Register gives greater transparency, but will this deter HNWIs investing in UK property?
The register has two aims, to combat money laundering and to achieve greater transparency in the UK property market. While the first of the two aims is laudable, the second aim will impact those who wish to hold property in a structure that permits them some level of privacy and this could deter HNWIs from investing in UK property.
The Bill is drafted in such a way that it captures a wide range of entities. In the UK, certain bodies like companies enjoy legal personhood so they can be treated as another person for the purposes of law, distinct from their owners, i.e. they can hold property, enter into contracts and be sued. This Bill applies to any entity which is a legal person under the law of the country outside the UK by which it is governed. This means that even if a particular form of entity is not available within the UK it is still caught by the Bill as drafted.
The Bill captures a wide range of property transactions, for which an overseas entity must be registered before the transaction can be registered. In England and Wales, the 'qualifying estates' which trigger the registration requirement are freehold estates and leasehold estates granted for a term of more than seven years.
Essentially, qualifying estates are those which must be registered with HM Land Registry.
An overseas entity needs to be registered if it wishes either to obtain or pass on legal title to a property. In the case of property already held by an overseas entity, they have 18 months from the start date of the provisions to register. HM Land Registry then enter a restriction against the title which prohibits the disposition of the property unless the entity is registered. The restriction will take effect at the end of the same 18 month period.
As noted above, concerns have been raised that the Bill removes the privacy of those who own the entities holding property. This is because part of the information to be registered includes details of the beneficial owners. Someone will be a beneficial owner if they:
- hold, directly or indirectly, 25% of the shares or voting rights in the entity
- hold the right, directly or indirectly, to appoint or remove a majority of the board of directors of the entity
- have the right to exercise, or actually exercise, significant influence or control over the entity
- are trustees, members of a partnership, unincorporated associations or other entities that are not legal person meet any of the above conditions, and the person has the right to exercise, or actually exercise, significant influence or control over them or that non-legal person.
The Bill provides for exemptions, but as can be seen from the list above, the register will capture a lot of structures used to hold property. Similarly, there will be exemptions for certain overseas entities, but these will come in regulations that have yet to be supplied.
The information collected on the beneficial owners and supplied as part of the overseas entity register will be published by the registrar of companies, in a manner (we expect) similar to that for People with Significant Control for UK companies now.
Some concerns reflect upon the preparation and implementation by Government agencies; the final regulations and guidance for the Register of People with Significant Control Regulations were published not long before companies were obliged to send the information, and HMRC's system for registering trusts launched last year was released very close to the deadline and not without some serious flaws. These issues added an extra burden on those responsible for registration and their advisors.
Other concerns, not unexpectedly, reflect the privacy concerns of the beneficial owners. The British Property Foundation's response to the consultation notes that BEIS' own research states 41% of stakeholders surveyed consider that this register will have a negative impact on the UK's attractiveness for investment. Those who legitimately wish to protect their privacy will simply no longer be able to do so, or at least without creating tortuous structures to break the chain of indirect ownership and/or control, which may in turn impact their ability to enjoy the property. Given the wide range of information required, of properties subject, and of transaction caught, those advising HNWIs will have to inform their clients about these changes and investment may be deflected to other sectors, or even other jurisdictions.