It should be noted that the implementation of this Act will not alter the tax profile for the Overseas entities, but certainly will increase the visibility in respect of the ultimate ownership of the UK land assets.
Once the Act is in force, an overseas entity which owns or acquires UK land must be entered on a new Register of Overseas Entities (ROE), which will be held at Companies House (CH). Failure to do so will be a criminal offence by the overseas entity and its officers, punishable by fines and imprisonment. The UK government has retained the right to exempt specific overseas entities from the provisions of the Act, but this is likely to be very limited, so it would be sensible to assume that all overseas entities will potentially be within the scope of the Act.
The key ‘transparency’ measure is that when applying to be registered on the ROE, the overseas entity must disclose details of its beneficial owners, if it has any. A beneficial owner will be someone who has more than 25% of the shares or voting rights, in relation to the overseas entity or is in a position to exercise significant influence or control over it. A beneficial owner may be a person, another company or a Trust. The information supplied to CH must be updated annually.
The Act applies throughout the UK, but there are slightly different rules for Scotland and Northern Ireland. This article covers only land in England and Wales.
The obligation to register on the ROE applies where an overseas entity is registered at HM Land Registry (HMLR) as the proprietor of a ‘qualifying estate’, which means that they are:
It will apply to freeholds or leases which the overseas entity already holds, unless they were registered before 1 January 1999, and any it acquires after that date. Once the Act is in force, there will be a transition period of six months, during which an overseas entity which is the registered proprietor of a qualifying estate must apply to be included on the ROE. Failure to do this will be a criminal offence.
As well as the requirement to register on the ROE, the Act will be enforced by changes to the land registration regime. When anyone buys or takes a lease of land in England and Wales, they do not become the legal owner until the transaction is registered at HMLR. The following will apply once the Act is in force.
The main risk for anyone buying or taking a lease from an overseas entity, or taking security over land held by an overseas entity, is that it will not be possible to register the transaction at HMLR if the overseas entity has not complied with its duties under the Act. There is also a possible money laundering offence if someone acquires an interest in land from a non-compliant overseas entity, because the overseas owner will have committed a criminal offence in making the disposal.
The key protections against these risks should be to:
Anyone currently dealing with an overseas entity should be protected, as the Act reflects the time it will take for the ROE to be set up and the new restrictions to be added to the relevant titles, before the new restrictions are in place.
Overseas entities which already own qualifying estates in land must register within the six-month transition period, which will start from the date the Act is brought into force.
Any disposals on or after 28 February 2022, must be disclosed to CH when an overseas entity applies to be registered on the ROE. Overseas entities who have disposed of all their interests in UK land by the end of the transition period will not need to register on the ROE, but the Act still requires them to provide information about any disposals since 28 February 2022.
Overseas entities should review their property holdings and identify any UK land, keeping records of any disposals since 28 February 2022, as well as preparing to apply to be included on the ROE.
As more detail emerges about how the mechanics of the Act will work, we will be updating and clients on any key information. If you would like to talk more on how this new Act may affect you please get in touch with Caroline Fleet, or your usual Crowe contact.