REGISTER OF OVERSEAS ENTITIES

UK PROPERTY PURCHASES BY OVERSEAS ENTITIES MUST REGISTER AND DECLARE THEIR BENEFICIAL OWNERS

In addition to changing the rules about sanctions and Unexplained Wealth Orders, the Act introduces a new legal requirement for overseas entities owning UK property to register at Companies House and provide details of their beneficial owners. The data must be verified by an agent regulated under the Money Laundering Regulations and criminal offences may be committed by those who fail to comply or who provide incorrect information.

The register will be publicly available, and HMRC will be able to access additional information at Companies House.

This requirement will also apply retrospectively to overseas entities who bought property or land on or after 1 January 1999 in England and Wales and 8 December 2014 in Scotland. Overseas entities that disposed of property or land after 28 February 2022 will also need to register and give details of that disposal.

As a result of registering, overseas entities will the receive a unique Overseas Entity ID to give to the Land Registry (the UK’s registry of the ownership of land and property) when it buys, sells, transfers, leases or charges UK property or land.

WHAT COUNTS AS AN ‘OVERSEAS ENTITY’?

The rules apply to entities governed by law in a country outside the UK, so offshore companies, partnerships and foundations will need to 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. Register an overseas entity and tell us about its beneficial owners

The requirement to register at Companies House will apply where the entity holds freehold property and land, and leasehold granted for longer than seven years. When 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 up through the structure and determine its ultimate beneficial owners

WHAT ARE THE IMPACTS FOR OVERSEAS ENTITIES OWNING UK PROPERTY?

This Act builds on the 2016 transparency requirement for corporates to declare which people 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 which 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
Request removal from the register at the appropriate time.
The implementing regulations also require that this information is verified by a UK-based agent who is supervised under the Money Laundering Regulations 2017 (eg an accountant or lawyer) before it is submitted in the registration process. Therefore, while companies may carry out the registration process themselves, this new verification requirement will, in practice, mean that it may well be simpler to ask a regulated agent to carry out the process for them once they have obtained all the relevant registration data.

Failure to register is a criminal offence, and the officers of the entity could face a fine and 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 also be a criminal offence under UK law.

The rules also apply to land already owned by overseas entities – ie land in England and Wales purchased since 1 January 1999 (purchases since 8 December 2014 for Scotland). The transitional rules broadly require offshore entities which 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 (eg 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.

HMRC and Corporation Tax

Entities may also be required to register for UK tax if the property is used for letting purposes.

TAX INVESTIGATIONS INTO BENEFICIAL OWNERS FOLLOWING REGISTRATION
HMRC, the police and other enforcement agencies consider that foreign company ownership of a 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 they are UK tax resident, then 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; this is generally payable on residential property with a value of more than £500,000.

ACTION REQUIRED

Officers of offshore entities affected by these new rules will need to consider their new duties carefully and take steps to comply with them.

Where there is any question that there may have been non-compliance with UK tax reporting obligations in the past, making a voluntary disclosure to HMRC of all the circumstances is the best way to resolve matters. It is sensible to take expert tax advice on how to do this in the most appropriate way: there may be penalties to pay, but making the disclosure usually helps to reduce these.

THE INFORMATION AN OVERSEAS ENTITY NEEDS TO SUBMIT

1. Overseas Entity Information
Overseas entities will need to submit the following information to Companies House:

name;
country it was formed in;
registered office address and correspondence address;
email address (this will be used by Companies House to send important information, including the Overseas Entity ID);
legal form and governing law; and
public register it appears on and its registration number (if it has one).
If the overseas entity has disposed of UK property or land since 28 February 2022, the following information must also be submitted:

the deed or title number of the land or property;
the date that the land or property was disposed of; and
details of any additional beneficial owners or managing officers at the time the land or property was disposed of.

2. Beneficial owners
A beneficial owner is any individual or entity that has significant influence or control over the overseas entity. A beneficial owner can be an individual person, other legal entity, government or public authority, trustee of a trust or member of a firm that is not a legal person under its governing law. Details of any beneficial owner must be submitted if one or more of the following conditions are met:

holds, directly or indirectly, more than 25% of the shares in the entity;
holds, directly or indirectly, more than 25% of the voting rights in the entity;
holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the entity; and
has the right to exercise, or actually exercises, significant influence or control over the entity.
When the beneficial owner(s) is an individual person, the information needed to be submitted will be:

full name;
date of birth;
nationality;
correspondence address and home address;
date they became a beneficial owner for the overseas entity;
nature of control; and
if they’re on the UK Sanctions List.
When the beneficial owner(s) is another legal entity, the information needed to be submitted will be:

name;
registered office address and correspondence address;
legal form and governing law;
public register it appears on and its registration number (if relevant);
date they became a beneficial owner for the overseas entity;
nature of control; and
if they’re on the UK Sanctions List.
When the beneficial owner(s) is a government or public authority, the information needed to be submitted will be:

name;
registered office address and correspondence address;
legal form and governing law;
date they became a beneficial owner for the overseas entity; and
nature of control.
When the beneficial owner(s) is a government or public authority, the information needed to be submitted will be:

current or past beneficial owners;
beneficiaries;
settlors;
grantors; and
interested persons.

3. Managing Officers
If there are no beneficial owners, or overseas entities are not able to identify all their beneficial owners, the following information about the overseas entity’s managing officers will need to be submitted:

full name (and former names, if relevant);
date of birth;
nationality;
correspondence address and home address;
occupation (this is optional); and
roles and responsibilities in relation to the entity.

4. UK-regulated agent that carried out verification checks
A UK-regulated agent must complete verification checks on all beneficial owners and managing officers of an overseas entity before it can be registered. It will need to provide an agent assurance code and an overseas entity verification checks statement to confirm that it has done this.

The agent must be based in the UK and be supervised under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017. They can be an individual or a corporate entity, such as a financial institution or legal professional. Verification checks must be completed no more than 3 months before the overseas entity is registered.

The following information about the UK-regulated agent will also need to be submitted:

name;
correspondence address;
email address;
supervisory body;
Anti-Money Laundering (AML) number; and
the name of the person with overall responsibility for verification checks.

UPDATING INFORMATION ON THE REGISTER

Overseas entities must file an annual update one year after they are registered, and every year after that. This will be used to tell Companies House about any changes or confirm that the information held is still correct. It must be filed no later than 14 days after the due date.