A shortened version of this article appears on Helena Luckhurst’s blog The Wealth Lawyer UK
Recent years have seen the introduction of many measures worldwide aiming to increase transparency and share information between countries in relation to taxpayers and their assets. While the UK has been party to many of these, it is now taking steps to become the first country in the world to require a register of the beneficial owners of overseas companies which own UK property or wish to procure Government work. While the details are yet to be finalised, the UK Government issued a consultation on 5 April 2017 setting out various parameters and welcoming feedback.
As this is the first register of its kind worldwide, the consultation indicates that the UK Government will look to existing registers and bodies as to the form it will take and it appears that this new register will be modelled on the existing Persons of Significant Control (PSC) register with the information publicly available at Companies House.
Currently the legal ownership of UK properties is publicly displayed at the Land Registry. Where a UK company owns a property, the company’s name is recorded on the title of the property and any interested party can check the public register at Companies House for both information about the company and, under the PSC register, details of the ultimate beneficial owner of the company. The ultimate beneficial owner is considered to be the person (or persons) with the majority shareholding. What this new register hopes to achieve is to close the information gap where an offshore company is registered as the owner of a property at the Land Registry but there is no way to check for further information about this company and its ultimate beneficial owner. This can mean that tenants do not know who their ultimate landlord is, neighbours are unable to check who is responsible for carrying out work on a property which adjoins theirs, and it can be difficult to trace who is responsible for vacant properties. It should be noted that the Government envisions that ‘property’ will include a leasehold interest with a term of over 21 years.
The Government faces the difficulty of providing this transparency while ensuring that the obligations are not so onerous that they discourage overseas investment in the UK.
The Government has therefore proposed that the directors of any company which currently owns a UK property, or wishes to purchase a UK property, apply to Companies House with information about each beneficial owner which mirrors that currently requested under the PSC; to include their name, date of birth, address, nationality and the nature of their interest. The Government envisions there being a method of applying for privacy where the beneficial owner is a person of interest or may be at risk of violence or intimidation. Once this has been granted the directors will be provided with a registration number which confirms that they have correctly complied with their requirements. This will not be a one-off exercise; each company will have to update their records every two years in order to maintain their registration number.
The Government is aware that enforcing this against overseas companies may prove difficult, which is why it has proposed that without this registration number the transfer of the legal title of a property cannot be completed by the Land Registry and, potentially, could see a contract for purchase or sale voided. An offshore company would also be unable to charge the property or create a long leasehold interest without this registration number. The Government is also consulting on whether to make failure to maintain the register a criminal offence.
While clearly measures have to be taken to ensure compliance, concerns have been raised about the impact that this may have on a buyer’s or seller’s willingness to deal with an offshore company. There is the risk that the transfer could be voided or that a seller may end up acting as a trustee for an offshore company, in that it still holds the legal title of the property (as this cannot be amended) but the beneficial interest has passed to this offshore company. So it seems apparent that requesting proof that the offshore company has the registration number will form part of the pre-exchange enquiries. Where a company has several UK properties, it does not appear that this will pose an issue as they will be maintaining their entry on the register. The difficulty will lie with any offshore company hoping to invest in UK property for the first time.
The register requires that not only do the directors of an offshore company need to compile information about the beneficial owners, but they must also confirm this information with those owners. While in some circumstances this will be a simple task, for others it may prove more onerous. Even if an offshore company is able to assemble the information promptly, the company would be dependent on a prompt response from Companies House. It therefore appears that this requirement could delay a property transaction and that any buyer or seller may therefore be rightly wary. Is the solution that an offshore company provide this information to Companies House in advance of purchasing a UK property, so that it is ready to proceed with no delay once it has found one? This would seem to require an offshore company to provide information to the UK Government before it even has any interest in the UK.
The Government is aware of these concerns in the response to its consultation and the fine details are yet to be published. The Government has confirmed that it would anticipate a system to deal with companies which have made every effort to consult with the beneficial owners and have been unsuccessful. It has also confirmed that where a company is based in a country which already has a similar register there will be no need to file the same information in the UK. The Government is also consulting on how to avoid scenarios as set out above, where a seller may unwittingly end up holding a UK property on trust for an offshore company which provides a registration number on completion; or mortgagees find themselves unable to sell the property to redeem their charge because the registered owner is an offshore company which has not complied with its requirements under the register.
While we await the final legislation, it seems that the Government is keen to push ahead with the register of beneficial ownership and therefore the directors of offshore companies which hold UK property may now wish to start compiling the necessary information about their beneficial owners and advisers may start to think about identifying and notifying their clients.
For further information, please contact:
Neal Todd, Partner, Fladgate LLP (email@example.com)
Matthew Bennett, Partner, Fladgate LLP (firstname.lastname@example.org)
Helena Luckhurst, Partner, Fladgate LLP (email@example.com)