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In March 2022, Parliament fast-tracked the Economic Crime (Transparency and Enforcement) Act 2022, in response to the Russian invasion of Ukraine.
This Act’s main measure is to establish a Register of Overseas Entities owning UK property.
What is the Register of Overseas Entities?
It’s a public register showing the beneficial (actual) owners of UK property.
Currently, a company owning UK property doesn’t have to disclose who owns or controls that company. This means companies can be used to disguise ownership. There are both legitimate reasons (like privacy) and illegitimate reasons (like hiding criminal activity) why someone would want to do this.
UK companies do need to disclose their owners. Since 2016, there has been a public register of beneficial owners of UK companies (called the People with Significant Control (PSC) register). This means (in theory) it shouldn’t be possible to use a UK company to disguise ownership of property. But many foreign countries don’t have such a public register, so it’s not possible to find out who controls them. This is the gap the Register of Overseas Entities is trying to fill.
When set up, any overseas entity (like a foreign company) buying UK property will need to register its beneficial owners. Like the PSC register, it will be publicly searchable and administered by Companies House. Generally, beneficial owners with more than 25% of the shares of an overseas entity need to be registered.
Five things to know about the register
1. It’s not a new idea
A public beneficial ownership register for UK property was announced by Prime Minister David Cameron in 2016, shortly before the PSC register was introduced. The Government then consulted on the register (PDF), and introduced a draft bill in 2018, which was scrutinised by a Joint Committee of Parliament.
It was then mentioned in the December 2019 Queen’s Speech, but the Government didn’t introduce it in the 2019-21 parliamentary session. When resigning as a Treasury Minister in January 2022, Lord Agnew wrote in the Financial Times that the Government had refused to give an Economic Crime Bill a slot in the 2022-23 parliamentary session. This bill was expected to include the register.
It was eventually fast-tracked through Parliament in March 2022, following concern about illicit money in the UK originating from Russia, in response to the invasion of Ukraine. When introduced, it was therefore criticised by stakeholders and the Opposition for being long overdue.
2. We’re not sure when it’ll be set up
A lot of work needs to be done to set up the register. This includes technical development, and secondary legislation to describe exactly how it will work. An Implementation Group comprising the UK Land Registries, Companies House and Department for Business, Energy and Industrial Strategy is setting up the register.
The Government has not committed to a deadline, saying it will be operational “as soon as possible”.
3. It will be retrospective
In Northern Ireland, the requirement to register beneficial ownership applies only to future property transactions. But it will apply retrospectively to land bought since January 1999 in England and Wales and December 2014 in Scotland.
These are the dates when the land registries in those nations first required overseas companies to identify where they were set up, when buying property. Companies House is contacting overseas entities covered by the Act to explain its requirements.
Government amendments made in the House of Lords (PDF) mean any overseas entities that sold UK land from 28 February 2022 (when the legislation was first announced) will also need to disclose their beneficial ownership information. This is intended to stop any overseas entities from “by-passing” the register by selling their land before it is set up.
It was originally envisaged that overseas entities will have 18 months to register their beneficial owners once the register is set up. A Government amendment in the House of Commons shortened this to six months. Once registered, beneficial ownership information must be updated annually (PDF).
4. Failing to comply will have criminal consequences
Overseas entities that fail to register by the end of the six-month transitional period commit a criminal offence, and officers (like directors) of the entity who are responsible for committing the offence can be prosecuted too.
Once registered, failing to update the register on time is also a criminal offence (PDF), punishable by a daily fine of up to £2,500 (increased from £500 during the Bill’s passage in the Commons). It’s also a criminal offence to deliver false or deceptive information to Companies House (PDF).
5. There is concern about “loopholes”
Stakeholders and the Opposition are concerned about entities being able to sidestep the register’s requirements. For example, the Chartered Institute of Taxation argued that setting a beneficial ownership registration threshold of ownership of at least 25% of the shares in an overseas entity could be easily avoided (PDF) by, for example, having a family of six each owning 16.67% of the shares in a company.
Concerns were also raised during the Bill’s passage about whether “nominee” arrangements could be used to disguise the true beneficial owners. In response, the Government says there are significant “regulation-making powers” in the Act that can be used to close any loopholes that might emerge.
About the author: Ali Shalchi is the House of Commons Library’s company and financial services specialist.
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