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A new UBO register: the Registration of Overseas Entities Bill

Posted on 02 September 2019

Under the Registration of Overseas Entities Bill, scheduled to come into force in 2021, it is proposed that if the beneficial owner or controller of an overseas entity that owns UK land has not registered their identity at Companies House, a restriction will be placed on the title that will prohibit that entity from selling, leasing or mortgaging that land. There will be an 18-month transition period for those overseas entities that already hold UK land.

Owning UK land through an offshore entity has already become less attractive with the introduction in April 2019 of a tax on capital gains for share sales by non-UK resident investors in commercial property; now the advantage of privacy will also fall away. Under the current "People with Significant Control" (PSC) regime, all UK companies already have to register the identity of controllers and beneficial owners with more than 25% ownership at Companies House. The proposed register of overseas entities owning UK land will be modelled on the PSC regime.

Overseas entities owning UK land will be required to register details of those who hold, directly or indirectly, more than 25% of the shares or voting rights, those who can appoint or remove a majority of the board or those who have the ability to exercise significant influence or control over the entity. Failure to register will be a criminal offence for both the entity and its officers. The land in respect of which the requirements apply is freehold and leases for a term of seven years or more (different criteria apply in Scotland and Northern Ireland).

These proposals need to be seen through the prism of the government's stated aim of making the UK a hostile environment for money laundering. The legislation is one piece of a wider anti-money laundering jigsaw that also comprises the PSC regime, the Trust Registration Service (TRS), the Fifth Money Laundering Directive (5MLD), unexplained wealth orders (UWOs) and suspicious activity reports (SARs).

There are several areas of the draft Bill which raise questions:

  • Does an innocent, third party purchaser merely need to check that that an overseas entity has registered itself, or does the purchaser need to be concerned with the accuracy of the information registered?
  • The legislation focusses on "entities" with legal personality under their local law and therefore does not cover trusts. Trustees of a trust with the requisite control may need to be registered, but not the trust itself. The government's current position is to rely on the separate mechanism of the Trust Registration Service (TRS), whereby the beneficiaries and controllers of trusts with a UK tax consequence must be identified and registered with HMRC. The TRS is not a publicly available register, although implementing 5MLD may widen access to it. From a buyer's perspective, what obligation is there to know or check that a TRS registration has been made?
  • It is not clear how quickly the registration process will take, which in complex re-organisations could become a significant issue.

The new register comes in the midst of a number of other transparency initiatives. The UK's overseas territories are to be required to introduce public beneficial ownership registers of companies, whether or not they own UK land, and the Crown dependencies of Guernsey, Jersey and the Isle of Man have also published plans to introduce public registers: see our June 2019 briefing. The UK Government is also consulting on wide-ranging reform of the information that UK companies are required to disclose, increasing the checks on that information and requiring the identities of those setting up, managing and controlling companies to be verified: see our May 2019 briefing.

The Registration of Overseas Entities Bill is the first legislation of its type in the world, and the visibility and administrative burden of offshore ownership of UK land and its subsequent sale and purchase is going to increase.

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