On 23 July 2018, the Government published a draft Registration of Overseas Entities Bill (the “draft Bill”). The operation and scope of the Register of People with Significant Control over Overseas Companies ('the Register') are set out in the draft Bill.
Although this draft Bill was published over two years ago, this is still the latest version of the draft legislation available.
Along with Michelle Cartwright of John Lamb Hill Oldridge, Ronnie Myers from Burges Salmon have identified and answered ten key questions that overseas owners of UK Real-Estate should consider ahead of the Register’s planned implementation later this year:
1. What is the purpose of the Register?
The stated purpose of the register is to crack down on money-laundering (including tax evasion) and provide greater transparency around the ownership of UK property. This brings overseas entities in line with the transparency rules that apply to UK entities.
2. Who needs to register?
Overseas entities which own real-estate in the UK will need to register.
The term 'overseas entity' has been given a wide definition in the draft Bill and means a legal entity that is 'a non-UK registered body with legal personality that can own property in its own right'.
Overseas entities must take reasonable steps to identify their "registrable beneficial owners", obtain the information about them specified in the draft Bill and report this on the Register.
A 'beneficial owner' can be an individual, a legal entity or a Government or public authority. The draft Bill sets out the relevant tests for determining the beneficial owners deemed to be a person with significant control.
3. Who counts as a person with significant control?
The Register will adopt the same definition of control that governs inclusion under the Register of Persons with Significant Control Regime that currently exists for UK companies.
As a result, persons with significant control are persons who:
hold directly or indirectly more than 25 per cent of the shares of the entity; or
hold directly or indirectly more than 25 per cent of the voting rights of the entity; or
hold directly or indirectly the right to appoint or remove a majority of directors of the entity; or
have the right to exercise or actually exercise significant influence or control over the entity; or
have the right to exercise or actually exercise significant influence or control over an entity that is not a legal person under the law of that jurisdiction (i.e. a trust, partnership or unincorporated association) that meets any of the tests above.
4. What information will be reported?
Overseas entities will be required to submit information about themselves and their beneficial owners to the Registrar of Companies (Companies House).
Under the draft Bill, the following information will need to be reported in relation to an individual beneficial owner:
- name, date of birth and nationality;
- usual residential address;
- a service address;
- the date on which the individual became a registrable beneficial owner in relation to the overseas entity;
- confirmation regarding which of the conditions for beneficial ownership is met in relation to the individual.
Other information is reported for governments, public authorities and other entities who are beneficial owners, but this is not covered here.
5. Where will the information be available?
The Register will be held and maintained by Companies House and will, for the most part, be public in much the same way as the PSC register for UK companies.
As a search at HM Land Registry (for land registered in England and Wales) will provide the legal owner of registered land, it will be possible between the information at HM Land Registry and Companies House to ascertain the indirect beneficial owner of registered land once the Register goes live.
For land registered in Northern Ireland or Scotland, a search with the Land and Property Services (for Northern Ireland) or on the Registers of Scotland will yield the same information which can then be cross-referenced with the record for the overseas entity at Companies House.
6. How often will I need to update the information?
The information will need to be updated annually within 14 days after the end of the ‘update period’. The ‘update period’ is 12 months beginning with the date of the entity’s registration.
Companies will need to either provide updated information if the information has changed or to confirm that it is up-to-date if it has not.
7. What if I do not comply?
The draft Bill envisages an 18-month transition period before its sanctions would be enforceable on overseas entities which already own UK land and fall within the draft Bill’s scope.
Following this time period, and for overseas entities who do not yet already own UK land, the main consequences are twofold.
Unable to deal with the property:
A failure to register, or to comply with the updating duty, will in most cases affect the ability of the company to:
- acquire legal title to land as the entity will be unable to register as proprietor or owner (as the case may be) of land in the UK with the (relevant) Land Registry; and
- where already registered as proprietor, the company will be unable to sell or lease the land, or create a legal charge over the land, - as any buyer, tenant or a mortgagee (as the case may be) would be unable to register that disposition with the (relevant) Land Registry in any part of the UK.
Fine & criminal offence:
Failure to update the information held on the Register is also a criminal offence, as is delivering (or causing to be delivered) misleading, false or deceptive information to Companies House. Penalties can include a fine and/or imprisonment (up to a maximum of 12 months on summary conviction, or two years on conviction on indictment).
Failing to update the information held on the register will be punishable by an initial fine (of up to £500) and a daily default fine (also up to £500) for each day until the register has been updated.
8. When will this be coming in?
The Government intends that the Register will be operational in 2021.
However, a firm date for the launch has yet to be announced as the Government is trying to find time to push the legislation through Parliament amid the pandemic. It is unknown whether implementation of the Register will meet the 2021 target, but it would be wise to plan on the basis that it will.
9. Are there any things that can be done to structure out of this?
In general, although there might be ways to try and structure out of the reporting obligation based on the current legislation it is unlikely to be advisable to attempt to do so.
The Register may be a useful opportunity to consider whether a current corporate structure still serves the purpose it was put in place for or whether the property would be better transferred out of a company.
Once the draft Bill comes into force, as already mentioned, there will be an 18-month transitional period for companies to submit the required information to the Register. It should be possible for overseas companies to sell property before the end of the 18-month period which would remove the need for them to register.
However, it is important to bear in mind that transferring a UK property out of a company as part of restructuring may trigger UK tax charges including SDLT, corporation tax and non-resident capital gains tax.
Additionally, all non-UK resident trusts receiving UK land after 6 October 2020 will be required to register with the Trusts Registration Service ('TRS') by 10 March 2022. As a result, if a property is transferred out of an overseas company into an overseas trust then beneficial ownership reporting will still be required on the UK’s Trusts Register with the TRS. However, beneficial information reported on the UK’s Trusts Register will not be as publicly available as the information on the Register.
10. Are there any other things I should consider?
A solution for non-UK property investors in the UK residential property market is to take out life insurance to protect against the inheritance tax charge which may arise on the death of the shareholder of the company owning the property.
Such a policy would pay out a lump sum on death providing the estate with sufficient money to pay the inheritance tax charge.
To ensure the proceeds of the life insurance policy are not included in the estate it is vital that the policy be written in trust.
Sourced by Property Reporter https://www.propertyreporter.co.uk/property/uk-property-and-the-register-of-foreign-owners-a-guide-to-the-new-registration-requirements.html