Lifting the secrecy behind offshore companies
In response to Russia's invasion in Ukraine and the widespread sanctions subsequently imposed by the international community, on 28 February the UK government announced plans to fast-track new economic crime legislation.
The Economic Crime (Transparency and Enforcement) Bill was published on 1 March. Proposed measures include expanding the UK’s unexplained wealth orders regime to trusts with UK property holdings, further enhancing the UK’s financial sanctions regime.
More importantly, though, within the Bill is draft legislation on the registration of overseas entities, which was initially published in 2018. The purpose behind the legislation is to require the owners of UK property to reveal their identity and put overseas entities on the same footing as UK companies, which already need to disclose their beneficial owners to Companies House.
The rules will apply to foreign entities that hold UK land. Foreign entities are defined as legal entities governed by the law of a non-UK country or territory. They will be obliged to register information about their beneficial owners, broadly those persons who have directly or indirectly:
- at least 25% of the shares or voting rights;
- the power to remove or appoint a majority of the board of directors; or
- the right to exercise or who actually exercise significant influence or control over the entity.
Information required to register will include the entity’s name, country of incorporation, and registered office and the date of birth, nationality, residential address and service address of each beneficial owner. The information will be verified and registered with Companies House, which is now also being given much greater powers to check and monitor the information it receives.
The draft legislation includes provisions for the dates of birth and residential addresses of individual beneficial owners to be restricted from public view and power for the Secretary of State to make further restrictions.
Once an entity is registered, it will be issued with an overseas entity ID number and will be required to update the information on the register annually. Registration will be required for an entity to be able to register title to UK land. Unusually the rules have a far-reaching retrospective effect, covering properties purchased by foreign entities up to 20 years ago in England and Wales (or since 2014 in Scotland). Failure to register will result in restrictions on the ability to dispose of UK property. There are also criminal sanctions for non-compliance, including daily fines of £500 and prison sentences of up to 5 years.
While this new register will lift the secrecy behind the ownership of UK residential property by offshore companies, its effect will not be limited to the Russian “oligarchs and kleptocrats” mentioned in the announcement by Business Secretary Kwasi Kwarteng. Purchasing UK land through offshore entities has long been a common planning tool for overseas families for asset protection and privacy purposes. With the Trust Registration Service already targeting trust arrangements, including bare trusts, the idea of hiding behind asset holding vehicles is now becoming a thing of the past.