Plans for register of overseas ownership of UK properties revised
The government has provided more details of proposals for a new beneficial ownership register of overseas companies that own UK property or participate in UK government procurement
26 Mar 2018
A draft bill on the new rules is likely to be published this summer, which the government claims will be the ‘first of its kind’ in the world, and is designed to improve transparency about property ownership by foreign shell companies.
The move follows last year’s consultation and the publication of responses. The government says it intends to introduce the bill to Parliament early in the second session, with the intention of making the register operational in 2021.
In its analysis of the 56 responses from accountancy and law firms, professional bodies and campaigning groups, the government say it intends that all legal forms and entities which can hold properties will be within the scope of the new register’s requirements.
The majority of respondents did not support the suggested definition of leasehold, with several feeling that the definition was not analogous to freeholds.
Having explored the issue further, the government has come to the view that, in order to ensure that the policy works effectively with land registration processes, the definition needs to be based on whether a lease requires registration. It intends to include all leases of registrable duration in the scope of the new register’s requirements.
The vast majority of respondents agreed that the definition of beneficial owner for the new register should be aligned with the definition of people with significant control (PSC) in the PSC regime, and the information required to be provided would also meet the same definitions.
A majority of respondents thought the new register could have a negative impact on the UK property market by deterring overseas investors and making the UK property market less competitive on a global level. In response, the Department for Business, Energy and Industrial Strategy (BEIS) says it has commissioned research on the potential impact.
Respondents were roughly evenly split between those who agreed that the duration of the period given to overseas entities to comply with the new requirements should be one year and those who felt this was not long enough.
In response, BEIS is to look at extending the period, while the government has said it intends to introduce a system of statutory restrictions and of putting notes on the relevant land register, backed up by criminal offences.
Respondents were also split on whether beneficial interest in the property should pass to an overseas legal entity that does not have a valid registration number.
Having explored the issues further, the government has come to the view that preventing the transfer of beneficial interest and voiding the transfer document would not be workable within the broader framework of land law and could have damaging consequences for innocent third parties.
It therefore intends to allow beneficial interest but not legal title to pass to an overseas legal entity that does not have a valid registration number at completion or settlement.
Only 14 respondents responded specifically to the government procurement questions. Of those that did, most preferred the option of treating bids without specified beneficial ownership information as incomplete or non- compliant and rejecting them on these grounds. Respondents suggested capturing beneficial ownership for all bidders, and not just for the successful bidder.
However, BEIS says it is not seeking to adopt this approach as it remains concerned that requiring the information from all bidders may be disproportionate to achieving the policy aim of knowing more about the suppliers government is doing business with. The government intends to require the preferred supplier to provide its beneficial ownership information as a condition of being awarded the contract.
On the question of the update process for the register, the clear majority of respondents felt that two years was too long, and several suggested that event-driven updates would be the best approach.
The government says it is not seeking to adopt this approach as it is important that there is an element of predictability in the update process due to the interaction of the overseas registration number with the conveyancing process, but it will consider shortening the period and will set out its preferred approach when publishing draft legislation.
The government intends to establish a criminal offence to enforce the requirement to update information.
As regards other third party impacts as a result of establishing the register, several respondents were concerned that the policy could prevent the appointment of insolvency practitioners. The government says it is developing the policy to ensure that it is compatible with insolvency procedures.