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Economic Crimes Act


Four years ago, the first draft legislation concerning the Overseas Entities Register (“the Register”) was published to very little fanfare. However, motivated by a push to crack down on Russian hidden wealth, the Register has now been brought into effect by the Economic Crime (Transparency and Enforcement) Act 2022 (”the Act”), which was rushed through Parliament in a matter of weeks and received royal assent on 15 March this year.

We have now received the formal commencement order for the majority of the provisions of the Act. The register is effective from 1 August 2022, providing for a 6-month grace period in which the affected entities have to register; the deadline for registration shall therefore be 31 January 2023. The provisions concerning restrictions to land transactions shall not be effective until 5 September 2022 meaning that overseas entities buying/selling/gifting UK property on or after this date will first have to register on the OER.

Whilst the motivation behind the Act is to target offshore entities that have been used for money laundering purposes, as is often the case with this type of legislation, the effects are far-reaching. There are a number of tax mitigation reasons why individuals historically used an offshore company to purchase UK residential property, which have largely been eroded over time. There are still however good reasons to continue to own UK commercial property in such a structure, including Inheritance Tax protection for non-UK domiciled individuals.

The Register

The Act establishes a register for the public disclosure of overseas entities (and their beneficial owners) that own UK real estate (both residential and non-residential). The purpose is to “deliver transparency about who ultimately owns and controls overseas entities that own land in the UK”. Penalties can be imposed under the Act for non-compliance in the form of a fine or even a custodial sentence. In addition, there will be a significant impact on overseas entities’ ability to buy and sell UK real estate as (from 5 September 2022) they will first have to declare their beneficial ownership and comply with the reporting requirements introduced by the Act.

All legally identifiable overseas entities that hold or intend to hold an interest in land (a freehold interest or a long lease of more than 7 years) will have to take reasonable steps to identify their beneficial owners and provide verified information about them. For those already familiar with the PSC (Persons with Significant Control) Register, the new measures follow similar terms. The Register will be maintained by Companies House, who in last year’s Autumn Budget were promised £63 million of fresh funding to assist with getting the Register operational.

The information to be publicly disclosed on the Register will include:

  • Details of the entity itself, including its name, country of formation, legal form and registered address.
  • The “registrable beneficial owner’s” name, nationality and service address. Their date of birth and residential address will be provided to Companies House but not actually published unless they have “functions of a public nature”. Equivalent information is to be provided in respect of legal entities (including corporate trustees) who meet the standard of “registrable beneficial owners”.
  • Where there is no “registrable beneficial owner”, or where they cannot be identified or details obtained regarding them, details of the managing officers (i.e. directors or equivalent) of the entity are to be provided instead; and

What is considered an “overseas entity”?

The Act defines an “overseas entity” as a legal entity that is governed by the law of a country or territory outside the UK. “Legal entity” is defined as a body corporate, partnership or other entity that (in each case) is a legal person under the law by which it is governed.

This definition importantly excludes trusts that do not have legal personality under the laws by which they are governed, for example, a discretionary offshore trust governed by the laws of England and Wales. Instead of appearing on the Register, the recently expanded Trusts Register, (in theory) fills this gap by requiring offshore trustees that acquire UK real estate after 6 October 2020 to register their trusts on what is, conversely, not a public register. See further below however, for how the Act treats overseas entities which are held by trusts.

Who will be considered a “registrable beneficial owner”?

Mirroring the language under the PSC register, a person will be a beneficial owner if they meet one of the following specified conditions:

  1. They directly/indirectly hold more than 25% of the shares in the overseas entity
  2. They directly/indirectly hold more than 25% of the voting rights in the overseas entity
  3. They directly/indirectly hold the right to appoint/remove the majority of the board of the directions of the overseas entity
  4. They exercise or have the right to exercise significant influence or control over the overseas entity
  5. The trustees of a trust (or members of a partnership or other entity that is not a legal person under its governing law):
    1. meet one of more of the above conditions in their capacity as such in relation to the overseas entity; and
    2. exercise, or have the right to exercise, significant influence or control over the activities of that trust/entity

A legal entity will be considered a “registrable beneficial owner” where 1) it meets one of the above conditions; 2) it is “subject to its own disclosure requirements”; and 3) it is not exempt from being registered.

Trustees and trusts

Regulations published this week have clarified that corporate trustees will generally meet the  standard of being “subject to their own disclosure requirements” where their trustee services are being regulated by a supervisory authority in the relevant jurisdiction. So, where shares in the relevant overseas entity are held by the corporate trustee of a discretionary trust, it is likely that the corporate trustee will be disclosed as the “registrable beneficial owner” on the Register.

A last-minute amendment to the Act, imposes a further obligation where an application includes information that a registrable beneficial owner is a trustee. Such applications must provide information relating to that trust (including details of the beneficiaries and settlors), although as per section 23 of the Act, Companies House will not be permitted to disclose that trust information on the Register. Disclosure is permitted to HMRC and other relevant government bodies.

No registrable beneficial owner

Where no such person meets the standard of registrable beneficial ownership, the entity will still be required to register but will provide a statement that the entity has “no reasonable cause to believe that it has any registrable beneficial owners”. They must then provide details of the entity’s managing officers.

Overseas entities will have an ongoing requirement to keep this information under review, and if there is a change, for example a new person acquires a controlling share in the company, then it will need to update the Register within 14 days.

How retrospective is retrospective?

The Register is retrospective as it requires existing overseas entities that own UK real estate to register (within the 6-month grace period, once the register is up and running). There is a limit however to how far back the Register will look. Those entities that acquired their interest in UK real estate prior to 1 January 1999 will not be required to register (unless of course they acquire a further interest).

From 5 September 2022, overseas entities will not be able to dispose or otherwise deal with their UK land until they receive their overseas entity ID, issued to them by Companies House.

The impact for private clients

Through a series of tax reforms, including the introduction of ATED and Capital Gains Tax on non-resident owners, the tax advantages of owning UK real estate via offshore companies have diminished, but the privacy protection it afforded meant it remained an attractive option for many high net worth individuals. A common technique where privacy alone was the driving factor in a transaction was to purchase a UK residential property in the name of an offshore nominee company. This resulted in the same tax consequences as if the individual purchased the property (meaning HMRC was aware of the identity of the beneficial owner) but meant the individual owner’s identity was not publicly disclosed on the Land Register. However, nominee  (or ‘bare trust’) arrangements such as these are now captured by the Trusts Register, and so where the nominee acquired the property interest on or after 6 October 2020, they will be required to register by September this year.

Wealthy individuals often have legitimate reasons for wanting to keep their home addresses private. They are often the targets of financial crime/fraud, burglary and even kidnapping. Having a significant stake in a business increases the risk of disgruntled employees, competitors and shareholders. There is also the issue of unwanted and persistent press attention/harassment, which can be particularly unpalatable when directed towards young family members. The recent regulations to the Act have thankfully provided the details of the protection regime. This allows beneficial owners and managing officers of overseas entities to apply to have their info made unavailable for public inspection, where they can provide evidence that they or someone living with them are at serious risk of violence/intimidation.

Many have questioned whether the Register will actually have any impact on the publicised targets (i.e. the Russian oligarchs owning UK property) due to how long it has taken for it to be brought into effect, and not to mention the 6-month transitional period in which the assets can be liquidated and the wealth moved offshore.

In any event, anyone who owns or administers an offshore entity that owns UK land will need to ensure compliance with this new regime. Please contact Dhana Sabanathan or James Gribbin for further information.

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