The Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA) introduced, with effect from 1 August 2022, measures designed to deter money laundering through ownership of land in the United Kingdom. Our previous alert on the purpose, and impact on land ownership, of ECTEA can be read here.
Annual update requirement
An annual statement updating the information previously submitted in relation to the overseas entity must be submitted online to Companies House within 14 days after the anniversary of that entity's initial registration in the OER (or of any subsequent update). This is the case EVEN IF there have been no changes in its beneficial owners. Overseas entities with trust information (including trusts that the entity has already informed Companies House about, and trusts that need to be highlighted as part of the update statement) must also ensure that trust information is updated.
The transitional provisions under ECTEA, which gave existing overseas entity owners of registered UK land interests a grace period of six months to register following the introduction of that Act, means that many registered overseas entities will now find themselves with an imminent annual update deadline, so it is imperative to check existing overseas registration details to ascertain the annual update trigger date.
The update process can take longer than expected. Overseas entities need to contact their current registered beneficial owners or managing officers to verify the information filed remains accurate, including as to addresses. Respondents have up to one month to reply. Overseas entities should allow for this delay within their time frames. Failure to comply with this enquiry obligation is a criminal offence, even if the overseas entity believes they already have the relevant information.
Necessary due diligence to support the required confirmations as to beneficial interests, which may include new beneficial owners, should be factored into the timeline to ensure that the deadline can be met. Any changes to the filed information will need to be verified by a UK-regulated agent.
Upcoming changes to overseas entity registration and updating requirements
The Economic Crime and Corporate Transparency Act 2023 ("Act") will bring into effect some new and enhanced reporting restrictions and requirements. The effective date for these measures is currently unknown, though is expected to occur in the early part of 2024. The changes will impact both overseas entities wishing to acquire registrable UK land interests (in terms of initial registration requirements), and those already registered on the Overseas Entities Register (as to annual update requirements or applications for removal from the register after disposal of all relevant UK land interests).
Key changes to note are as follows:
- Registered overseas entities must provide details of all their registered UK land interests
The Act will require overseas entities to disclose the title numbers of all of their UK-registered land interests, both at the point of registration for new overseas entity registrations and on each subsequent annual update.
- Nominees/bare trusts
Where an overseas entity holds legal title to UK land on behalf of another person (regardless of the extent of their interest), that person may be deemed to be a beneficial owner and need to be disclosed as part of the initial registration and/or annual update.
- Increased information required in relation to trusts
Overseas entities already need to disclose details of the settlor or grantor of a trust. Under the new legislation, where that settlor or grantor was a legal entity, any registrable beneficial owner of that entity will also need to be disclosed as part of the trust information. The disclosure must be as of the date the trust was settled.
- Trusts and trustees to be compulsorily disclosable
If a trustee indirectly owns the overseas entity, it must be disclosed as a registrable beneficial owner (overriding the current exemption which allows for non-disclosure of a trustee where there is another registrable beneficial owner in the ownership chain between the trustee and the overseas entity).
- Private corporate trustees compulsorily disclosable
Under the Act, an overseas entity which is owned by a corporate trustee (on behalf of a trust) will need to disclose that trustee as a beneficial owner.
- Registrable beneficial owners of corporate trustees compulsorily disclosable
All corporate trustee beneficial owners will qualify as beneficial owners, even if not subject to their own disclosure requirements.
- Disclosure of changes in trustees
The Act widens current obligations to disclose changes in beneficiaries under trusts during the update period, including where a trustee has ceased to be a registrable beneficial owner during the update period.
- Disclosure of principal office, rather than registered office
To ensure conformity with updated rules under the Companies Act 2006, overseas entities and their corporate beneficial owners/managing officers will need to disclose their principal office, rather than their registered office (unless they are the same).
- Removal of registered overseas entity status
Companies House will have new powers to strip an overseas entity of its registered status. These can be employed where the overseas entity fails to comply with a notice served by Companies House requesting further information to evidence compliance with statutory obligations to deliver required information/documentation.
- Retrospective beneficial ownership disclosure
To fill existing information gaps created by the transitional provisions under ECTEA, the Act will require overseas entities to disclose, in relation to the period commencing on 28 February 2022 and ending on 31 January 2023, any changes in beneficial ownership of the overseas entity, and information about trusts, changes in beneficiaries under trusts; and changes in trusts in which beneficial owners are trustees.
Disclosure of no changes is also required, together with confirmation that reasonable steps were taken to obtain this information. With limited exceptions (including where an overseas entity applies for removal from the ROE), a three-month grace period for provision of this additional information will apply from the date the measures come into force. Overseas entities will need to deliver the required disclosures (and any further information) at their next annual update statement that falls after the three months have expired.
The new Act pursues increased transparency in overseas entity land ownership and investment through significantly enhanced reporting and disclosure requirements, particularly where trusts are involved. Annual updates falling before implementation of the Act will benefit from an additional year in which to implement the extra due diligence required to comply with the changes, but should in the meantime take steps to ensure that updates are submitted promptly, accurately and with the required verification to avoid penalties.
Government consults on increased transparency of land trust arrangements
Further changes are afoot. Transactions made using offshore corporate structures or offshore trusts in the UK property sector are widely considered to pose a higher risk of money laundering, as a trust structure may make it more difficult to identify the ultimate ownership of assets. Currently the UK's land registration records show only the legal owner of property without visibility as to who may lie behind the company or trust that owns it. In further efforts to strengthen the ownership regimes affecting land, the government is seeking to increase public visibility as to land ownership, and has launched an eight-week consultation to harness views on how best to achieve this aim. Some steps towards greater clarity in relation to trusts will be achieved through the upcoming changes under the Economic Crime and Transparency Act 2022 referred to above. However, the consultation is broad, and considers options relating to trusts which do not necessarily fall solely within the ambit of ROE entities.
It is important for overseas owners of registrable land in the United Kingdom to be mindful of their ongoing registration obligations on the Register of Overseas Entities. They should also be aware that new and extended obligations will be introduced by the Economic Crime and Corporate Transparency Act 2023. Those holding real estate via offshore corporate structures or offshore trusts should also consider future implications of the government consultation on increased transparency of land trust arrangements, and may wish to make their views known by responding to that consultation.
