Out-Law News | 27 Mar 2018 | 11:43 am | 3 min. read
In January the Department for Business, Energy & Industrial Strategy said a register would help curb money laundering.
Tax investigations expert Paul Noble of Pinsent Masons, the law firm behind Out-Law.com, said, concerns about secret and offshore ownership of property had been heightened by the recent leak of client data from law firms in the so-called Panama and Paradise Papers.
“The UK government wishes to be seen to be leading the fight against perceived international corruption and tax evasion and these measures fall within their stated aims. We can expect that such a register will be of great interest to HM Revenue & Customs in selecting cases for investigation in the coming years,” Noble said.
The register would be administered by Companies House. It would adopt the same definition of ownership control that governs inclusion in the register of persons with significant control (PSCs) over UK companies. This covers individuals who hold more than 25% of the shares or voting rights of the company; have the right to appoint a majority of directors of the company; or have the right to exercise or actually exercise significant influence or control over the company, trust or other legal entity.
The government intends that overseas entities would not be able to buy or sell property in the UK unless they have provided information about their beneficial owners for the new register. It intends to allow beneficial ownership but not legal title to pass to an overseas legal entity that does not have a valid registration number at completion. Overseas entities already owning UK property would have a transitional period to register their beneficial owners. Although a period of 12 months was initially proposed, the government now intends that this transitional period should be longer.
The new obligations will be backed up with a criminal offence, to ensure organisations comply with them.
Respondents to the consultation largely agreed that all legal entities which can own property should fall within the scope of the requirement to be on the register. The government said it would follow this view, although it would ensure there would be flexibility to allow exemptions where appropriate, for instance where there is already transparency of beneficial ownership information.
The government said trusts would not be included in the register, as publishing the details of trusts’ beneficial owners could “undermine family confidentiality”. HMRC set up a register of trust ownership last year, but the register is only assessible by tax and law enforcement authorities
A majority of respondents warned that the register could deter overseas investors to the UK property market and make it less competitive on a global level, although some said it could improve the reputation of the market. The government said it would take account of these views and had commissioned research on the impact of the new register on overseas investment in the UK property market.
The government recognised concerns raised by some respondents about the potential negative impact on a range of commercial property transactions, such as joint ventures, and said it did not think the rights of minority shareholders overseas would be changed by the register’s requirements.
Property expert Tom Johnson of Pinsent Masons said: “This seems a pragmatic response to some of the concerns raised by the property industry, prompted by the anticipation of unintended consequences for the use of structures such as joint ventures and options, which are widely used to facilitate developments. Joint ventures are often used to bring forward large or complex developments, especially those which will deliver much needed housing.
“We were concerned that the proposals could have an adverse impact on ‘innocent’ minority shareholders. We welcome the fact that government has acknowledged these concerns and is confident that minority shareholder rights can be protected and look forward to seeing how this is addressed in the detail of the proposed legislation,” Johnson said.
The definition of ‘beneficial owner’ in the register is to be aligned with the existing ‘people with significant control’ regime. That requires companies to identify their owners or controllers and file their details with Companies House.
Entities unable to give information about their beneficial owners will be asked to provide information about their managing officers instead.
The government said it intended to publish draft legislation by the summer and that it intends the register to be operational in 2021.