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Register of Overseas Entities

Owning UK Property

On 23 July 2018, draft legislation requiring the registration of overseas entities owning UK property was laid before Parliament (the "Bill"). 

In this article we consider the scope of the bill and what potential impact it may have for Guernsey trust and foundation structures.

Summary of the Bill

The Bill sets out the framework for a register of overseas entities which own UK property. The bill requires overseas entities that own, wish to purchase or dispose of UK property to register details of their beneficial owners with UK Companies House. The register will be viewable by the public.

Overseas entities will not initially have to register but will not be able to transfer, charge, grant long leases or become proprietors of UK property without having registered.

After 18 months, registration will become mandatory for any overseas entity which holds UK property. The entity and its officers will be committing a criminal offence if they do not register before that date, with offenders liable to a fine or imprisonment for up to two years.

The overseas entity will have to update the register every twelve months with any changes to the information or a statement that nothing has changed. Failure to update on time will also be an offence, punishable by a fine. Continued contravention will incur a daily default fine of up to £750.

What is an overseas entity?

The bill applies to legal entities governed by the law of a jurisdiction outside the UK. A legal entity includes any body corporate, partnership or other entity that is a legal person under the law by which it is governed.

What about trusts and foundations?

In the impact assessment which was published alongside the bill, paragraph 36 states: "As was set out in our response of March 2018 to the call for evidence on the register, and consistent with the commitment made at the 2016 Anti-Corruption Summit, we do not consider that trusts should be included on the register. Trusts do not have legal personality in their own right and so are not capable of entering into contracts. They are also commonly used for reasons including protecting assets for children and vulnerable adults, meaning that legitimate grounds exist for ensuring that information on the beneficial owners of trusts is not made publicly available."

The justification for this approach is that the UK already requires trustees to register information on beneficial owners of trusts with HMRC where a trust generates a UK tax consequence, such as when property held within the trust is purchased or sold. This was introduced by The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 which transposes the Fourth Anti-Money Laundering Directive. See our next article for more information on this.

It appears however, that the beneficial owners of a corporate trustee (or a partnership or other entity) who have 'significant influence or control' will be caught by the legislation and information will need to be registered in relation to them. This would also seem to catch any settlor or beneficiary that has significant influence or control over the trust, for example by virtue of any reserved powers in the trust instrument.

In relation to foundations, it is likely that these will be caught by the bill. Whether a particular structure falls within the bill would be determined by the law of the relevant jurisdiction in relation to legal personality and, as a result, foundations are likely to be captured.

Registrable beneficial owners

A registrable beneficial owner of an overseas entity is any individual, legal entity, government or public authority which:

  • holds more than 25% of the shares in the overseas entity, either directly or indirectly;

  • holds more than 25% of the voting rights in the overseas entity, either directly or indirectly;

  • has a right to appoint or remove a majority of the board of directors of the overseas entity;

  • exercises, or has the right to exercise, significant influence or control over the overseas entity; or

  • if there is a trust, partnership or other unincorporated entity which would meet the above criteria if it were a legal person, then any person who exercises significant influence or control over that trust or entity is a registrable beneficial owner of the overseas entity.

Gathering the information

The overseas entity must take reasonable steps to identify its registrable beneficial owners. These "reasonable steps" must include giving notice to any person it knows or has cause to believe is a registrable beneficial owner. This notice would require the person to state whether they are a registrable beneficial owner and confirm or correct the necessary information. Any individual not complying with such a notice is committing an offence.

Once the overseas entity has taken reasonable steps to identify its registrable beneficial owners, it will make one of the following statements to the registrar:

  • that the overseas entity has no reasonable cause to believe that it has any registrable beneficial owners;

  • that the overseas entity has identified one or more registrable beneficial owners and their "required information" is included; or

  • that the entity has reasonable cause to believe that it has registrable beneficial owners but is unable to identify some of them or unable to provide the "required information" about them.

If the last statement is made, then the overseas entity must give the "required information" about each managing officer of the entity (as well as about any registrable beneficial owners which it has identified and collected the "required information" from).

What information will be on the public register?

Any overseas entity must give to the registrar:

  • its name;

  • country of incorporation;

  • registered office;

  • service address;

  • an email address;

  • its legal form and the law by which it is governed;

  • any public register in which it is entered; and

  • any registered number it has on that register.

If any of the registrable beneficial owners are legal entities then they will also have to give the information listed above as their "required information".

If the registrable beneficial owners are individuals then the "required information" is:

  • name, date of birth and nationality;

  • usual residential address; and

  • service address.

If the overseas entity is instead giving the "required information" about its managing officers then it would also need to supply the information listed above.

Managing Officers

Where it is not possible to disclose the details of persons with significant control, such as where there are none, or where the entity cannot identify them, then the entity will need to provide information on its managing officers.  Managing officer has been defined in the draft legislation as a director, manager or secretary of an overseas company. This mean that directors, managers of overseas entities will see their personal information entered on the public register as follows:

  • name, date of birth and nationality

  • any former name

  • usual residential address

  • a service address (which may be the entities registered address or principal office).

Where the managing officer is itself an entity, then the information to be published would be:

  • name

  • registered or principal office

  • a service address

  • the legal corm of entity and jurisdiction

  • any public register in which it is entered, and its registered number.

Conclusion

The legislation is currently in draft form, but we have seen very little change from the previous announcements, with the new regime coming into force in 2021. If the legislation stays as currently drafted, it would appear that information relating to settlors (subject to any powers that they have reserved) and beneficiaries of trusts, at least, will not need to be registered on this particular register. The legislation however is complex and we would advise trustees and councillors take advice early in order that any necessary changes can be effected well in advance of the 2021 introduction.