The Government has just completed a consultation on the creation of a new register of beneficial ownership for all overseas entities with an interest in UK property – Tarnya Pilgrim and Liz Gillingham explain what is involved.
Overseas legal entities that fail to register necessary information about their beneficial owners will be prevented from dealing with UK property (buying, selling, granting a long lease and mortgaging it). Criminal sanctions could also apply if the Government’s proposals go ahead as envisaged.
It is expected that, where an overseas legal entity fails to provide information on who owns and controls it:
The consultation also notes that:
“Property” is freehold or leasehold (where the original term exceeds 21 years) and includes unregistered property requiring first registration.
When an overseas entity is newly registered as proprietor of UK property, a note will be put on its registered title (a title restriction) reflecting the ongoing statutory prohibition on dealings, unless the overseas entity fully complies with the new beneficial ownership registration requirements.
Overseas entities already owning registered property will have one year (the transitional period) in which to register their beneficial owners. Overseas owners who do not want to disclose that information could choose to dispose of, or possibly restructure, their UK property interests during this period. At the end of the transitional period, irrespective of compliance, a title restriction will be placed on their registered title.
The Government is also proposing criminal offences where overseas entities:
Companies House. A registration fee will be charged.
Yes, but in limited circumstances (eg threat of violence) information can be suppressed from the register.
It is proposed that the definition of “beneficial owner” mirrors that of a “person with significant control” (PSC) in part 1 of Schedule 1A to the Companies Act 2006. Broadly this states that a person is a PSC of a UK company if they:
The rules on who is registrable as a PSC are complex and these complexities could flow through to the new overseas register. There are already many reports of UK companies failing to comply with the PSC legislation.
It is recommended that companies seek legal advice to establish who their beneficial owners are to avoid breaching the existing legislation and new requirements.
The same details of “persons with significant control” over the overseas entity are required for a registrable legal entity under the PSC regime.
Yes – beneficial ownership details must be updated at least every two years (the validity period). Entities may choose to update more regularly.
Overseas entities wishing to deal with UK property caught by the proposals will have to:
The appropriate land registry will check that beneficial ownership information has been provided and is up to date before completing the registration application.
In the future, before contracting with an overseas entity, checks with Companies House will be required to ensure that:
For transactions where the period between exchange and registration could exceed the validity period (eg conditional contacts or option agreements) or where a third party will continue to have an interest in the property after registration (eg mortgagees or joint venture participants), protective provisions should be included in transaction documents:
To avoid delays, practice is likely to develop requiring overseas entities to register (or update) their beneficial ownership information before entering into negotiations or (at the very latest) before exchanging contracts.
Prepare for change – the new regime could be introduced by April 2018.
The proposed registration regime adopts many elements of the PSC regime introduced in 2016 in relation to UK companies.
All UK companies (excluding most listed companies).
The PSC regime is due to be extended to other types of entities, including unregistered companies and some listed companies.
For registrable individuals: name, service address, country of residence, nationality, date of birth and usual residential address.
For registrable legal entities: name, registered or principal office, legal form and governing law, company register and registration number.
Yes – through the internal register and Companies House – except for residential addresses. In limited circumstances (eg threat of violence) information can be suppressed from the register.
It is a criminal offence to fail to comply with certain parts of the PSC rules, punishable by imprisonment or a fine.
Failure to comply with a restrictions notice issued by a company to a potential PSC will restrict transfer of the interests in question (eg shares) and prevent any rights from being exercised, or payments (eg dividends) being made, in respect of those interests.
This article was published in Estates Gazette in May 2017.