The Department for Business, Energy and Industrial Strategy (BEIS) published a call for evidence in April 2017 on its proposal to introduce a register of beneficial ownership of overseas companies (and other legal entities) which own property in the United Kingdom.
The Government has now issued a response to that call for evidence which seeks to clarify certain aspects of the proposed register.
Links to our previous briefings on this proposed register are here: Continued Transparency – a register of ultimate owners of overseas companies holding UK property and New UK Register of Beneficial Owners of Overseas Entities.
The principal points arising from this response are as follows:
- The Government is fully committed to introducing this register and will publish a draft Bill this summer, with the intention that the register will be operational in 2021.
- The Government appreciates that the register is potentially sensitive, as it is the first register of its kind in the world and may impact investment in the UK property market. It has therefore indicated that it will proceed cautiously, aiming to strike the right balance between improving transparency and minimising burdens on legitimate commercial activity.
- The register will seek to cover all legal entities throughout the world which are able to hold properties. However, trusts are not going to be included, principally on the basis that these are used by private individuals for managing family owned assets. Publishing information in relation to the beneficiaries of trusts is not deemed to be proportionate and would undermine family confidentiality.
- The Government originally suggested that leaseholds with a 21 year term or more would fall within the register on the basis that this term is analogous to a freehold. However, having considered the responses, the Government will now define leaseholds that fall within the register based on whether the lease requires registration. This is therefore likely to be a much shorter period of seven years.
- Helpfully, the definition of beneficial owner for the purposes of the overseas register will be aligned to the definition of a person with significant control in the current PSC legislation. The new rules will therefore be familiar to UK advisers. Furthermore, the same information in relation to a PSC will also be required for the new overseas register.
- The Government originally asked whether a transition period of one year was sufficient to allow overseas entities which already own property to comply with the requirements. The Government is considering an extension of the one year period, so that overseas companies have the ability to comply with the rules or sell the property within a reasonable timeframe.
- The rules will be backed up by a system of statutory restrictions and notices on the relevant property's land register, and criminal offences will apply for non-compliance.
- The Government considers that preventing the transfer of a beneficial interest and/or voiding a transfer document in circumstances where the rules are not complied with is not workable. As such, the Government intends to allow beneficial interests in property to pass even when there is no compliance, but it seems that the legal title (and therefore the registration of the transfer) will not be allowed to pass to an overseas entity that does not have a valid registration number at completion of the purchase.
- Where an overseas entity is not able to provide information about their beneficial owner, they will need to include information in relation to their managing officers. This is different to the PSC regime where directors are not to be treated as PSCs simply by virtue of the fact that they hold that position.
- The Government originally considered that there would be a requirement to update the register every two years. It seems that this is likely to be shortened and the Government is considering what the relevant period should be.
- The Government is very clear that an essential aspect of the register is that it is publicly and easily accessible. Therefore the register will operate in the same way as the PSC register, being publicly accessible at Companies House. Whilst there may be circumstances where individual beneficial owners could seek to have their information withheld from the register, these circumstances are likely to be very limited, probably only where there is a serious risk of harm or intimidation to a beneficial owner.
If you require further information please contact Anthony Turner or your usual contact at the firm on 020 3375 7000.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, April 2018