knowledge 13 September 2022 |

UK Registration Requirement for Overseas Entities Owning UK Property

What does the Act do?

In broad terms the Act sets up a register of overseas entities that own property in the UK to be held by Companies House, the registrar of companies for England & Wales. Affected Irish and other non-UK entities are required to take reasonable steps to identify their beneficial owners and provide related information to Companies House for the purposes of their register. The information provided must also be updated annually.

Failure to comply with the Act constitutes a criminal offence, but there are also very important practical implications.  An overseas entity cannot acquire a “qualifying estate” in UK property unless it first registers as an overseas entity with Companies House. Overseas entities who already own a “qualifying estate” in UK property may also be required to register. Where the Act does apply to existing owners, those owners will not be able to sell or grant a registrable lease or security without having complied with the Act.

Who do the proposals affect?

The Act applies to any “overseas entity” who holds a “qualifying estate” in property in the UK. An “overseas entity” is any legal entity that is governed by the law of a country or territory outside of the UK. This includes body corporates and partnerships. In the case of trusts, the overseas legal entity holding land on or for the trust must comply.

The Act also applies, on a transitional basis, to any overseas entity disposing of a qualifying estate in UK property between 28 February 2022 and 31 January 2023, whether or not they continue to own other UK property following that disposal.

What types of ownership are affected and how?

To trigger the registration obligation, the overseas entity must hold (or, in the case of the transitional measures that apply to disposals, have held) a “qualifying estate” in property in the UK. This means either a freehold title or a registrable leasehold title. What constitutes a registrable leasehold title will depend on the particular law governing registration of leases in each of the three separate jurisdictions within the UK (England & Wales, Scotland and Northern Ireland). In England & Wales, a lease of longer than 7 years is registrable, so that any overseas entity that is a tenant under a lease of longer than 7 years in England & Wales will need to comply with the Act.

The Act is also applied differently in each of the three separate jurisdictions within the UK in terms of how it affects overseas entities who already own property in those separate jurisdictions, so that jurisdiction-specific consideration would have to be given to this in every case. In England & Wales the general registration requirements of the Act do not apply to overseas entities who acquired their qualifying estate before 1 January 1999. They are, however, otherwise applied retrospectively to land bought on or after that date.  In Scotland the general registration requirements of the Act do not apply to overseas entities who acquired their qualifying estate before 8 December 2014. They are, however, otherwise applied retrospectively to land bought on or after that date. In Northern Ireland, the Act is applied only prospectively to owners of property acquired after the registration obligation comes into force.  In England & Wales and Scotland, where existing ownership is captured by the general registration requirements, existing owners have 6 months from 1 August 2022 to become registered ie 31 January 2023.

Who is a beneficial owner?

Beneficial owners will be identified using similar criteria as for the UK “PSC” regime for corporates. The “PSC” regime seeks to identify “people with significant control” within corporate entities, being broadly, people who hold more than 25% of the shares or voting rights of the entity, or have the right to appoint or remove a majority of the board, or have the right to exercise significant control over the entity (in each case directly or indirectly).

What exemptions apply?

The Secretary of State (for the Home Department of the UK Government) can in limited circumstances (such as national security interests) exempt an overseas entity from the obligation to register.

What are the consequences of non-compliance?

As stated above, a failure to register in compliance with the Act will effectively prevent the overseas entity from being able to buy, sell, lease or grant security. Dealing in land by the overseas entity without having complied with registration requirements would also be a criminal offence committed by the entity and every responsible officer of it, punishable by a fine and/or up to five years’ imprisonment. Failure to comply with the obligation to update the register is also a criminal offence, as is delivering misleading, false or deceptive information.

Conclusions

With the commencement of the registration requirements, affected overseas entities, their officers and beneficial owners are advised to consider how the Act applies to their UK property investments and the steps to be taken if it does. The Act also adds a new strand to due diligence requirements in legal transactions with such entities. Anyone looking to acquire or lend to such an entity will also need to consider the application of the Act in the context of the transaction and, if relevant, confirm the entity’s compliance with the Act.

Official guidance has been issued by the UK Government to help navigate the new requirements and is available here. Further guidance on the operation of the register is available from Companies House here and is available here from HM Land Registry on the implications for registration of title.