The Pandora Papers confirmed how attractive the UK, especially London and the South East, is for foreign property investors. This post considers what foreign investors need to know about transparency and land ownership in England and Wales and what is on the horizon.
Close to 90% of land in England and Wales is registered at Her Majesty’s Land Registry, and transaction involving unregistered land will trigger a registration requirement. The title gives basic information about a parcel of land, including the name and address of the registered proprietor. Non-natural legal personalities such as companies, limited liability partnerships, and charities can own land, and of course there is no restriction on non-UK entities owning land.
HM Land Registry is not concerned with who owns a parcel of land, instead it facilities an efficient property market by guaranteeing title. Anyone may consult the title register for a nominal fee.
Companies House maintains a register of companies and limited liability partnerships in the UK. The register may be consulted for free. As well as listing the names and basic details of their directors and shareholders, private companies are required to identify persons with significant control (a “PSC”) including their nationality and country of residence or incorporation. A PSC, which includes a non-natural entity, is broadly equivalent to the ultimate beneficial owner. Failure to provide details of any PSC is a criminal offence.
Companies House has been criticised for doing very minimal due diligence on the identity of directors, shareholders or PSCs. In addition, it is still possible for an ultimate beneficial owner to hide behind a trust as only trustees must be identified in Companies House, not the beneficiaries themselves. Similarly an entity registered in a jurisdiction where the company register is closed may keep details of directors and shareholders private.
Conveyancers are required under the Money Laundering Regulations 2017, which implemented the Fourth Money Laundering Directive (“4MLD”) in the UK, to verify the ultimate beneficial owner of their own client, however this information once gleaned, is covered by the usual common law rules relating to client confidentiality. They are not required to check the identity of the counterpart entity in a conveyancing transaction, instead relying on that counterparty’s lawyer’s Client Due Diligence (“CDD”).
The Fifth Money Laundering Directive (“5MLD”) extended the CDD requirement for real estate brokers. Formerly, agents had only to establish the ultimate beneficial owner of their own client. Pursuant to 5MLD, given effect in the UK by the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 effective from 6 October 2020, investment and letting agents have been required to do CDD on both landlord and tenant, where the demised term will be for longer than a month, and where the rent is higher than EUR 10,000 per calendar month.
The Pandora Papers will undoubtedly put pressure on the UK Government to bring the Overseas Entities Bill onto the statute book. This Bill, which has had an extended gestation, will introduce a register of beneficial owners of overseas entities owning land in the UK. Companies House will maintain the register, and most of the information will be open to the public.
Compliance will be enforced by the imposition of criminal sanctions but, probably more efficiently, by prohibiting any land from being registered until a new overseas owner has given the requisite information. Overseas proprietors will have a new restriction entered on existing titles preventing any disposition until they have complied with the new regime.
In parallel with the Overseas Entities Bill, 5MLD has extended the range of trusts that need to be registered with details of beneficial ownership, on HMRC’s Trust Registration Service. The Trust Registration Service was first established in compliance with 4MLD, but was confined to trusts that had tax liability. 5MLD, implemented in the UK in January 2020 will extend the requirement to all but a few exempt classes of trusts.
In summary, ultimate beneficiary ownership of UK property is set to become a matter of public record and overseas investors may want to consult their advisers on how best to manage this.
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