The Economic Crime (Transparency and Enforcement) Act 2022 (the "Act") establishes a register for beneficial owners of overseas entities who own property in the UK. While the provisions governing the Register of Overseas Entities (the "ROE") are not yet in force, its implementation is expected in the next few months. Once implemented, the ROE will have potentially significant implications for overseas landlords who own property in the UK, as well as parties who deal with them.
The aims of the ROE are to crack down on overseas criminals using UK property to launder money and to increase transparency around who ultimately owns land in the UK. For more detail on the policy drivers and background to the ROE, refer to our previous blogs available here and here.
What do overseas entities need to do if they own property in the UK?
Once in force, overseas entities will have a 6-month period to register. The registration requirement applies to both prospective landowners and landowners who acquired property after 8 December 2014 (1 January 1999 in England and Wales).
The application for registration will include certain information about the overseas entity as well as its beneficial owner(s). In broad terms, a "beneficial owner" is an individual or entity who holds over 25% of the shares or voting rights or has the right to appoint or remove the majority of the entity's board. If none of these criteria are satisfied, an individual or entity who exerts a similar level of influence or control through other means will be classified as a "beneficial owner". Where the entity is unable to identify a beneficial owner, has incomplete information about its beneficial owner, or has reasonable cause to believe that it doesn't have one, information requirements will apply to its managing officers.
Once registered, overseas entities will be allocated an ID number and will be under a statutory obligation to update its information annually (until such time as it successfully applies to be removed from the register).
Consequences of non-compliance
The consequences for non-compliance are severe and include criminal penalties (unlimited fines or imprisonment for up to 5 years) and civil sanctions (restrictions on the entity's ability to deal with its land).
Specifically, an overseas entity without an ID number will not be able to dispose of its UK property. The disposition, standard security, lease or assignation will not be accepted for registration in the Land Register of Scotland. Any future acquisitions will be similarly impacted. Without an ID number, an overseas entity will be prevented from acquiring new land or becoming a tenant under a long lease (including by way of assignation).
While separate provisions apply for England and Wales and Northern Ireland, the overall position is broadly similar.
Register of Persons Holding a Controlled Interest in Land
In addition to the UK-wide ROE, there is a separate transparency regime for land in Scotland. The Register of Persons Holding a Controlled Interest in Land (the "RCI") was established on 1 April 2022 and is designed to show who has significant control over the owner of land (or tenant under a long lease) in Scotland. While overseas entities are currently within the scope of the RCI, it is hoped that, once the ROE is formally implemented, they will be expressly excluded to avoid double reporting.
We've blogged in detail on the RCI already if you need to know more (available here).