The Economic Crime (Transparency and Enforcement) Act 2022

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18 Mar 2022

The Economic Crime (Transparency and Enforcement) Act 2022: Registration requirements for overseas entities holding UK land

The Economic Crime (Transparency and Enforcement) Act 2022 includes provision for the creation of a new Register of Overseas Entities that hold UK land.

The new register, launched on 1 August 2022, is maintained by Companies House and forms part of the government’s strategy to combat economic crime putting overseas entities that hold UK land on a similar footing to UK companies, which already need to disclose their beneficial owners to Companies House under the People with Significant Control (PSC) register.

Registration of overseas entities that hold UK land

Under the Act, an overseas entity (defined as a legal entity governed by the law of a non-UK country or territory) that holds a “qualifying estate” in UK land is required to register information about its beneficial owners on a new Overseas Entities Register maintained by Companies House. A “qualifying estate” for these purposes means a freehold estate or a leasehold estate granted for a term of more than seven years from the date of grant.

The register is not a register of the beneficial owners of the land itself, but rather the beneficial owners of overseas entities that hold UK land. This may not always be the same, for example where the overseas entity holds the land as nominee. However, in parliamentary discussions the introduction of the register and the passing of the legislation was referred to as an “iterative process” and it is therefore possible that further legislation will be introduced requiring disclosure of the beneficial owner of the land itself where this is different.

Beneficial owners

The definition of beneficial owners is similar to that used for the PSC register of UK companies. It includes individuals, entities and government bodies who hold, directly or indirectly, more than 25% of the shares or voting rights in the entity, have the right, directly or indirectly, to appoint or remove a majority of the board of directors of the entity, or have the right to exercise (or actually exercise) significant influence or control over the entity. Where these conditions are met by the trustees of a trust, members of a partnership or other entity that is not a legal person, it also includes any person who has the right to exercise (or actually exercises) significant control over the activities of the trust or entity. The definition of “significant influence or control” in this context includes a person (for example a protector) with a right to appoint or remove trustees, to direct the distribution of assets, to amend the trust deed, or to revoke the trust.

Information required to register

The information an overseas entity must provide includes the overseas entity’s name, country of incorporation and registered office and the date of birth, nationality, residential address and service address of each beneficial owner, or in some cases the managing officer(s) of the entity.  The overseas entity must take reasonable steps to identify any beneficial owners, which include sending an information notice to any person that it knows, or has reasonable cause to believe, is a beneficial owner. If a person fails to comply with an information notice, they may be liable to a fine or imprisonment.

Where the beneficial owner is the trustee of a trust (or non-UK arrangements of similar character), the overseas entity must also submit information in relation to the trust. This includes the name of the trust and the date it was created, details of the current (and some former) trustees, and the names, dates of birth, nationalities and addresses of the settlor, the beneficiaries and any person with rights in respect of the appointment or removal of trustees or the exercise of their functions.

The information must be verified by a UK-regulated agent and registered at Companies House, which will have powers to check and monitor the information it receives. Once an overseas entity is registered, it will be issued with an overseas entity ID number and will be required to update the information on the register of overseas entities annually.  The information on the register will be publicly available, with the exception of the day of the month on which an individual is born, the residential address of anyone who is registered and, where a beneficial owner is a trustee, the information in relation to the trust.

Overseas entity currently holding UK land

An overseas entity that is the registered owner of UK land must register at Companies House no later than 1 February 2023. The requirement to register only applies if the overseas entity became the registered owner of the land on or after 1 January 1999 in England and Wales or 8 December 2014 in Scotland.

The Land Registry will identify all properties currently registered in the name of overseas entities and will add a restriction to the titles of all such properties.  The form of restriction to be added will prevent the registration of any disposal of the property unless the foreign entity owner is registered at Companies House (or is otherwise exempt).  The Land Registry will start to add the restrictions on or after 5 September 2022, but the restrictions will not take effect until 31 January 2023 (the end of the 6 month transition period). The Land Registry will serve notice of the restriction on the registered owners of all registered titles where a restriction will be put in place. The notices will be sent to the address given for the registered proprietor.

Overseas entity selling UK land

From 1 February 2023 an overseas entity wishing to sell UK land will need to be registered at Companies House, and continue to be so registered up to completion of the sale. The buyer will require this confirmation to enable it to satisfy the Land Registry restriction on the title of the property outlined above.

Whilst overseas entities have the benefit of a six month transition period from 1 August 2022 to 1 February 2023, within which to register at Companies House, it would be prudent for overseas entitles that intend to dispose of a property to satisfy the registration requirements as soon as possible.  We anticipate that buyers contracting to buy in the transitional period will start to require evidence of the overseas entity seller’s registration at Companies House as a condition of the purchase, to ensure that the buyer does not encounter difficulties registering the purchase should completion slip for any reason and take place outside of the six month transition period.

In addition, where an overseas entity disposes of UK land between 28 February 2022 and 31 January 2023 (the end of the transitional period) the overseas entity will not be required to register at Companies House but will still need to provide Companies House with information in relation to who its beneficial owners were immediately before the disposal.

If the property is being sold to a buyer that is itself an overseas entity, the seller will also want to check that the buyer has registered as an overseas entity at Companies House and that such registration will remain in place up to completion of the sale. This is to ensure that the transfer is registered at the Land Registry and legal title does not remain with the seller.

Overseas entity buying UK land

An overseas entity applying to the Land Registry to register the purchase of UK land on or after 5 September 2022 will need to be registered as an overseas entity at Companies House before it can register the purchase of the property and complete the transfer of legal ownership.

A restriction will be placed on the Land Registry title to the property following the purchase preventing the registration of any future disposal of the property unless the overseas entity is registered at Companies House at the time of the disposal (or is otherwise exempt).  This restriction will take immediate effect.

If the property is being purchased from a seller that is itself an overseas entity, the buyer will want to check that the seller has registered as an overseas entity at Companies House and that such registration will remain in place up to completion of the sale.  This requirement will not be relevant where completion takes place within the 6 month transitional period as the restriction on the seller’s Land Registry title will not take effect until 1 February 2023.  Similarly, where completion takes place after 1 February 2023 the “existing contract provisions” in the Act may apply if contracts for the purchase were exchanged before the LR restriction was added to the Seller’s title.

Penalties for non-compliance

If an overseas entity (a) holds UK land at 1 February 2023 or (b) held UK land at 28 February 2022 and disposes of it between 28 February 2022 and 1 February 2023, the entity (and its officers) will commit an offence if it has not made an application to register or provided the required information (as the case may be) before 1 February 2023. Where an offence is committed, the entity and its officers can be liable for daily fines of up to £2,500 and in some cases, prison sentences of up to five years.

In addition, from a practical perspective, failure to register at Companies House where required will restrict an overseas entity’s ability to buy or dispose of UK land.

Practicalities of registration

Companies House have now set up the Overseas Entities Register and are accepting applications for registration.

Clients should look at their structures and identify any overseas entities that hold UK land, and where they do, they should begin to gather the information in relation to the entity and its beneficial owners to start the registration process before the end of the six month transitional period.

The level of complexity of the information to be provided to complete an overseas entity registration will vary from company to company but a detailed analysis will be required for some property holding structures. We will be happy to advise on how the rules apply, the necessary steps to register and the potential impact of the Act on any pending property transactions.