New register of overseas entities for properties will impact foreign-owned real estate in the UK

REAL estate investing in the United Kingdom (UK) just got a tad more complicated, especially if investors are buying through a company, partnership or other entities. The UK government had been looking into a publicly searchable register showing the beneficial owners of non-UK entities owning land for quite some time. But it was Russia’s invasion of Ukraine that triggered a renewed focus on transparency and moved the UK government to fast-track the UK Economic Crime (Transparency and Enforcement) Act 2022 through parliament.

The legislation entered into force on 15 May 2022 and paved the way for the establishment of the Register of Overseas Entities (ROE), which went live on 1 Aug 2022. The ROE is administered by Companies House, an executive agency sponsored by the Department for Business, Energy & Industrial Strategy, and requires all individuals holding UK land through an “overseas entity” to register certain ownership information by 31 January 2023 at the latest.

“Overseas entity” is widely defined and includes any company, partnership or other entity (but not individuals) governed by the law of a country or territory outside the UK. The registration requirements apply to overseas entities owning or acquiring a “qualifying estate”, which includes practically all forms of UK land ownership: residential and commercial, freehold and leasehold (where the lease is for a term of seven years or more).

The resulting disclosure obligations mirror those of the existing Persons with Significant Control regime that already applies to UK companies. Five categories of persons must be registered as beneficial owners:

• A person who holds, directly or indirectly, more than 25 per cent of the shares in the overseas entity
• A person who holds, directly or indirectly, more than 25 per cent of the voting rights in the overseas entity.
• A person who holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the overseas entity.
• A person who has the right to exercise, or actually exercises, significant influence or control over the overseas entity.
• A person who has the right to exercise, or actually exercises, significant influence or control over activities of an entity which is not a legal person under the law by which it is governed (e.g. a trust) that meets any of the four criteria above

The information which must be provided about beneficial owners includes their name, date of birth and nationality, usual residential address, service address and the date on which the individual became a registrable beneficial owner.

All information other than the date of birth and residential address will be publicly available and overseas entities must update the information on an annual basis.

The practical consequences of failing to register are that the overseas entity will be unable to acquire legal titles to land in the UK. Where it is already registered as legal title holder, it will be unable legally to sell, lease or charge the land, since any buyer, tenant or mortgagee would be unable to register the disposition.

Criminal sanctions in ROE a departure from other transparency regimes

These practical consequences are eclipsed, however, by the severity of the criminal sanctions, which set the ROE apart from other transparency regimes. It is now a criminal offence for an overseas entity to dispose of land in breach of its requirement to be registered or in breach of a restriction on the Land Registry title preventing a disposal of land. The restriction would in effect mean that a disposal of the land cannot take place until the overseas entity has complied with the new regulations. This offence will be committed by the overseas entity and every officer of that entity who is in default with a maximum penalty of imprisonment of up to five years plus a fine.

Additional criminal sanctions are provided for delivering or causing to be delivered to the registrar any document that is misleading, false or deceptive in a material detail, and for failure by an overseas entity to comply with a notice issued by the Secretary of State that it must register.

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Another important difference from the existing transparency regimes is that all the information lodged on the ROE must first be “verified” by a “relevant person”, such as a lawyer, accountant or regulated company service provider.

At present there is an apparent shortage of entities offering verification services for these purposes, perhaps due in part to uncertainty as to how certain information can be verified and also the criminal penalties that can be imposed for improper verification. However, this gap in the market will undoubtedly be filled by service providers looking to capitalise on this new stream of compliance work, especially once further detail is released by the UK government to iron out some of the current ambiguity.

Whilst the additional compliance burden is unwelcome, it seems unlikely to stem the tide of investors who see UK property as an attractive proposition, especially given the relative weakness of Sterling. Although the tax burden on foreign investors has also increased in recent years, returns in prime parts of London remain strong and the politicisation of property ownership around the world means that the UK remains one of the more open jurisdictions for foreign investors. Particularly when compared to many countries in Asia where property ownership is restricted to citizens or permanent residents.

Transparency is also now becoming the norm. Particularly following the introduction of the Common Reporting Standard, which first started the automatic exchange of information between governments in 2017, it appears as though well-advised investors are adjusting their expectations of what is required to invest internationally.

McElligott is a registered foreign lawyer with the private client and tax team at Withers KhattarWong, Singapore; and Vaughan is a partner, real estate Withers, London.