The UK Government has confirmed the introduction of a new public Register of UK property ownership identifying the ultimate beneficial owners of UK owned real estate. There will be a consultation in the summer of 2018, but the register is expected to be effective in 2021.
The UK Property Register (Register) will apply to:
- any freehold and leasehold interest (of registrable duration having more than 7 years of term left to run) in UK property; and
- all legal forms that can hold property.
The latter will include all companies. It is expected that express trusts will be excluded due to the disclosure requirements of the UK Trust Register. However, it is unclear if unit trusts will be subject to the Register as HMRC has indicated that unit trusts (wherever domiciled) are not "express trusts" for the purposes of the UK Trust Register.
The Register will require beneficial owners of the UK property to be disclosed. It is anticipated that this will include their names, date of birth, nationality, address and country of residence. The parameters for disclosure are likely to be any individual with a greater than 25% interest in a legal entity holding UK property or with the right to exercise significant influence or control. Failure to disclose, and update, relevant information will likely be a criminal offence.
Legal entities will be required to be registered with the Register in order to make the disclosure of beneficial ownership information. Failure to do so will likely be a criminal offence. It is anticipated that a legal entity's registration number will be required by HMRC Land Registry to ensure legal title in the UK property transfers. Hence without a registration number, and related disclosure, it will not be possible for a legal entity to purchase the legal title of UK property. This is something lenders to offshore entities, securing against the UK property, should be conscious of.
Purpose of the Register
The UK Government has an agenda of public transparency in the fight against anti-money laundering and terrorist financing. This includes discouraging the use of "offshore" structures (the term offshore being applied to any entity outside of the UK) owning UK real estate. Hence, publically identifying ultimate beneficial owners of UK property is intended to deter money laundering and terrorist financing by the acquisition and sale of UK property. However, it is also about providing the UK government with greater transparency on overseas companies seeking public contracts and deterring legal tax avoidance, permitted by the UK Government and despite the range of changes to UK tax legislation since 2013.
Hence, it is intended that the Register will be open to the public but subject to an "exceptional circumstances" test (originally introduced as part of the EU's 4th Anti-Money Laundering Directive) where disclosing beneficial ownership information would expose the beneficial owner to risk of fraud, kidnapping, violence or intimidation. However, the burden of proof is upon the beneficial owner to prove they come within the exceptional circumstances and, in most cases, the risk may likely be theoretical until it actually happens.
Given the UK Government's agenda of transparency, and focus on UK property ownership, particularly in London, it is anticipated that the Register will come into effect as expected. Therefore, corporate administrative providers may wish to start reviewing their records to assess which clients will be affected and discuss what actions beneficial owners wish to take; which might include disinvestment of such property.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.