In March 2016 the UK Government published a discussion paper on enhancing the transparency of beneficial ownership information.
The paper will impact overseas companies that buy land or property in the UK, or enter into public procurement contracts in the UK.
- Under new legislation, anticipated to apply from 2021, overseas entities which own land in the UK, or propose to do so, will be required to register at Companies House in the UK.
- The purpose of the new legislation is to create more transparency regarding ownership of UK land and the persons who actually control overseas entities. Ultimately it is aimed at deterring the use of UK land transactions for money laundering purposes.
- An overseas entity will be required to provide details of its beneficial owners when applying for registration.
- An overseas entity attempting to purchase UK land without registering at UK Companies House will not acquire legal title to the land.
- An overseas entity which already holds UK land and which does not register within the window for doing so will not be able to dispose of the land, and may become subject to a notice requiring it to register.
- Overseas entities holding, or planning to purchase, UK land may want to find out now who their beneficial owners are, so that they are ready to apply for registration when the new legislation comes into force.
In May 2016, the UK Government announced that it intended to introduce a register of beneficial owners of those overseas companies, and subsequently published a call for evidence in 2017 seeking views on its proposals.
In March 2018, the Government announced that it planned to publish a draft bill creating the new register in summer 2018. The draft Registration of Overseas Entities Bill was published in July 2018. It has now been scrutinised by a Joint Committee of the House of Commons and House of Lords which published a report on the draft Bill in May 2019. The Government's response to that Committee's recommendations has recently been issued.
Who will be affected?
The new legislation will apply to all overseas entities which own land in the UK, or propose to do so. "Overseas entity" is broadly defined to include foreign companies and also partnerships and other legal entities which are legal persons governed by the law of a country or territory outside the UK.
What will registration at Companies House involve?
The draft Bill sets out the framework for a new register at Companies House. An overseas entity will have to apply for registration at Companies House before it can complete the purchase of a freehold estate in UK land or a UK leasehold estate with a term of more than seven years. An overseas entity applying to be registered will need to provide information about itself, its beneficial owners and, if applicable, its managing officers.
The new beneficial ownership regime will be similar to the UK's existing disclosure regime for the beneficial ownership of UK companies – the people with significant control, or PSC, regime – and will be interpreted and applied in a similar way. The categories of registrable beneficial owners will include individuals and legal entities who:
- hold more than 25% of the shares or voting rights in the overseas entity;
- hold the right to appoint a majority of the board 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 or unincorporated entity whose trustees or members meet any of the other conditions in relation to the overseas entity.
The Government intends to publish guidance to help overseas entities and third parties transacting with them to understand the requirements. However, there will be no "pre-clearance" mechanism to indicate whether an entity is required or eligible to register.
Existing landowners (freehold or leasehold with a term of more than seven years) will be obliged to register and provide details of registrable beneficial owners within 18 months of the bill coming into force. If they fail to register during this transition period, they will not be able to sell or otherwise dispose of the land, and the Secretary of State may issue a notice requiring them to register.
Once registered, an overseas entity will be required to update the disclosed information annually, including the details of its registrable beneficial owners. The register will be publicly available (although certain personal details will not be visible to the public).
Penalties for non-compliance
There will be criminal penalties for non-compliance with the new legislation (unlimited fines and up to five years in jail for certain offences), and the Government has indicated that it will also consider whether there should be further civil penalties.
The Government intends to introduce the Bill to Parliament later this year. Subject to Parliamentary approval, the Government has indicated that it expects the new register to come into operation in 2021.