New Register of Overseas Entities introduced
The Economic Crime (Transparency and Enforcement Act 2022 (‘the Act’) received royal assent on 15 March 2022 and so forms part of UK legislation. The aim of the Act is to provide transparency in the ownership of UK land. Part 1 of the Act introduces a new register – the Register of Overseas Entities (the ‘Register’) – requiring that “overseas entities” owning land in the UK register the identity of beneficial owners or managing officers at Companies House. The Register will be maintained by Companies House and will be publicly accessible.
The purpose of this note is to provide an overview of Part 1 of the Act and the key points which overseas entities will need to consider when disposing of land in England and Wales. Specific provisions in the Act dealing with land in Scotland and Northern Ireland are outside the scope of this note.
Part 1 of the Act is not currently in force. Companies House and HM Land Registry are collaborating with the Department for Business, Energy and Industrial Strategy to implement the new Register as soon as possible.
It should be noted that the Register is not a register of the beneficial owners of the land in question and instead provides information about the beneficial owners of the overseas entity which holds the land.
What is an overseas entity?
Any legal entity that is governed by the law of a country or territory outside the United Kingdom. A legal entity means a body corporate, partnership or other entity that is a legal person under the law by which it is governed. This will capture entities formed in the Channel Islands. Non-UK trusts are not ‘overseas entities’ as they do not have a separate legal identity, but those who hold UK land indirectly through an overseas entity could be caught.
What land falls within the registration requirement?
The requirement to register applies where an overseas entity is the registered owner of a “qualifying estate” in England and Wales. A “qualifying estate” is defined in the Act as either a freehold or leasehold estate in land granted for a term of more than seven years from the date of the grant.
Overseas entities that hold UK land
Overseas entities that acquired land in England and Wales on or after 1 January 1999 must apply for registration on the Register by the end of six months following Part 1 of the Act coming into force (the ‘Transitional Period’).
The overseas entity will need to provide information about itself including, but not limited to, its name, country of incorporation, registered office, service address, law by which it is governed and details of any public register which it is registered on and its registration number.
A restriction will be placed on the title to the property prohibiting an overseas entity from disposing of the land (save for certain exceptions) unless they are registered on the Register.
In addition, in order to acquire a qualifying estate an overseas entity must first be registered on the Register.
The Secretary of State has the power to serve notice compelling registration.
Application process and ongoing reporting duties
The application for registration is made by the overseas entity. In the application, the overseas entity must provide one of three prescribed statements contained in the Act which include if it has identified any beneficial owners and whether it can provide the required information about each beneficial owner, the overseas entity, and its managing officers.
The exact information to be provided by the overseas entity will depend on the prescribed statement it gives and the nature of the beneficial owner. For example, if the beneficial owner is a trustee, it must also include details of the trust including the date of the trust’s creation, details of the settlor, beneficiaries, and other interested parties.
The overseas entity must take reasonable steps to identify any beneficial owners. This includes giving an information notice to any person that it knows, or has reasonable cause to believe, is a registrable beneficial owner in relation to that entity. An individual has one month to comply with the information notice. If they fail to do so, they could be liable to a fine or imprisonment.
Once the required information has been obtained, the overseas entity can file its application for registration. If the application is successful, the overseas entity will be allocated an Overseas Entity ID.
Once registered, there is an ongoing duty on overseas entities to ensure that the Register is updated annually within 14 days of each 12 month anniversary of the initial registration.
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.
What is a beneficial owner?
A beneficial owner can be an individual, entity or government, public authority or other legal entity that meets on ore more of the following:
- they hold (directly or indirectly) more than 25% of the shares in the overseas entity;
- they hold (directly or indirectly) more than 25% of the voting rights in the overseas entity;
- they have the right (directly or indirectly) to appoint or remove a majority of the board of directors of the overseas entity;
- they have the right to exercise or actually exercise significant influence or control over the overseas entity; and
- in relation to trusts, partnerships and other entities that are not legal persons under the law by which they are governed if the trustees of the trust or members of the partnership, unincorporated association or other entity meet any of the points listed in the four bullet points above then the beneficial owner will consist of any person who has the right to exercise or actually exercise significant influence or control over the activities of that trust or entity.
The concept of “significant influence or control” is not defined in the Act. However, “significant influence or control” is used in a similar context in the “Persons with Significant Control” regime and includes the right to appoint or remove trustees, to direct the distribution of funds, or to revoke the trust.
Application for registration during the Transitional Period
If the overseas entity has not made a relevant disposition of land during the period starting on 28 February 2022 to the end of the Transitional Period, the overseas entity will need to make a statement to that effect in the application.
If the overseas entity has made a disposition between 28 February 2022 to the end of the Transitional Period, the application must include prescribed details about each such disposition and the statements and information mentioned above by reference to the position of the overseas entity immediately before the making of the disposition.
What is the deadline for compliance?
Overseas entities who already own land in the UK will be given until the end of the Transitional Period to register their beneficial owners. This six-month period will not begin until the new Register launches (expected imminently). Any new purchasers will need to register with Companies House from the day the Register comes into effect
If, at the end of the Transitional Period, the overseas entity is not registered in the 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.
Sanctions for non-compliance
Subject to narrow exemptions, failure to comply with the obligations and restrictions regarding the Register can result in criminal liability for the overseas entity and its officers. An offence is committed if the overseas entity makes a registrable disposition of a qualifying estate in breach of the terms of the restriction placed on the title register by HM Land Registry. In practice, an overseas entity is not going to be able to sell property it owns until it is registered on the Register.
A breach can give rise to financial penalties (including a daily default rate of up to £2,500 a day) and up to five years imprisonment.
The Secretary of State may exempt a person from the requirement to register on the Register if it is necessary to do so in the interests of national security or for the purposes of preventing or detecting serious crime. In addition, there are certain exemptions for the registration of beneficial owners. A beneficial owner is not required to be registered where it holds an interest directly through an entity which is subject to its own disclosure requirements for example, where the beneficial owner holds its interest through a company which is registered on the PSC Register, or which is itself an overseas entity which must be registered under the Act.
Information available to the public
As mentioned, the information on the Register is available to be inspected by anyone who requests it. However, certain material is unavailable for inspection. This includes dates of birth and residential addresses of anyone who is registered and a power for the Secretary of State to make regulations to protect individuals who may be placed at risk as a result of being identified on the Register. Information in relation to trusts may only be disclosed by the registrar in limited circumstances i.e. to HMRC or such other persons with functions of a public nature.
The Register and the Trust Registration Service (‘TRS’)
Trusts which are required to register on the Register may also be required to register on TRS. It should be noted that non-UK resident corporate trustees who purchase UK land directly will be required to register on the TRS and will also be required to register as an overseas entity on the Register. Trustees should therefore be alive to both reporting duties.
- Overseas entities should identity any UK land which they hold (either directly or indirectly). This includes where land is held by a nominee company or within a trust structure which has a corporate trustee.
- If an overseas entity has made a relevant disposal since 28 February 2022, it is likely that it will be required to disclose that disposal and the details of any registrable beneficial owners of the entity immediately before the disposal.
- Overseas entities should start to collate the required information under the Act including information on their beneficial owners including any structures with a view to making a registration application before the end of the Transitional Period.