From the Domesday Book of William the Conqueror, to the establishment of the Land Registry, identifying the owner of a piece of land has had a long history in the UK. Whilst William wanted to know the extent of his conquered lands so he could tax his new subjects, and land registration was introduced to make conveyancing and mortgages easier, the Economic Crime (Transparency and Enforcement) Act (the “Act”) has a more high minded purpose. It is intended to make public the “real” identity of foreign proprietors owning land in the UK and thus discourage bad actors from investing in English real estate.
What is an Overseas Entity?
The Act is aimed at Overseas Entities (the “Entity”) which is widely defined as a legal entity that is governed by the law of a country or territory outside the United Kingdom. If the Entity owns a “Qualifying Estate” in the UK – a freehold or lease granted for more than seven years – then it must register at Companies House. Companies House is to set up a new public register which will record information on an Entities beneficial owners.
What is a “Beneficial Owner” under the Act?
A beneficial owner is, broadly speaking, any individuals or entities that directly or indirectly:
- Hold more than 25% of the shares or voting rights in the Entity;
- Has the right to appoint or remove directors; and
- Otherwise has the right to exercise significant influence and control over the Entity.
Where the registerable beneficial owner is a trustee of a non-UK trust, or trust-like structure, information about the trustees, settlor, beneficiaries and other persons with trust powers needs to be provided to Companies House. This information will not be made public, but will be available to HMRC.
The duty to provide information is a continuing one, and must be made on an annual basis.
How is registration to be enforced?
There are stiff criminal and civil penalties for Entities that do not register; however the real teeth of the Act is the new right of HMLR to put a restriction on any Qualifying Estate’s title, which will prevent the proprietor from disposing of the freehold, granting, assigning or surrendering a registerable lease, or granting a legal charge.
The Act was rushed through Parliament in response to the situation in the Ukraine, but requires additional legislation to bring it into force. This is expected to happen in late June 2022, presumably to give both Companies House and the Land Registry time to get systems in place.
There will then be a transitional “grace” period of six months in which Entities who already hold land must register with Companies House. Any new transactions taking place during the grace period will not be registered by the Land Registry unless the Entity has first been registered itself.
An Entity cannot avoid the provisions of the Act by carrying out pre-emptive transactions before it comes into force. All transactions during the transitional period – from 28 February 2022 to the full enactment of the provisions – must provide information about its beneficial ownership.
Given the historic foreign investment in UK real estate, the Act also unsurprisingly includes any Entity which currently holds a freehold or registerable leasehold that it acquired on or after 1 January 1999. It is very important, therefore, for landowners to engage with their portfolios and decide which Entities need to identify any beneficial owners, or confirm that they have none.
What you should do now
It is not yet possible for an Entity to register at Companies House, because both Companies House and the Land Registry need to put systems in place. However, investors should ensure that they are ready to do so once we have further secondary legislation which should give us a more complete picture of what is required and by when.
In the twenty-first century, the liberal democracies have seen a change in popular sentiment about the morality of offering a sanctuary for money that may have been illicitly acquired. Very many businesses chose offshore ownership for legitimate business reasons, and for these, the Act will impose nothing more than an extra piece of administration.
It is important, though, that Entities do engage with this new legislation when it comes into force, so they do not incur penalties, or the ability to deal with their real estate as they wish.
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For any other legal questions related to UK real estate, please get in touch with your usual Mayer Brown contact or one of the blog editors.