criminal sanctions for non-compliance, the Land Registry must enter a restriction against the registered titles of overseas entities where the application for registration was made on or after January 1, 1999. This will, unless an exception applies, prohibit the registration of any transfer, lease of more than seven years or charge in relation to the property unless, at the time of the disposition, the overseas entity has complied with the requirements of the new register, including the duty to update annually.

The exceptions include where:

• the entity is an “exempt overseas entity”;
• the disposition is pursuant to a statutory obligation or court order;
• the disposition is pursuant to a contract made before the restriction was entered in the register;
• the disposition occurs in the exercise of a power of sale by a registered chargee or a receiver appointed by the chargee;
• the disposition is made by a specified insolvency practitioner in specified circumstances; and
• where the Secretary of State consents to registration. This would be in very limited circumstances. We await regulations for the detail of how this will operate in practice.

The Land Registry is also blocked from registering a disposition in certain circumstances when an overseas entity enters into that disposition at a time when it is entitled to be registered at the Land Registry but is not.

If an overseas entity enters into a disposition that cannot be registered, an offence is committed both by the entity and every officer of the entity who is in default and a person guilty of such an offence is liable to imprisonment. However this does not affect the validity of the disposition in question, so that beneficial ownership will pass even though the disposition cannot be registered to obtain legal title.

Practical Considerations

Compliance with the requirements of Part 1 should not be seen as a last-minute tick box exercise. While the detail of underlying regulations and guidance will need to be seen, there are some initial steps that overseas entities which already own UK land should begin to consider and that overseas entities planning to enter into UK property transactions should keep in mind.

Looking at a few scenarios:

• Once the regime is in force, an overseas entity wishing to acquire the freehold or take a long lease of property in the UK should ensure that they are registered in the new register in good time.  
• Compliance with the registration requirements may be onerous, and potentially time-consuming, particularly for those with sophisticated ownership structures. Given that the new regime is imminent, overseas entities who own, or wish to own, land in the UK should start thinking now about how the new rules will apply to their particular ownership structures.
• Sellers and prospective lessors should ensure that registration of a planned sale or grant of a lease to an overseas entity is not delayed by the latter’s failure to register in the new register in good time.  
• There will be additional levels of due diligence for those buyers, lessees and lenders proposing to enter into a land transaction with an overseas entity where the transaction is registrable at the Land Registry. Prospective buyers, lessees and lenders dealing with an 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 by the seller, landlord or borrower to comply with the requirements of the new register. Protection through contractual provisions should also be considered. 
• Any lender to an overseas entity should also consider how it ensures that the overseas entity complies with these requirements as non-compliance may lead to a restriction on the marketability of the property. 

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