The Economic Crime (Transparency and Enforcement) Act 2022 created the Register of Overseas Entities (ROE), requiring overseas entities holding UK real estate to register and provide information regarding their beneficial owners, writes Piers Master, partner at Charles Russell Speechlys, and Jack Carter, associate at Charles Russell Speechlys.
This article focuses on the impact of the ROE on individuals with UK real estate interests. In particular, three scenarios will be examined:
- Direct ownership by one or more individuals;
- Ownership by a company; and
- Ownership by a company holding as nominee.
Who needs to register?
The registration requirement is limited to “overseas entities”, defined as legal entities governed by the law of a country or territory outside of the UK.
There is no registration requirement unless the overseas entity is, or is proposing to become, a registered proprietor of a “qualifying estate”.
In England and Wales, this is a freehold estate or leasehold estate for a term of more than 7 years. Generally, overseas entities that became the registered proprietor on or after 1 January 1999 will be required to register.
Different rules apply to property in Scotland and Northern Ireland.
What information needs to be provided?
An application must be made to Companies House with information on the entity such as its name, address and other basic details.
The application must also include confirmation of whether the entity has identified one or more registrable beneficial owners.
To the extent possible, specified information in respect of each registrable beneficial owner must be provided.
Broadly, a “registrable beneficial owner” of an overseas entity is an individual, entity or government body that:
- holds (directly or indirectly) more than 25% of the shares or voting rights (there are no “connected party” rules in determining the 25% ownership threshold, which is strange)
- has the right (directly or indirectly) to appoint or remove a majority of the directors or
- is able to exercise “significant influence or control” over that entity
Where a registrable beneficial owner is an individual, the information required is:
- name, date of birth and nationality;
- usual residential address;
- a service address; and
- further information in respect of their interest in the overseas entity.
Companies House has confirmed that home addresses or full dates of birth (only the month and year) will not be publicly available on the ROE.
How far up the chain?
The ultimate beneficial owners of the overseas entity in question must be traced up through the chain of ownership.
Intermediate entities in the chain are disregarded for these purposes.
However, an exemption applies for any beneficial owner holding an indirect interest through a legal entity subject to its own disclosure requirements.
The result is that if there is, for example, a UK incorporated company within the structure, and so subject to the Persons with Significant Control regime, that company is the registrable beneficial owner for the purpose of the ROE – there is no obligation to then identify its beneficial owners.
Three scenarios
We now turn to our three scenarios.
1. Direct ownership
If a qualifying estate is directly held by one or more individuals, there will be no registration requirement under the ROE. However, the names of the individuals in question will be publicly available on the HM Land Register in the usual way.
2. Ownership by a company
There will only be a requirement to register on the ROE if the qualifying interest is held by an overseas entity, not by a UK incorporated entity.
The information detailed above will need to be provided in respect of an individual who satisfies the definition of a registrable beneficial owner in relation to the entity.
What if the shares in the company are themselves held by a company which holds those shares as nominees for an individual or individuals? Technical guidance released by the government states: “In cases where a nominee holds shares for an individual, it is the relevant individual for whom these shares are held or this right is exercised, and not the nominee, who is the registrable beneficial owner: the nominee is ignored.”
The result is that if the shares in the entity which holds the qualifying interest are held by a company which holds the shares as nominee for an individual or individuals, the nominee company is ignored and the individuals for whom the shares are beneficially held are the registrable beneficial owners.
For some structures, there will be no one that satisfies the definition of a registrable beneficial owner in respect of the company. For example, five family members might have equal shareholdings and voting rights (so not exceeding 25%), and none has the right (directly or indirectly) to appoint or remove a majority of the directors, or is able to exercise “significant influence or control” over the activities of the entity.
In such cases, the overseas entity must instead provide details of its managing officers.
3. Ownership by a nominee company
Consider a scenario whereby a company (N Co) holds a qualifying estate as nominee for an individual.
As above, N Co will only be required to register on the ROE if it is an overseas entity, not if it is a UK incorporated company.
However, where a company, such as N Co, holds the qualifying estate itself as nominee for individuals, rather than shares in a company which holds the qualifying estate outright, the individual beneficial owners of the qualifying estate are ignored (assuming they cannot exercise significant influence or control in respect of the nominee company). Instead, the details of the registrable beneficial owners of the nominee company (i.e. N Co) must be provided.
If N Co does not have any registrable beneficial owners, for example because no one ultimately beneficially holds at least 25% of N Co’s shares, and there is no one able to exercise “significant interest or control” over N Co, then N Co must instead provide details of its managing officers.
In many cases, particularly if an institutional nominee company is used to hold the legal title to the qualifying estate, the beneficial owners of the qualifying estate will be different from the beneficial owners of the nominee company, meaning that details of the beneficial owners of the qualifying estate will not be disclosed on the ROE. How long this situation persists remains to be seen.
It should be noted that direct ownership by N Co as nominee would likely need to be registered under the UK’s Trust Registration Service (TRS). For these purposes, N Co would be the trustee and the individual for whom the interest is held would be the beneficiary. However, unlike the ROE, certain limited information is only available on the TRS for those who can demonstrate a “legitimate interest”.
Deadlines and penalties
With effect from 5 September 2022, overseas entities will need to be registered on the ROE before they can acquire qualifying estates. For overseas entities which hold a qualifying estate, a restriction will be entered on the title register and taking effect from 1 February 2023, preventing a disposition of the land unless the entity registers on the ROE.
An offence will be committed if on 1 February 2023, an overseas entity holds a qualifying estate and has not made an application to register, potentially subjecting it and its officers to a fine or imprisonment.
This deadline will also apply for overseas entities which disposed of qualifying estates on or after 28 February 2022, even if a restriction has not been entered. Failure to comply can result in a daily fine of up to £2,500 ($3,018, €2,967).
This article was written for International Adviser by Piers Master, partner at Charles Russell Speechlys, and Jack Carter, associate at Charles Russell Speechlys.
