May 2nd, 2018

UK Register of Beneficial Owners of Overseas Entities for implementation in 2021

The government has published its response to its consultation on proposals to introduce a register of beneficial owners of overseas entities and plans to implement a public register in early 2021.

This will affect overseas companies which purchase UK property or win government procurement contracts

The use of overseas companies to disguise illegal activity in the property market is a cause of great concern for the government. It is believed that greater transparency is in the public interest, will promote greater confidence in the UK and will discourage criminals from laundering money in the UK. Between 2004 and 2014, over £180m worth of property in the UK has been investigated as suspected proceeds of corruption, but this represents only a small proportion of the UK property owned by offshore companies.

Over recent years, there has been an increasing public perception that offshore companies are used as vehicles to invest funds from criminal or illegitimate activities in UK property. In most cases, however, this is not true and it is more likely that the use of an offshore company is entirely legitimate.


What will the register look like?

The format of the proposed register remains unclear and a draft bill is due to be published this summer which will contain more specific proposals. This will be the first register of its kind in the world so there is no exact model to work on. It is likely however that this new register will follow a very similar approach to that of the register of people with significant control (PSC register) which is already in force for UK corporate bodies and some other entities. Companies House will hold the new register. It will be publically available free of charge but there will be a registration fee charged to the overseas entity.


Scope

The register will not be restricted to companies limited by shares. Any overseas entity that can hold land in its own name will be obliged to register. The government has stopped short of requiring all bidders for contracts to supply ownership details but these details will only be sought for the successful bidder.

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Definition of beneficial owner

Despite calls for additional information, such as the exact percentage of ownership, the government intends that the definition of beneficial owner for the new overseas register will be aligned to the definition of 'person with significant control' (PSC) in the PSC regime which applies to UK companies. This is based on international best practice and has been adopted in EU anti-money laundering legislation. It is probable therefore that the register will reveal anyone who owns or controls more than 25% of the company. If it is not possible to establish a beneficial owner then additional information on managing officers may be required.


Keeping the register up to date

It was suggested that the register would need to be kept up to date every two years although there are calls for it to be updated on a transactional basis. The government are reviewing this and will set out proposals in the draft bill.


Sanctions for non-compliance

How the government ensures compliance with the new rules is a key issue. Research from Global Witness (https://www.globalwitness.org/en/blog/what-does-uk-beneficial-ownership-data-show-us/) on the PSC register shows that it is all too easy for companies to file incorrect information, whether accidentally or on purpose. Anything filed is accepted by Companies House in good faith if it is in the correct format, but the fact that 3000 companies were able to register their PSC as an offshore company in a tax haven (which is a clear breach of the rules) does not give confidence that the register will be accurate. The government is talking about criminal penalties but how these are enforced is another matter.


Specific proposals on property

The proposals apply to freehold properties and 'to leases of registrable duration'. Precisely which leases will be affected remains to be seen.

Before purchasing a property, the overseas entity will need to apply to Companies House for a registration number. This number will be required before registration can take place at the Land Registry. If the purchaser does not have a registration number, beneficial interest in the property can pass to the purchaser but not legal title, so the vendor will be put into a position of trustee for the purchaser.

For entities already owning property, they will be required to register within a specific period – one year has been suggested. If they do not have a registration number there will be restrictions on ability to transfer.


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