The UK has passed legislation designed to increase the transparency of the identity of overseas entities which own land in the UK. The legislation is not yet in force, but with regulations expected to follow swiftly, we set out three things that overseas entities should be doing now to prepare.
1. Take steps to identify your beneficial owners
Overseas entities will have to register details of their beneficial ownership on a new register set up for this purpose at Companies House. The Economic Crime (Transparency and Enforcement) Act 2022 sets out various tests for a person to be identified as a "beneficial owner". For some overseas entities, identifying their beneficial owners will be a relatively straightforward task. For others, it may be more complex, and may require obtaining information from third parties.
Because the Act places restrictions on the ability of an overseas entity to deal with its land in certain circumstances, we recommend that overseas entities put themselves in a position where they can apply for registration at Companies House as soon as possible after the register opens (rather than waiting until the end of the six month transitional period). That means gathering as much information about beneficial ownership as possible now.
Before an overseas entity can make its application for registration on the overseas entities register, it will have to give notice to any person that it knows, or has reasonable cause to believe, is a registrable beneficial owner. That person will then have a month within which to comply with the notice. Although the exact process of serving these notices is yet to be announced, the time taken up by this element in the registration process needs to be factored in to any application for registration. Identifying the persons on whom notices will need to be served is a key step towards being ready.
2. Consider past disposals
Anti-avoidance provisions were added to the Act during its transition through Parliament. These prevent an overseas entity from avoiding the disclosure requirements through disposing of all its UK land during the transitional period.
An overseas entity will need to disclose details of certain disposals of UK land which it has made on or after 28 February 2022, along with details of its beneficial ownership immediately before the disposition.
Overseas entities should therefore review what land disposals they have made recently. In England and Wales, the disposals which will be caught (unless an exception applies) are:
- A transfer
- The grant of a lease for a term of more than seven years
- The grant of a charge
It is not entirely clear whether the 28 February cut-off date applies to the date of the transaction itself, or the date on which (in the case of a transfer) the overseas entity ceased to be registered as the proprietor at H M Land Registry (which can be some considerable time later). While it is thought to be the date of the disposition, clarification is awaited. It is therefore possible that overseas entities may need to look back even further, to dispositions which took place before 28 February.
3. Build the requirement of registration into future transactions
It is not yet clear how the registration process at Companies House will work, or how long it will take. There may be a rush to register after the register opens. If Companies House is unable to cope with demand, it may take a while for registrations to be completed.
While in some circumstances it will be sufficient for an overseas entity to have lodged its application, in other situations the legislation requires the registration of the overseas entity to be complete. This is particularly the case in transactions that have a number of steps which have to be completed in quick succession, such as a purchase by an overseas entity followed by a leaseback, or a funded purchase where security is being granted.
Acquisitions taking place soon after the relevant provisions of the Act come into force may be most affected. An overseas entity will not want to take the risk of its application to register on the Companies House register being delayed, as this could carry risks if the entity is not then able to make its application to H M Land Registry within the time allowed.
Counterparties dealing with overseas entities may also adopt a cautious view until the legislation beds in, and require registration to be completed before certain steps in the transaction are taken. This is likely to be the approach taken by lenders in particular.
Overseas entities, and anyone contracting with them, may therefore need to factor in an element of uncertainty into their transaction timetables until more is known about when the register will go live and how quickly registrations will be capable of being processed. In the meantime, gathering the necessary information on its beneficial owners and recent disposals, in advance of the register opening, will mean that an overseas entity is putting itself in the best possible position to minimise any disruption to its property dealings.
For more information on the overseas entities register and how it will affect real estate transactions, contact Matt Walker or Clare Swinnerton.