It seems a long time ago now. But it was only in May 2016 – just weeks before the Brexit referendum – that the then Prime Minister David Cameron hosted a global anti-corruption summit. The government’s goal was ambitious: to ‘expose, punish and drive out corruption in all walks of life’.
Fast forward two years and preoccupation with Brexit has drowned out the noise around many major policies, including the proposals to tackle anti-corruption that attracted huge attention back in 2016. But companies from the Middle East and other overseas jurisdictions hoping to invest in UK property should take note: UK property transactions they might be party to will come under much closer scrutiny from 2021. That’s because in recent months the government has stepped up moves to meet one of the chief commitments from that 2016 summit: the establishment of a public register of the beneficial owners of non-UK entities that own or buy UK property.
WHY DO WE NEED A BENEFICIAL OWNERSHIP REGISTER?
There is evidence that criminals, many from overseas have exploited the UK property market over many years. Transactions in the lucrative prime central London market in particular have allegedly been widely used to hide and launder money. In the government’s view a register would make property deals involving overseas companies more transparent. And it would reduce corrupt practices in two ways:
- By enabling prosecutors to take more effective enforcement action if necessary; and
- By discouraging those wishing to launder money from doing so
In January the government announced a definite timetable for the introduction of the register. It intends to present the draft legislation to parliament by the middle of 2018 and get the register up and running by 2021.
WHAT WILL THE REGISTER LOOK LIKE?
A register that tracks the beneficial ownership of foreign companies owning UK land has never been attempted before. So the precise nature of future reporting obligations is still unclear. Of course the government needs to come up with a solution that tackles corruption through greater transparency. But it must also ensure that compliance with any new regime is not so onerous that it will put off legitimate foreign companies from investing in the UK property market.
Some outline proposals include:
- A requirement that all overseas entities obtain a registration number from Companies House before certain property transactions can be formally registered at the Land Registry
- Details of beneficial ownership to be provided before Companies House issue a registration number
- Companies already owning UK land to be given a period of grace in which to obtain the Companies House certification or sell the property
- Registration required for people with ‘significant control’ over the overseas entity. This usually means people with more than 25% of shares or voting rights
- Overseas entities that do not comply with the legislation to have a block placed on sales or purchases.
From debates that have taken place so far there also appears to be a desire to impose criminal penalties on those who fail to comply with the rules.
The register is being described within government circles as a ‘significant’ measure that will streamline reporting requirements on foreign ownership. At present land registries in England and Wales, Scotland and Northern Ireland take different approaches to overseas ownership registration so this inconsistency will be tackled.
Talk of criminal sanctions means companies should regard the implementation of the register as a serious move by government. While there are a number of years before the register goes live, overseas companies should consider the management of their UK property portfolio in the light of the new rules.
We will be following the development of the new legislation with interest and assessing the implications for our overseas clients who, for perfectly legitimate reasons, may not wish UK property ownership details to appear on a public register.
For advice on holding UK property you can call us on +44 (0) 203 670 5540 or contact us online.