News & Insight
Goodbye to opaque offshore structures holding UK real estate(?)
he UK government is continuing to blaze a legislative trail on its mission to make the UK a world leader in corporate transparency. The theory runs that high corporate standards and market transparency foster confidence and trust for anyone doing business in the UK (and that lower standards and lack of transparency can facilitate criminal behaviour). Building and maintaining those standards and promoting that transparency is a key part of the UK government’s Industrial Strategy.
We have had a register of beneficial interests in UK companies for a couple of years now, and the UK looks set to soon become the first country in the world to keep a register of ownership of overseas companies.
Ownership of corporates and limited partnerships
Since January 2016, UK corporates have been obliged to register details of beneficial ownership at Companies House on a register of persons with significant control. In April we commented upon the Department for Business, Energy and Industrial Strategy (“BEIS“) consultation paper proposing new and enhanced filing requirements for English limited partnerships and commenting on the new filing requirements already in place for Scottish limited partnerships.
Draft bill for register of overseas entities owning UK real estate
Following a discussion paper published in March 2016, BEIS has now published a draft registration of overseas entities bill (the “Bill“), as well as a commentary paper to be read alongside – and inviting comments on – the Bill.
If passed into legislation, the measures proposed in the Bill would require ‘overseas entities’ seeking to own UK real estate to identify their beneficial owners on a publicly accessible register.
The reference to ‘overseas entities’ goes further than the proposal in the 2016 discussion paper, which referred to ‘overseas companies’ only. ‘Overseas entities’, BEIS tells us, can be assumed to refer to “‘a non-UK registered body with legal personality that can own property in its own right”.
Real estate includes freehold and registrable leases (which differ in duration depending on which part of the UK they are in).
Why the need for a register?
The UK, and especially London, has historically been a major destination for foreign direct investment into real estate.
The information currently available about overseas ownership of UK real estate is very often limited to the entities’ name and territory of incorporation. In such cases it is usually unclear who owns and controls that entity and therefore who owns and controls the real estate itself. BEIS cites, in its commentary on the Bill, the views of UK law enforcement that overseas entities often use the proceeds of bribery, corruption and organised crime to invest in UK real estate.
BEIS states that the objective of the Bill is to “make it easier for regulators, legitimate businesses and the general public to know who the true owners of UK property are, and enable law enforcement agencies to carry out effective investigations more easily.” And the purpose of the register the Bill proposes to establish is to “prevent and combat the use of land in the United Kingdom by overseas entities for the purposes of laundering money or investing illicit funds by increasing transparency in overseas entities engaged in land ownership in the UK”.
Also published by BEIS with the Bill is a research paper looking at the potential impact of introducing the register of beneficial interests.
About the register
If the Bill passes into legislation, overseas entities would be able to:
- register with Companies House and identify their beneficial owners; and
- update their information annually.
The requirements around establishing beneficial ownership are modelled upon the existing PSC regime for UK companies and other entities.
Curiously, registration with Companies House will be prima facie voluntary (although providing false or misleading information as part of the registration process, or failing to update the information, will be a criminal offence). However, there is a big stick with which registration will be de facto mandatory: in order for an overseas entity to register transactions in UK real estate at the Land Registry it will need to have first registered at Companies House.
Upon ceasing to hold any UK real estate, an overseas entity would be able to apply to be removed from the register.
Path to legislation
Responses to the Bill are sought on or before 17 September 2018. Thereafter, BEIS expects Royal Ascent to be provided, secondary legislation to be made and for the register to be up and running by 2021.
As proposed, there would be an 18 month transition period for overseas entities already owning UK real estate when the new regime comes into effect.
We will continue to monitor this area of law with interest. As ever, if you have any questions on the matters discussed above, please reach out to the HLaw team.