Overseas Entities Bill – the clock is ticking

Are you an overseas company that owns property in the UK or do you advise clients that do? If so, the government’s commitment to establish a beneficial ownership register by 2021 will have significant consequences for you.

Emma Roche and Hollie Gallagher outline the key elements you need to know and the actions you should take.

What is it?

The Draft Registration of Overseas Entities Bill (the bill) was issued in July 2018 by the Department for Business Energy and Industrial Strategy. The bill sets out provisions to establish a new beneficial ownership register of overseas entities that own UK property.

This follows the UK’s commitment made at the international Anti-Corruption Summit in London in 2016 to establish such a register, in order to combat money laundering and achieve greater transparency in the UK property market.

The register will be public and held by the UK’s registrar of companies at Companies House (the register). The UK government intends to introduce the register by 2021.

Who should be interested in the bill?

The register, once established, will have a significant impact for overseas investors in UK property.

What is disclosed and who falls within the definitions of ‘overseas entity’ and ‘beneficial owner’?

All overseas entities that are purchasing land, already own land, or have a lease over land for longer than seven years in the UK will be required to:

• identify their beneficial owner(s); and
• provide information about itself, its beneficial owners and managing officer(s) to Companies House.

Examples of information that will be disclosed include the name / registered office of the overseas entity / beneficial owner and crucially, the basis on which the named entity / individual is considered a registerable beneficial owner. Therefore, the new regime means that individuals who own UK property through an overseas entity will now see their personal information on a public register.

The information must be reviewed and updated annually. Certain exemptions from reporting may apply.

An overseas entity is, as currently defined, a body corporate, a partnership or other legal person governed by the law of a country or territory outside the UK.

What about trusts? They do not have legal personality and so do not fall within the definition (but non-UK resident trusts acquiring land in the UK will be required to register with the UK Trusts Registration Service when a tax liability arises in respect of that land). Those that hold UK residential property via an overseas entity, as defined in the bill, will be subject to the new Overseas Entities regime, though not (as matters currently stand) also with the Trust Registration Service.

A ‘beneficial owner(s)’ may be an individual, legal entity, government or public authority which:

• owns more than 25% of the shares or voting right in the overseas entity;
• has the right to appoint or remove a majority of the board of directors; and
• exercises, or has the right to exercise, significant influence or control.

What are the penalties for non-compliance?

The most significant property-related consequences for non-compliance are that:

• an overseas entity that purchases UK property will not be able to register as the proprietor of such property at the Land Registry until it has complied (ie it has notified Companies House of beneficial ownership); and
• an overseas entity that owns UK property which is already registered at the Land Registry as the proprietor will not be able to register any disposal of the property if it has not complied by the expiry of the 18 month permitted transitional period.

What does it mean for anyone buying or selling property?

Overseas entities should start preparing now, rather than wait until 2021. It will take time to identify all registrable beneficial owners and comply with the registration requirements. This includes any overseas entity contemplating entering into a contract now (if completion is likely to take place post-2020). An overseas investor should review his / her structures.

We can provide tailored advice to help navigate through the regulations / tax regime.

Professional advisors who are acting for the buyer of a property from an overseas entity should consider raising enquiries of the seller to ensure that both the legal and beneficial title passed on previous property disposals.

Overseas entities selling property will need to be prepared to answer such queries and be able to give evidence that both the legal and beneficial title was adequately passed to them on purchase. If you are considering selling property then start gathering your due diligence documents now.

Third parties entering into property contracts with overseas entities should:

• identify the contracting parties early in a transaction so that relevant checks can be made in good time;
• check that any overseas entity has a valid ID number;
• check that the annual validity period will not expire before exchange, completion or registration of the property; and
• consider contractual obligations including termination rights to ensure overseas entities comply with the new regime.

Key takeaway

In light of the severity of the penalties for non-compliance, any overseas entity purchasing UK property needs to be aware of and properly advised in relation to these new stringent registration requirements. As a minimum this should include:

• building additional time into a transaction to enable more rigorous due diligence of the seller; and
• putting in place contractual safeguards in the documentation to ensure compliance and a means of recourse in the event of a breach.

If you have any queries feel free to get in touch with Emma Roche or your BDB Pitmans contact.