Key changes to Overseas Entities owning property in the UK

The recently passed Economic Crime (Transparency and Enforcement) Act 2022 (“ECA”) is designed to improve the transparency of the UK’s financial system through the creation of a Register of Overseas Entities (“the Register”). This requires Overseas Entities who own or acquire UK real estate to register themselves and disclose their Beneficial Owners. The new Register will be set up by Companies House and will contain a list of the registered Overseas Entities and their relevant documentation.

What is an “Overseas Entity” and a “Beneficial Owner?”

An Overseas Entity is any corporate body, partnership or other legal person or entity governed by the law of a country or territory outside the United Kingdom. For the purposes of the ECA, this includes the Isle of Man and the Channel Islands.

UK entities already must disclose their beneficial ownership information under the Person with Significant Control (“PSC”) regime. While the tests are broadly the same, Overseas Entities will have to provide more information than UK entities do under the PSC register. A Beneficial Owner is anyone who:

• holds, directly or indirectly, more than 25% of the shares or voting rights in the relevant Overseas Entity; or
• has the right to exercise, or exercises, significant influence, or control; or
• holds the right, directly or indirectly, to appoint or remove a majority of the board of directors.

There are also further rules if interests are held via entities that do not have legal personality (such as trusts or limited partnerships). This is in response to concerns about the use of trusts to hide beneficial ownership information and where the registered Beneficial Owner is a trustee, information about the trust must also be filed.

What type of property does the ECA apply to?

Overseas Entities will need to register to acquire UK property (freehold titles or leasehold titles of seven years or more (a “Qualifying Estate”)). If they do not register, they will not be able to become legal owners of the property, because they will not be able to register their acquisition at the Land Registry. In addition, the Land Registry will put a restriction on the title to the Qualifying Estate which will prevent it from being transferred, charged, or let in the future unless registration as an Overseas Entity is maintained. Therefore, any individual or UK entity selling to an Overseas Entity should be aware of the ECA and ensure they see evidence of registration at Companies House prior to completion.

The process for implementing the ECA in practice has yet to be finalised, together with a start date from which registration can commence. The deadline for Overseas Entities to register will be six months from the ECA implementation date. Registration is required for Overseas Entities making new acquisitions and those with existing holdings, unless the land was acquired pre-1 January 1999 in England and Wales (with different dates applying in Scotland and Northern Ireland).

What must be disclosed?

Overseas Entities must provide the following at Companies House:

• name;
• country of incorporation;
• registered office;
• service address;
• email address;
• details of the legal form of the entity and the law by which it is governed; and
• details of any public register in which it is entered and, if applicable, its registration number.

If there are any Beneficial Owners, the required information is:

• their name, date of birth and nationality;
• their usual residential address;
• a service address;
• the date on which the individual became a registrable Beneficial Owner in relation to the Overseas Entity;
• on what basis they are deemed to be Beneficial Owners;
• whether they are a Beneficial Owner by virtue of being a trustee; and
• whether they are a “designated person” for the purposes of certain sanctions and anti-money laundering legislation.

The information must be updated every 12 months and failure to do this can result in a daily default fine. The information on the Register will also be open to the public (barring limited personal data).

Implications of the ECA

As well as the inability to acquire or deal with Qualifying Estates, non-compliance with the ECA can result in a number of offences, some of which may be punishable by fines and imprisonment. This will however be judged on a case-by-case basis.

Overseas landowners will also need to disclose details of all dealings since 28 February 2022, including sales of UK real estate, charges and the grant of leases with a term of seven years or more. Therefore, Overseas Entities will not be able to avoid this registration requirement by making a ‘quick sale’. Furthermore, for sales after 28 February, the Overseas Entity will still have to apply for registration and provide the relevant information post sale.

From a practical perspective, although it is not clear when the Register will be operational, Overseas Entities affected by the new legislation should assess their position and start preparing now. The implementation date of the ECA will largely depend on how quickly Companies House and the Land Registry can get their systems in place. However, there is considerable political pressure to make the Register live as soon as possible in view of the ongoing conflict in Ukraine. If you would like further information on the ECA, or to discuss a familiar situation or potential response, please contact our Real Estate team for further details.