Out-Law / Your Daily Need-To-Know

Offshore trustees and the UK’s public register of ‘persons with significant control’

Out-Law Legal Update | 24 May 2017 | 9:52 am | 6 min. read

Legal Update: Since 6 April 2016, most UK companies have been required to formally identify and keep a register of the individuals who are ‘persons with significant control’ (PSC) over them and to include this information in an annual return. The information on PSCs is available for public inspection. Trustees, settlors, protectors and beneficiaries can potentially be PSCs. PSCs themselves are under a positive duty to ensure their details have been entered on the PSC register. 

Who needs to maintain a PSC register?

The obligation to maintain a PSC register applies to all UK companies and LLPs, apart from those whose shares or equivalent interests are listed on the London Stock Exchange main market, AIM or certain overseas stock exchanges.

Who is a PSC?

A PSC is an individual who meets one or more of the following conditions in relation to a company or LLP:

  • Directly or indirectly holds more than 25% of the shares
  • Directly or indirectly holds more than 25% of the voting rights
  • Directly or indirectly holds the right to appoint or remove the majority of directors
  • Has the right to exercise, or actually exercises ‘significant influence or control’
  • Has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or firm that satisfies any of the above conditions or would do so if it were an individual.

Who is registerable?

Every PSC is a ‘registerable person’ and must be included on the PSC register. Where the PSC holds the interest indirectly through a chain of UK companies or LLPs which are themselves subject to the PSC legislation, only the top entity needs to register the individual as a PSC. Entities lower down in the chain will need to register the UK company or LLP immediately above it in the chain as a ‘relevant legal entity’.

How would this apply to offshore trusts holding interests in UK companies?

The first question is whether the offshore trust satisfies any of the first four PSC conditions in respect of the UK company – for example it directly or indirectly holds more than 25% of the issued share capital. If it does, the next step is to identify whether any individual has “the right to exercise, or actually exercises, significant influence or control” over the activities of the trust. Such a person would be a PSC.

This could include the offshore trustee, if an individual, or the directors/shareholders of an offshore corporate trustee. Other PSCs might include the settlor, protector or beneficiaries if they have some legal power over how the trust is run. It might also extend to a person who issues instructions to the trustee which are generally followed. There are exceptions for those acting in a professional capacity, such as lawyers and accountants.

Practical issues

UK companies and LLPs are legally required to take reasonable steps to establish all registerable persons. They must also ensure the information is kept up to date. Failure to comply renders the company or LLP and any officer in default guilty of a criminal offence, punishable by up to two years’ imprisonment.

To gather the information, companies and LLP have been given legal powers to serve notices requiring information from suspected PSCs or third parties who may have information about a PSC. The recipient of a notice has one month in which to reply.

Failure to do so, or the provision of false information, is a criminal offence, again punishable by up to two years’ imprisonment. The company or LLP may also put restrictions on the shares or other interest held by anyone who does not cooperate.

In addition, if an individual knows or ought reasonably to know that he is a registerable person, his details are not on the PSC register, and he has not received a notice from the company or LLP asking for confirmation, then he has a duty to inform the company or LLP of his status. In most cases, this must be done within one to two months of becoming aware, or of being deemed to have become aware, of the need to be registered. Again, failure to comply is a criminal offence.

Registered and disclosable information

Particulars about each PSC must be recorded in a PSC register. The register must be kept by the company/LLP unless it elects for the register to be kept by Companies House. The information in the PSC register must also be provided by the company or LLP in its annual Confirmation Statement (which replaces the Annual Return) to Companies House.

The requirement to maintain a statutory PSC register applies whether the company/LLP has PSCs or not. If reasonable steps have been taken to identify the existence of a PSC, and the company or LLP is comfortable there are no individuals or legal entities which qualify as such, this fact must be noted on the PSC register.

The information on the register and Confirmation Statements has to be made available to the public. If the company or LLP keeps the register, there is a procedure for challenging a request for information which is not made for a ‘proper purpose’, although the proper purpose test is wide. In addition, no such restriction applies to the information held by Companies House in the annual Confirmation Statement, which is essentially the same information.

The information which must be kept about each PSC is:

  • the name, service address, country of residence, nationality, date of birth, and usual residential address of the PSC
  • which of the five PSC conditions has been triggered – and (if relevant) whether the trust’s holding in the company or LLP is in the range 25-50%, 50-75% or more than 75% of the shares/ voting rights
  • the date when the individual became a PSC (6 April 2016 if before this date).

All this information is to be made publicly available except for his residential address (special rules apply for requests made by credit reference agencies and certain public authorities). If there is a serious risk of violence or intimidation, an application may be made to Companies House for a PSC’s information to be protected from disclosure (other than to law enforcement agencies), and if successful this must be noted on the register and Confirmation Statement. If protection is already in place under existing rules applying to directors of a company and members of an LLP, it may be possible to roll this protection over to the PSC information.

Register of trust beneficiaries

In June 2017, the UK plans to implement a register of beneficiaries of onshore and offshore trusts which are liable to pay UK tax in respect of trust income or assets. It set its latest proposals in a consultation response document issued in March 2017.

It is intended that the register will be maintained by HM Revenue & Customs (HMRC) and will only be accessible by tax and law enforcement authorities.

The register is being introduced, as part of a wider change to the anti-money laundering rules, to comply with the requirements of the EU's 4th Anti-Money Laundering Directive. However, further changes are still being considered by the EU. These are likely to have further implications for trusts and, depending upon what is finally agreed, could result in beneficial ownership information being made public or at least available to 'persons with a legitimate interest'.

Register of overseas companies owning UK property

The PSC register makes it possible to trace the true owners of UK properties owned by companies incorporated in the UK, where a UK company is listed at the Land Registry as the owner of the property. However, this is not currently possible where the property is owned by an offshore company.

The government therefore intends to introduce a new publicly accessible beneficial ownership register of overseas companies that own UK property. The register will also cover overseas companies that participate in UK government procurement. Details were set out in a consultation document published in April 2017.

The proposal is that the register would be administered by Companies House and would adopt the same definition of ownership control that governs inclusion in the register of PSCs.

Although it is intended that the information on the register would be publicly available, it is intended that individuals would be able to apply to have their information suppressed from the register if they meet certain criteria, including risk of violence, intimidation or "elevated public safety risk" if they were associated with the property or if the beneficial owner is a minor or is of diminished capacity.

Other developments

The UK is making it a criminal offence if an offshore entity fails to prevent its employees or other authorised persons from facilitating UK tax evasion. The new offence is expected to come into force by September 2017 and will require businesses to make changes to their policies and procedures so that they can demonstrate they have put in place reasonable prevention procedures to prevent the facilitation of tax evasion taking place.

The government is also considering a new legal requirement for businesses, agents, advisers or any other person who creates offshore arrangements for UK taxpayers that exhibit certain characteristics specified by HMRC to be required to notify HMRC of the creation of these arrangements and of any clients using them. It is considering whether the requirement should extend to offshore businesses and persons as well as UK ones. 

Jason Collins is a tax expert at Pinsent Masons, the law firm behind Out-law.com