New rules for overseas entities who own UK land

If you are responsible for a non-UK entity which owns UK land, you should consider whether you need to provide details to the new Register of Overseas Entities (ROE) by 31 January 2023.

The Economic Crime (Transparency and Enforcement) Act 2022 (Act) was given Royal Assent on 15 March. It has been on the ‘transparency’ agenda since 2015, and due to the conflict in Ukraine, it has now been rushed through parliament. It introduced the ROE from 1 August 2022, a public register held at Companies House (CH) and holding information on non-UK entities that own UK land and their beneficial owners.

It should be noted that the implementation of this Act does not alter the tax profile for the Overseas entities, but certainly increases the visibility in respect of the ultimate ownership of the UK land assets.

Who must register?

Any overseas entity which owns or acquired UK land since 1 January 1999 must be entered on the ROE by 31 January 2023. Failure to do so will be a criminal offence by the overseas entity and its officers, punishable by fines and imprisonment.

Beneficial owners

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 is broadly 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, Government authority or a Trust. The information supplied to CH must be updated annually.

Which interests in land are caught?

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:

• the owner of freehold land
• the tenant of a lease granted for a term of more than seven years.

It applies to freeholds or leases which are over seven years which the overseas entity already holds.

Impact on dealing with land

As well as the requirement to register on the ROE, the Act is 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 now apply going forwards.

• HMLR will be obliged to put a restriction on any title held by an overseas entity.
• If the overseas entity is not on the ROE, the restriction will make it impossible for anyone to whom the overseas entity disposes of land to register their transaction, affecting:
  • sales of freehold land
  • leases granted for more than seven years
  • legal charges over the land to secure finance.
• It will be a criminal offence for an overseas entity to enter into any of those transactions if it is not on the ROE. Overseas entities will have to demonstrate that they have complied with the Act whenever they are negotiating a sale, letting or using land as security for debt.
• If an overseas entity buys land or takes a new lease of more than seven years, they must not apply to be registered as proprietor at HMLR, unless they are also on the ROE.

Advice for those dealing with overseas entities

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:

• conduct due diligence to check that the overseas entity is properly registered
• apply contractual protections, including warranties, obligations, and a right to withdraw if an overseas entity has not complied with the Act.

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.

Obligations during the transitional period

Overseas entities which already own qualifying estates in land must register within the six-month transition period, which started from 1 August 2022 and ends on 31 January 2023.

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.

Offshore Corporates Owning UK Property – HMRC campaign

HMRC have obtained data, including from the Land Registry, which has been reviewed to launch a targeted campaign tackling non-compliance linked to offshore corporates owning UK residential property.

This data review has identified non-resident corporate owners of UK property HMRC believe may not have met certain UK tax obligations. Depending on the circumstances, HMRC may issue one of two letters.

1. Non-resident companies owning UK property which:
   • may need to disclose income received as a non-resident corporate landlord
   • may have a liability to the Annual Tax on Enveloped Dwellings (ATED).

   These companies are typically Non-Resident Landlords (NRLs).  UK-resident individuals who have any interest in the income or capital of an NRL, whether directly or indirectly, may be within certain income tax charging provisions.

   A UK resident who has not personally transferred property to an NRL but benefits from a transfer made by somebody else (e.g. they occupy the property) may also be within the provisions.

2. Non-resident companies that appear to have made a disposal of UK residential property between 6 April 2015 and 5 April 2019 without filing a Non-Resident Capital Gains Tax (NRCGT) return.

Between 6 April 2015 and 5 April 2019, disposals of UK residential property by non-resident companies were subject to NRCGT.

Where the company purchased the property before April 2015, and the whole of any overall gain is not charged to NRCGT (or otherwise), then that part of any gain not charged may be attributable to the individual participators.

The letters will also be accompanied by a Certificate of Tax Position and a Notice of Intention to Disclose.

In the event one of the above letters is received, or you believe the above circumstances may apply, it is recommended professional advice is sought.

What are the next steps?

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.

They should also consider whether they have fulfilled all the UK tax reporting requirements required of them and seek advice if they are not sure.

If you would like to talk more on how these issues may affect you please get in touch with Caroline Fleet, or your usual Crowe contact.