The Economic Crime (Transparency and Enforcement) Act 2022: Registration requirements for overseas entities holding UK land
In response to Russia’s invasion of Ukraine and the widespread sanctions subsequently imposed by the international community, the UK government has fast-tracked legislation to create a register of overseas entities that own UK land.
The Economic Crime (Transparency and Enforcement) Act 2022 was passed on 15 March and is expected to come into force imminently.
Measures in the Act include expanding the UK’s unexplained wealth orders regime, further enhancing the UK’s financial sanctions regime and, perhaps most significantly, legislation requiring corporate overseas owners of UK land to register on a new register of overseas entities at Companies House. This will put 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 to be 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.
It is important to note that 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.
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 will need to be clarified but if it follows the PSC guidance, it would include 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 will be verified by 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 holding UK land
An overseas entity that is the registered owner of UK land will be required to register at Companies House within the transitional period, which lasts for six months from the date of the introduction of the Act. The requirement to register only applies if the overseas entity became the registered owner on or after 1 January 1999 in England and Wales (or 8 December 2014 in Scotland).
The Land Registry will be taking steps to identify all properties currently registered in the name of overseas entities and will place a restriction on all such property titles, effective from the end of the transition period, preventing any future disposal of the property unless the foreign entity is registered at Companies House (or is otherwise exempt).
It is anticipated that 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 and now would be a good time to ensure that all such addresses for service are up to date.
Overseas entity selling UK land
After the end of the transitional period, 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 (as mentioned above).
Where an overseas entity disposes of UK land between 28 February 2022 and the end of the transitional period, the overseas entity will still need to provide to Companies House 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 (subject to the transitional period provisions). 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 buying UK land will need to register as an overseas entity at Companies House before it can register the purchase of the property at the Land Registry to complete the transfer of legal ownership.
Once the registration is completed, a restriction will be placed on the Land Registry title to the property preventing 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).
For UK land acquired by an overseas entity before the Act comes into force, the overseas entity will have six months from the date of the introduction of the Act to register.
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 (subject to the transitional period provisions).
Where a corporate trustee of a non-UK resident trust holds UK land, the trustee may itself need to register as an overseas entity (where it holds the UK land directly) or the trust may be a beneficial owner and information will need to be provided in relation to the trust and the trustee as set out above (where it holds the UK land indirectly).
In addition, overseas trusts that, since 5 October 2020, acquire UK land directly are generally required to register on the UK’s separate register for trusts under the Trust Registration Service (with 1 September 2022 being the deadline for registration). Non-UK resident corporate trustees (including nominee companies holding as bare trustees) who are or become registered owners of UK land may now therefore need to register under both the Trust Registration Service and the Overseas Entities Register.
Penalties for non-compliance
If an overseas entity (a) holds UK land at the end of the transitional period or (b) held UK land at 28 February 2022 and disposes of it during the transitional period, 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 the end of the transitional period. 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
Given the speed at which the Act has been introduced, and the shortened time for compliance, we are still a little in the dark as to the likely practicalities and costs of registration. Companies House are still in the process of setting up the Overseas Entities Register and are not, as yet, able to accept any 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 and there remains some uncertainty in relation to the interpretation of the rules in relation to trusts. 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.