A new regime is now in force with the aim of ensuring foreign owners of UK property are registered to increase transparency and prevent and combat the use by overseas entitles of UK property for money laundering purposes.
The new Register of Overseas Entities (ROE) which was introduced as part of the Economic Crime (Transparency and Enforcement) Act 2002 was launched on 1 August 2022.
The Act was fast tracked through Parliament by the UK government following Russia’s invasion of Ukraine. Anonymous foreign owners of UK property will now be required to reveal their real identities to ensure criminals cannot hide behind secretive chains of shell companies.
The ROE will include information on the beneficial owners of all overseas entities who own land in the UK, subject to very limited scope for the Secretary of State to issue exemptions in the interest of national security or to prevent serious crime.
In broad terms a registrable beneficial owner is an individual or entity who can exercise significant influence or control over the legal entity, for example, they hold 25% or more of the shares or voting rights in the entity.
Failure to register in the ROE can result in criminal liability and restrict the ability of an overseas entity to acquire or dispose of property in the UK.
The ROE is held by the Registrar of Companies for England and Wales and was introduced on 1 August 2022. It applies across the UK, although this note only considers the position in relation to Scottish property.
What is the ROE?
The ROE is a register that holds information about overseas entities which own or are the tenant under a long lease of property in Scotland, England, Wales or Northern Ireland or which will become such an owner or tenant. It also holds details of any beneficial owners of the overseas entity and, if there are no beneficial owners or their details cannot be confirmed, details of the managing officers of the overseas entity.
What is an overseas entity for ROE purposes?
An overseas entity is a legal entity (including a body corporate, partnership or other entity) which is governed by the law of a country or territory outside the UK and is a legal person in the country or territory in which it is governed.
It will include non-UK incorporated companies, limited liability partnerships, foreign foundations and non-UK partnerships which, under the laws of the country they are governed by, have a separate legal personality. This means that companies and LLPs incorporated in offshore jurisdictions such as the British Virgin Islands, Jersey, Guernsey, the Isle of Man and Republic of Ireland will potentially be caught by the Act, subject to any exemptions which will be outlined in the regulations when published. No such regulations have yet been made.
The Act does not affect overseas individuals who own or lease UK property directly or through a UK entity including limited companies. UK limited companies have been governed by the PSC (persons of significant control) regime since 2016.
The details of beneficial owners of overseas entities only require to be submitted to the ROE if the beneficial owner is a “registrable beneficial owner”.
Reasonable steps must be taken to identify registrable beneficial owners but identifying them can be a complex process.
Which Scottish property is affected?
The requirement to register in the ROE only applies if the overseas entity's ownership of the land or right as tenant under a long lease of the land i.e. a "relevant interest in land" was registered in the Land Register of Scotland on or after 8 December 2014. It is understood that this date is under consideration and may be back dated in the future.
Timescales
Transitional Period
There is a 6-month transitional period which runs from 1 August 2022 until 31 January 2023 during which certain obligations apply.
Key Dates
There are 2 key dates:
5 September 2022
Acquisitions: if an overseas entity wants to buy or take a long lease of Scottish property from 5 September 2022, it must register in the ROE in order to be able to register the title in the Land Register of Scotland.
31 January 2023
Existing owners/tenants: the deadline for existing overseas owners and tenants of a long lease of relevant Scottish property (whose title was registered in the Land Register of Scotland on or after 8 December 2014) to register in the ROE is before the end of the transitional period i.e. by 31 January 2023.
Disposals: an overseas entity which disposed of or disposes of relevant Scottish property or granted security over it between 28 February 2022 and 31 January 2023 must declare the transaction to the ROE (even if the entity no longer owns or leases relevant Scottish property) by 31 January 2023.
What information must be submitted to the ROE?
Information in relation to the overseas entity and its beneficial owners must be submitted. Details of managing officers will be required if there are no beneficial owners or their details cannot be provided.
An overseas entity must provide its name and legal form, governing law, and if applicable, the relevant public register and registered number .
Beneficial owners must provide their name, home and correspondence address, date of birth and nationality for individuals. If a beneficial owner is an entity, it must provide its name, principal office and correspondence address, legal form, governing law, and if applicable, the relevant public register and registered number.
Beneficial owners must disclose the date they became a beneficial owner and the nature of their control over the entity. If any beneficial owner is a trustee, details of the trust and past and present trustees must be provided.
Information about all beneficial owners (and the managing officers if applicable) must be verified by a UK-based agent supervised under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017.
The agent can be a wide range of people or entities including external accountants, tax advisers, financial institutions and insolvency practitioners. Importantly the agent must be acting in the course of business carried on by it in the UK.
The agent must first have obtained an agent assurance code from Companies House confirming that it has authorisation to file verification check statements for an overseas entity.
In accordance with risk management guidance from the Scottish regulator, The Law Society of Scotland, we are unable to provide verification or application services for the ROE.
How do you make a submission to the ROE?
It is the responsibility of the overseas entity to make the submission to the ROE. This is done online at Companies House after the relevant information has been gathered and checked and the verification process has been completed. The fee for registering in the ROE is £100.
Once registered, an overseas entity will be allocated a unique identifier number by Companies House which will allow it to transact with UK property.
Not only must an overseas entity register with the ROE, it also has a duty to update its details at least once in every 12-month period, even if there have been no changes to the information previously provided. There will also be a fee payable to Companies House when the ROE is updated annually.
The updating process requires the overseas entity to be re-verified. Failure to comply with the duty to update is an offence, liable to a fine on summary conviction.
Duplication between the ROE and the Register of Persons Holding a Controlled Interest in Land
Registration by an overseas entity in the Register of Persons Holding a Controlled Interest in Land (RCI) does not currently remove the requirement for it to register in the ROE. And vice versa, registration of an overseas entity in the ROE will not remove any duty on the overseas entity if it needs to register in the RCI. Although the information required for the ROE and the RCI is similar, they are separate registers held for separate purposes.
When the RCI and the ROE were initially in policy development, the view of both the Scottish government and the UK government was that double reporting should be avoided. Although the Scottish Government has expressed a desire to avoid double reporting where possible, it remains to be seen whether changes will be made to the RCI Regulations now that the ROE is operational.
Penalties for Non-Compliance
Failure to comply with certain ROE obligations will constitute a criminal offence including the overseas entity’s managing officers facing fines of up to £500 per day or a prison sentence of up to 5 years. Civil sanctions in the form of financial penalties are to be introduced and an overseas entity will also face restrictions when trying to sell or lease their land.
NOTE: This note is a high-level overview of the ROE and should not be relied upon as legal advice. For more information on how the ROE applies to Scottish property, please get in touch with your usual Lindsays contact.
Article published and accurate at 17 October 2022.
