Initially, the progression of this proposal into legislation was slow, with the first draft bill published in July 2018. From that date, progression stalled. However, the Economic Crime (Transparency and Enforcement) Act 2022 (the Act) has now been fast-tracked through Parliament in an extraordinarily speedy two-week process. The Act received Royal Assent on 15 March 2022 and includes provisions introducing the Overseas Entities Register.

The Act is divided into three parts:

• Part 1 relates to the requirement to register overseas entities which own land in the UK;
• Part 2 relates to certain changes to the UK’s unexplained wealth orders regime; and
• Part 3 amends the UK’s existing legislation in relation to sanctions.

The purpose of this note is to consider Part 1 of the Act, and in particular to consider the impact of the registration requirement for individuals and trustees who own land in England and Wales. It should be noted that Part 1 of the Act is not yet in force, but this is expected imminently.

One point which it is important to appreciate is that the register is not a register of the beneficial owners of the land in question. It will only provide information about the beneficial owners of the overseas entity which holds the land. Often these people will also be the ultimate beneficial owners of the land but this will not always be the case – for example where the overseas entity is holding the land as nominee. This is a deficiency which was highlighted to the Government during the passage of the Bill through Parliament. It remains to be seen whether a requirement to disclose the beneficial owner of the land itself will be introduced.

What land falls within the registration requirement?

The requirement to register applies where an overseas entity is the registered owner of a “qualifying estate” in England or Wales. (The Act also imposes similar requirements in respect of land in Scotland and Northern Ireland, but consideration of these is outside the scope of this note.) A “qualifying estate” means either a freehold estate in land, or a leasehold estate in land granted for a term of more than seven years from the date of grant.

What is an overseas entity?

Under the Act, an overseas entity refers to a legal entity that is governed by the law of a country or territory outside the United Kingdom. A legal entity means, in this context, a body corporate, partnership or other entity that is a legal person under the law by which it is governed.

How does the registration requirement apply?

The Act requires the registrar of companies for England and Wales (i.e. Companies House) to keep a register of overseas entities containing information in relation to the entities and their beneficial owners.

Overseas entities which hold UK land

Where an overseas entity is the registered owner of land, and provided the overseas entity became the registered owner on or after 1 January 1999, the registrar will be required to enter a restriction against the land providing that, unless the overseas entity is registered on the Overseas Entities Register (or is exempt from such registration), the overseas entity will be prohibited from disposing of the land (save in certain exceptional circumstances). The effect of this is that overseas entities which hold registrable land will not be able to dispose of that land unless they have registered on the Overseas Entities Register.

There is an exception to this rule; the Secretary of State is able to consent to the registration of a disposition if they are satisfied that, at the time of the disposition, the person to whom it was made did not know, and could not reasonably have been expected to know, of the prohibition, and that in all the circumstances it would be unjust for the disposition not to be registered. In practice, this is unlikely to be relied upon.

Additionally, an overseas entity (and its officers) will commit an offence if, after six months of Part 1 of the Act coming into force (the “Transitional Period”), it is the registered owner of a qualifying estate and it is not registered as an overseas entity (or has not made an application to do so which remains pending). From a practical perspective, this means that any overseas entity which holds registrable land at the end of the Transitional Period will commit an offence if it has not registered on the Overseas Entities Register, provided it acquired that land on or after 1 January 1999. If an offence is committed in contravention of the requirements, the overseas entity (and its officers) could be subject to a fine or imprisonment.

Dispositions during the Transitional Period

If an overseas entity disposes of registrable land between 28 February 2022 and the end of the Transitional Period, they will still be required to make an application to register in respect of the land. Failing to do so will result in the entity and its officers being liable for a daily fine of up to £2,500 for each day on which they continue to fail to make an application to register. This means that, even if the restriction has not yet been entered as against the land by the date of disposal (which would otherwise prohibit the disposal), there is still a requirement to register the overseas entity which made the disposal.

Overseas entities which purchase land

In order to be registered as the proprietor of registrable land, an overseas entity must first be registered unless it is exempt from registration. So, from a practical perspective, if an entity is not registered, it will not be able to purchase registrable land. 

What does the registration requirement involve?

Once it has been determined that an overseas entity is required to register, it is required to make an application to the registrar. The application must include certain information about the overseas entity, including its name, address and other basic details.

Before registering, the overseas entity must take reasonable steps to identify its beneficial owners. Once they have been identified, certain specific information in respect of the beneficial owners should be included in the application. To obtain this information (to the extent it does not already have it), the overseas entity must send an information notice to any person that it knows, or has reasonable cause to believe, is a registrable beneficial owner. If an individual fails to comply with the request under an information notice, they could be liable to a fine or imprisonment.

Once the required information has been obtained, the overseas entity can file its application for registration. The application should include all the required information in respect of the overseas entity and the beneficial owners, as well as a statement that the entity has identified one or more registrable beneficial owners and that it has no reasonable cause to believe there are other beneficial owners.

Who is a beneficial owner?

A beneficial owner can be an individual, entity or government body. A person (X) is a “beneficial owner” of an overseas entity or other legal entity (Y) if X holds (directly or indirectly) more than 25% of the shares (condition 1) or voting rights (condition 2) in Y, if X has the right (directly or indirectly) to appoint or remove a majority of the directors of Y (condition 3), if X is able to exercise “significant influence or control” over Y (condition 4), or if trustees of a trust, members of a partnership (or other entity that is not a legal person) meet any of conditions 1-4 and X is able to exercise “significant influence or control” over the activities of the trust or entity (condition 5).

The concept of “significant influence or control” is not defined in the Act. However, “significant influence or control” is used in a similar context in the “Persons with Significant Control” (PSC) regime (which applies to UK entities), and it is expected that similar rules will be applied here. Examples of what would constitute “significant influence or control” are set out in the statutory guidance relating to the PSC regime and include the right to appoint or remove trustees, to direct the distribution of funds, or to revoke the trust.

What information is required in respect of a beneficial owner?

Once a beneficial owner has been identified, certain information will need to be included in respect of that beneficial owner. The exact information will depend on the nature of the beneficial owner. This will include the name, address, form/legal entity of the beneficial owner, as well as which condition is met.

What information is required for trusts?

Where the beneficial owner is a trustee, in addition to the information described above, certain additional details must be provided. These include the name of the trust, the date it was created and certain information in relation to the current and historic trustees. Information in relation to anyone who has the power to appoint or remove trustees, or exercise certain rights over the trustees’ powers, will also need to be included. 

Furthermore, as currently drafted, the Act appears to require disclosure of information in relation to any and all beneficiaries, the settlor, and any other individual or entity with control over the trust (for example, a protector). As far as the naming of beneficiaries is concerned, this is more wide-reaching than the UK’s Trust Registration Service (TRS), which only requires identification of beneficiaries named in the trust deed, as well as a description of any class of beneficiaries.

Exemptions for beneficial owners

Where registrable land is held through a chain of companies, the general rule is that the overseas entity is required to look up through the structure and determine its ultimate beneficial owners. However, a beneficial owner does not need to be registered if it holds an interest directly through an entity which is subject to its own disclosure requirements. This will be the case if, for example, the beneficial owner holds its interest through a company which is registered on the PSC Register, or which is itself an overseas entity which is subject to registration under the Act.

Availability of the information on the register

The information on the register is available to be inspected by anyone who requests it. However, certain material is unavailable for inspection. This includes the date of birth (specifically, the day of the month on which an individual is born) and the registered address of anyone who is registered. 

Another important exception is that, to the extent that information is required to be provided in respect of a trust, the trustees of which are the beneficial owners of the entity which holds the registrable land, that information is not available to be inspected by the public. This is the case notwithstanding that the information will be included on the register. Currently, such information will only be available to the tax authorities.

Requirement to update the register

The overseas entity is required to update the registrar every 12 months with any changes to the information previously provided. The update must be provided within 14 days of each 12 month anniversary of the initial registration.

Interaction with the TRS

One point to note is that trusts which are required to register on the Overseas Entities Register may also be required to register on the recently expanded TRS. In particular, non-UK resident corporate trustees who purchase UK land directly will be required to register on the TRS, and will also be required to register as an overseas entity on the Overseas Entity Register. This is likely to result in a level of duplication for such trustees.

Some examples

Mr A: Mr A owns 100% of the shares in A Limited, a Cayman resident company. A Limited is the registered owner of a freehold interest in England.

A Limited is an overseas entity, and it will be required to register on the Overseas Entities Register before the end of the Transitional Period. A Limited will need to include the required information about itself in its application.

Mr A meets conditions 1, 2, 3 and 4 in respect of A Limited, and so information in relation to Mr A will need to be included in the application, and will be publicly available once registered.

The X Trust: The trustee of the X Trust is X Limited, which is a corporate trustee resident in Jersey. The X Trust wishes to acquire a 100 year lease over a residential property in London.

The trustee is an overseas entity, and it will be required to register on the Overseas Entities Register before being able to be entered as the registered owner of the property.

X Limited will therefore need to provide information in respect of itself, and will need to identify its beneficial owners and include the required information in respect of them in the application to register on the Overseas Entities Register. X Limited will not need to include information in relation to the X Trust on the register, as it is the overseas entity, not the beneficial owner of an overseas entity. 

The X Trust will also be registered on the TRS when it purchases the property. There is therefore an element of duplication as between the registration requirements.

Next steps for clients

It is assumed that Part 1 of the Act will come into force imminently, which will set the clock running for the Transitional Period.

Clients should identify any UK land which is held within their structures, and determine whether it is held directly or indirectly by an overseas entity. This will include where land is held by a nominee company or within a trust structure which has a corporate trustee. They should gather the information which will be required in respect of the entity and the beneficial owners, with a view to making a registration application before the end of the Transitional Period.