New legislation requires overseas entities with uk property to register and declare their beneficial owners
This is a guest article on a wider tax issue that impacts overseas entities
On 15 March 2022, the Economic Crime (Transparency and Enforcement) Act 2022 received Royal Assent in the UK; the law will become effective when regulations are issued. In addition to changing the rules on sanctions and “unexplained wealth orders,” the Act introduces a new requirement for overseas entities owning UK property to register at Companies House and provide details of their beneficial owners. Failure to comply or providing incorrect information could result in a criminal offence. The register will be publicly available, and the UK tax authorities (HMRC) will be able to access additional information at Companies House.
Reason for the changes
According to Land Registry data, 93,877 properties in England and Wales are currently owned through an overseas entity. Individuals who wish to protect their privacy often opt to hold UK property through an overseas company, but keeping the owner’s name off Land Registry records comes at a price: companies must pay 15% Stamp Duty Land Tax (SDLT) when buying residential property.
Owning UK property through an offshore company, in and of itself, is not blocked by the new rules—such a structure can be set up for legitimate commercial or personal protection reasons. The government’s aim is to increase transparency of ownership: it is aware that the previous lack of transparency allowed those who wished to conceal their identify for other reasons (sometimes illicit reasons) to invest in UK property. This is why part of the new registration process involves declaring the beneficial owners of the company to Companies House.
What counts as an “overseas entity”
The new rules apply to entities governed by law in a country outside the UK, so offshore companies, partnerships and foundations must comply. However, offshore trusts owning UK land directly are not required to register with Companies House, as they must already be registered through the Trust Registration Service. Where an overseas structure includes both a trust and an overseas company or other entity, the officers of that entity must ensure that it is registered.
The requirement to register at Companies House applies where the entity holds freehold property and land, and a leasehold is granted for longer than seven years. Once the law is in force, offshore entities must register before acquisition.
Where registrable land is held through a chain of companies, the general rule is that the overseas entity is required to look through the structure and determine its ultimate beneficial owners.
Impacts for overseas entities owning UK property
The Act builds on the 2016 transparency requirement for corporates to declare which persons exert significant influence and control over them at Companies House. The rules will ensure that anyone can identify the ultimate beneficial owner of overseas entities that own UK land interests and dissuade those planning to buy UK property with illicit funds.
To comply with the Act, the officers of overseas entities must take reasonable steps to:
- Identify any registerable beneficial owners of the entity;
- Obtain and provide the information to Companies House;
- Complete an annual return to update the register; and
- Request removal from the register at the appropriate time.
Overseas entities must issue “information notices” to all persons that they know (or have reason to believe) are beneficial owners, and the recipient must respond within one month. As with the existing rules on “persons with significant control” of UK companies, share ownership or voting rights of more than 25% of the overseas entity will put a person in the “beneficial owner” category, along with all directors. The Act contains details of exemptions and procedures. Even where the ultimate beneficial owner in an overseas structure is a trustee, details of the trust must be disclosed, and information in relation to any and all beneficiaries, the settlor and any other individual or entity with control over the trust (for example, a protector) reported.
Failure to register with Companies House is a criminal offence, and the officers of the entity could face up to two years in jail (or five years in some extreme cases) if they do not comply. Similarly, failure of beneficial owners to supply information can be a criminal offence under UK law.
The rules also apply to land already owned by overseas entities, i.e., land in England and Wales purchased since 1 January 1999 (purchases since 8 December 2014 for Scotland (it should be noted that land law is different in Scotland, and the Scottish government created a similar Register of Persons Holding a Controlled Interest in land on 1 April 2022)).
The transitional rules broadly require offshore entities that own such UK property to join the Companies House register within six months of the rules coming into force. Even where the land is sold within this transition period, there are administrative issues. Until an overseas entity owner is registered at Companies House, the Land Registry entry for the property will show a restriction preventing it from being sold (in most circumstances). If a sale occurs after 28 February 2022 but before a company is registered (e.g., before the regulations are issued or before a restriction is placed on the Land Register), the selling entity still has an obligation to register with Companies House by the end of the transition period. This effectively means all entities must register at Companies House initially, even if they wish to sever all UK connections: after the transition period, the requirement to be registered ceases once all UK-owned property is sold, and entities can apply to be removed at that point.
Tax investigations into beneficial owners following registration
HMRC, the police and other enforcement agencies consider that foreign company ownership of UK property can be used to conceal crimes such as tax fraud and money laundering, so they will take a keen interest in the companies that now register.
HMRC will feed the information into its “Connect” system to cross reference other government data, including the common reporting standard data from offshore banks and open-source data to identify cases for further investigation. For example, HMRC is likely to investigate if individuals living in property are UK resident for tax purposes; if so, UK tax may be due on their worldwide income. HMRC can assess whether there were taxable “remittances” (usually money transfers) to the UK by non-UK domiciled individuals. Questions about the source of funds to purchase property can often arise. Overseas landlords will be taxable on UK rental income. HMRC will also want to check whether any Annual Tax on Enveloped Dwellings (ATED) is due, which is generally payable on residential property with a value of more than GBP 500,000.