This article explores how all non-UK entities and structures owning UK land must work out if they are caught by the Act and, if so, undertake the required ultimate beneficial ownership identification steps. A new regime in the UK started in August.

As reported this week, the UK has a new regime for creating a register of overseas entities. It collects beneficial ownership data on land. While wrapped in some of the jargon of modern finance, the move is designed to make it easier to ascertain ownership. With money laundering remaining a big problem, as well as keeping tabs on where owners’ money comes from, it is easy to see why there is pressure for such laws. These laws aren’t uncontroversial – balancing transparency with legitimate financial privacy is a serious concern.

To discuss these issues are Simon Gibb, partner, and Simon Goldring, partner, at London-based McDermott Will & Emery UK, the law firm. The editors of this news service are pleased to share these views; the usual editorial disclaimers apply. Jump into the conversation! Email tom.burroughes@wealthbriefing.com

The Economic Crime (Transparency and Enforcement) Act 2022 (the Act), enacted in March 2022, introduced a Register of Overseas Entities. Under this legislation, overseas entities which own certain interests in UK land will be required to collect, verify and register information about the ultimate beneficial owners of the entities. Some, but not all, of this information will be publicly inspectable and there will be sanctions for failure to comply. More information on the register is set out below.

The transitional period for compliance with the new registration requirement for entities already owning UK land started on 1 August 2022 and will close on 31 January 2023. As the information gathering and verification exercise may take some time, it is recommended to act now.

Overview
The Act places an obligation on entities that are established under a law of a jurisdiction outside the UK to register prescribed information with the registrar of companies. For the obligation to be triggered the non-UK entity must own or wish to be registered as the owner of certain interests in UK land. In order to be registered, the non-UK entity must provide, amongst other information, details of individuals who are identified as their ultimate beneficial owner (UBO) for the purposes of the Act (registrable UBO). The core implications are as follows:

The registrable information regarding such owners/controllers resembles the current persons of significant control (PSC) regime, requiring non-UK entities to undertake reasonable steps – including serving formal information notices – in order to identify individuals who:

Directly or indirectly own 25 per cent or more of the entity’s capital or voting rights;
Have the right to remove or appoint the majority of the entity’s board; or
Who in fact exercise, or have the right to exercise, significant influence or control over the entity or a trustee/partnership which meets any of the foregoing criteria.

This information must be verified by an appropriate person; and 
This information will need to be updated or confirmed as accurate and verified every year.

Without such registration, the entity will not be able to register as the owner of the property at the Land Registry, which could prevent the sale or further lease of the land. In effect, an entity that does not meet these disclosure obligations would not receive full legal title to the land.

Failure to comply with these obligations will carry criminal penalties for the entities and/or their officers and will impinge on the entity’s ability to transact in relation to their UK land.

Who is affected?
This regime is aimed at entities established under the laws of a jurisdiction outside the UK which, under those same laws, have separate legal personalities. This could be a limited company, a body corporate, certain types of partnership, civil law foundations, etc.

The definition of a legal entity would cover most common corporate ownership situations, such as Channel Island holding companies or US limited liability companies. There are provisions in the Act to exempt certain non-UK entities from these obligations, but these are narrow and unlikely to be practically relevant to most holding structures.

Companies and partnerships established under the laws of a UK jurisdiction are not covered. However, it is likely that such UK entities will already have had to disclose their ultimate beneficial owners under the current PSC regime. It should be noted that non-UK corporate trust companies will be expected to register where they own an interest in UK land; in some cases, the trust may also be registrable under the Trust Registration Service.

What interests in UK land trigger the obligation?
From an English perspective, any freehold or leasehold (granted for a term of more than seven years) interest in UK land – whether residential or otherwise – will trigger the obligation. Furthermore, where the interest was already owned on 28 February 2022, there will be an obligation to comply with the Act’s requirements if the interest is in land in England or Wales and the land was acquired on or after 1 January 1999. This is the case even if the land has been disposed of after 28 February 2022.

Due to the separate legal systems, the definition of relevant interest in land is different for Scotland and Northern Ireland.

What will change?
Rather than simply registering the non-UK entity’s legal ownership with the relevant UK land registry (England and Wales and Scotland have separate registration regimes already), the non-UK entity will need to register with the company registrar and be issued with a registration number to allow it to become a registered owner of UK land before seeking to register their title with the relevant land registry. 

To obtain that registration number, the non-UK entity will need to have undertaken the required due diligence process to identify any relevant owners and controllers, the registrable UBOs, and collect the registrable information on each. It should be noted that a registrable UBO of the non-UK entity is not necessarily the same thing as the owner/controller of the UK land which triggers the registration obligation.

Entities that currently hold UK property will be granted a six-month transition period, starting 1 August (giving until 31 January 2023 to register).

What needs to be registered?
The non-UK entity will need to register specific details about itself, but the centre of the proposed regime is the non-UK entity’s owner/controller register, based on and closely resembling the existing PSC registration regime.

The initial obligation of the non-UK entity is to take steps to identify the existence and identity of registrable ultimate beneficial owners. These can include serving information request notices on known or suspected UBOs and undertaking information verification obligations before the information is verified by a relevant person (which includes an independent legal professional) before being registered with Companies House.

Were an individual registrable UBO is identified, the information which must be registered will include:

-- Name;
-- Date of birth (this won’t be public);
-- Nationality;
-- Usual residential address (but this won’t be public);
-- A service address;
-- The date they became a registrable UBO; and 
-- The nature of their control over the entity.

In relation to the final item of information, the Act adopts a broadly similar definition for registrable ownership and/or control as the one used for the PSC regime. Therefore, any individual who meets one or more of the following criteria will be considered a reportable person for the purposes of the new register:

-- Holds (directly or indirectly) more than 25 per cent of the shares in the non-UK entity;
-- Holds (directly or indirectly) more than 25 per cent of the voting rights in the non-UK entity; 
-- Has the right or ability to replace more than half the board of the non-UK entity; 
-- Has the right to, or does in fact, exercise significant influence or control over the non-UK entity; and 
-- Has the right to, or does in fact, exercise significant influence or control over trustees (or members of a firm) where such trustees meet one of the foregoing criteria.

If the owner happens to be another entity, the non-UK entity will be required to take steps to identify and disclose the ownership and control further up the ownership chain until either a relevant individual is identified, or it is clear that there is no such controller. In the latter case, the non-UK entity’s managing officers must be registered.

There are provisions for individuals who hold rights or shares collectively so that their beneficial ownership cannot go unreported as a result of dilution of their shareholding (or equivalent).

Finally, it should be noted that the Act contemplates that regulations can be introduced to prevent registered information from being made public in certain circumstances. 

Currently, an application can be made to protect certain information on the grounds that there is a reasonable belief that by making the information available, the activities of the overseas entity or one or more characteristic or personal attributes of the relevant individual when associated with that overseas entity, will put the relevant individual or a person living with them at serious risk of being subject to violence or intimidation. This is likely to protect information only in very limited circumstances.

What if a registrable UBO Is a trustee?
The Act brings in new obligations on trustee UBOs to disclose information on the trust. Whilst this trust information will not be available for public inspection (unless it is already in the public realm), it is a significant additional disclosure obligation as the information can be shared by Companies House with HMRC and any other public persons which are specified in regulations in the future.

The registrable trust information includes the name and date of the trust and information on all beneficiaries of, settlors of, and holders of certain powers over the trust, whether or not they are registrable UBOs. In the latter case (certain powers holders), the relevant powers are those which enable the holder to remove and appoint trustees and any power which is a right held “in respect of the exercise by the trustees of their functions,” such as consent powers.

What are the sanctions for failure to comply?
Serious practical repercussions could stem from failure to register beneficial ownership. Without the registration number, the entity will not be able to register the acquisition of property at the relevant land registry. Inability to register as the owner of the land will make it nearly impossible to effectively sell, grant security over (including by mortgaging), lease, or otherwise make any dispositions regarding the land. This is likely to complicate land purchases in the future unless these obligations are considered early in the process.

Furthermore, failing to comply with registration requirements, failing to update information, or supplying false or misleading information will be criminal offences committed by the non-UK entity and/or the entity’s officers. People served with formal information requests and who fail to comply with them will also commit an offence.

What actions should you be taking?
All non-UK entities and structures owning UK land, need to undertake a review to determine whether they are caught by the Act and, if so, to undertake the required UBO identification steps discussed above. This may be a relatively straightforward exercise for corporate holding structures but is likely to be more complex for structures which are held in trusts and may require specialist advice.

In any event, the information will need to be verified by an appropriate professional before it can be registered, and all this is likely to require action well in advance of the expected deadline of 31 January 2023.