There has been widespread speculation about the likely effects of the UK’s withdrawal from the European Union on the UK property market. However, as the so-called ‘Brexit Day’, currently set for 29 March 2019, draws closer, another significant development with potentially far-reaching consequences for the UK property market may be found in the Department for Business, Energy and Industrial Strategy’s (BEIS) proposal for a (largely) public register of beneficial owners of overseas companies and other legal entities that own, or buy UK property (“the Register”).
The draft Registration of Overseas Entities Bill (“the Bill”), published on 23 July 2018, will require overseas entities that own, buy, or (in some instances) lease UK property (including both residential and commercial property), to identify their beneficial owner(s) on the Register, which will be maintained by Companies House. Consultation on the draft Bill closed on 17 September 2018, and the new regime will be of particular interest to overseas investors who own, or are proposing to acquire, UK property.
Although the Government’s current intention is that, subject to royal assent and secondary legislation, the register will be operational by 2021, the message to overseas entities is to understand, and to plan ahead for the Register’s practical implications. Fox Williams’ Real Estate team has been tracking the proposed introduction of the Bill since the plans were first announced.
Summary of the Bill’s proposals for the draft Register
The requirement to provide and update information on the Register will, by reference to the draft Bill, apply to most legal forms of ‘overseas entity’ that own, or propose to deal with UK property, and is defined as a body corporate, partnership or other entity that is a legal person under the law of the territory by which it is governed.
The proposals will require each overseas entity to supply details of itself and its beneficial ownership to Companies House, in a similar manner as the existing Persons of Significant Control (‘PSC’) regime, introduced in April 2016. Upon registration, the overseas entity will receive a unique identification number, and be required to check and confirm annually that the information held on the Register remains up-to-date.
Before embarking on the registration process, the overseas entity must first have undertaken the task of identifying its registrable ‘beneficial owners’. There are also duties to notify those beneficial owners for whom the required information will be disclosed to Companies House for entry on the Register. Again, the definition of a registrable beneficial owner, set out at Schedule 2 to the Bill, mirrors closely the definition under the existing PSC regime for UK companies and LLPs.
Actions to take now
As a means by which to prepare for the Register’s requirements, corporate bodies should, as required, perform an internal audit to identify its beneficial owners and UK property holdings to which the new regime may apply.
This is far less of an administrative burden than it sounds, in view of the overlap with the PSC regime referred to above. It is also to be noted that the Register will, for the most part, be accessible by the public.
The consequences of failing to register or comply
A failure to register with Companies House or to comply with the annual updating requirement would leave the overseas entity unable, in most instances, to register property transactions at Land Registry, and consequently, third parties would almost certainly be deterred from transacting with the overseas entity (affecting the entity’s ability to sell, lease or create a charge over UK property).
Notably, the Register introduces criminal sanctions for non-complying overseas entities in respect of the updating requirements, and those which make a dispositions of UK property without having complied with the requirements of the Register, the latter carrying a maximum sentence of five years imprisonment.
Practical steps we can help with
Fox Williams’ Real Estate team is able to assist all forms of overseas entities to ensure they are well prepared ahead of the introduction of the Register and, most importantly, ready to comply. This includes professional advice on how to ensure compliance and what information the overseas entity must give to the registrar, Companies House. We anticipate offering a service to assist clients that are overseas companies and other overseas entities in complying with these mandatory disclosure and registration requirements. If this service would be of interest, please contact us.