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There have been a number of changes in recent years in relation to the ownership of UK land and property by non-UK residents. From a tax perspective this has included :
Of course, ensuring compliance with all of the above new tax charges for non-residents can be quite difficult. I wonder to what extent this was a consideration (along with money laundering concerns) when considering ways to understand who the non-resident owners of UK property are.
In 2016 the government promised to introduce a transparent register of the foreign entities which own UK property, and the individuals who control them.
The 2017 National Risk Assessment of Money Laundering and Terrorist Financing highlighted the fact that property continues to be an attractive vehicle for criminal investment, in particular for high-end money laundering. Transactions are improved and the market has greater confidence when people know who they are doing business with, whilst lack of transparency can facilitate criminal behaviour.
Under the proposals, from 2021 overseas entities that wish to hold UK property will be required to register with Companies House and identify their beneficial owners.
The Draft Registration of Overseas Entities Bill was published in July 2018. A Joint Committee on the Draft Registration of Overseas Entities Bill was appointed, containing members from both houses, to scrutinise the Bill and suggest improvements.
In May 2019 the Joint Committee publised their report noting that the Bill was “timely, worthwhile, and, in large part, well drafted” however they felt that the Bill contained flaws and criticised what they called “loopholes”. Lord Faulks, Chairman of the Committee pointed out that the definition of “overseas entity” did not encompass trusts, who would therefore not be required to register. This despite the fact that the Bill stated that all overseas legal entities, not just companies, would fall within its scope.
The Committee’s report insisted that the Bill should clarify which entities would not need to publish or disclose information.
In July the Government published its response and rejected many of the recommendations of the Committee. The Bill’s sponsoring department, the BEIS (Department for Business, Energy and Industrial Strategy) has rejected the criticism. It claimed that the Bill already captures circumstances in which an overseas entity is being used by a trust to hold land. If the trustees of a trust are exercising significant influence or control over the entity then they will be required to provide their details to Companies House.
In its official response to the Committee it stated “Any overseas entity holding land on behalf of a trust will be required to register with Companies House, even though the trust itself will not”. It also noted that the 2017 National Risk Assessment of Money Laundering and Terrorist Financing concluded that the risk of criminals exploiting UK trusts to launder money is assessed to be low.
In response to the call for clarity on the definitions, the BEIS response was that :
“It is not appropriate for a UK agency such as one of the land registries or Companies House to make decisions on the legal personality of a foreign entity.”
“The government is confident that overseas entities (as well as their agents who are required to conduct Know Your Customer and due-diligence checks) will know their own legal status and whether they are in scope of the Bill”.
It is understood that guidance will be published which will help relevant parties understand the full scope of the register.
BEIS has accepted the Committee’s recommendation to explore the viability of requiring regulated professionals to verify beneficial ownership information submitted to the register along with consideration of civil as opposed to legal sanctions for breaches as these will be easier to enforce overseas.
With the register to go live in 2021 it is hoped that the government will continue to consult with the public as it implements the legislation and to communicate clearly to individuals and entities about how they might be impacted, which was one of the recommendations of the Joint Committee.