Overseas entities which own property in Scotland and have failed to publicly disclose their interests are being warned that they could face unlimited financial penalties in a Government clampdown. Companies House is expected to begin action against those found in breach of their obligation to be named on the Register of Overseas Entities (ROE).
The register - aimed at preventing criminals from using UK property and land to launder money - came into force in August last year (2022).
The ROE was introduced as part of the UK Government’s response to Russia’s invasion of Ukraine, it requires overseas entities who want to buy, sell or transfer property or land in the UK to register with Companies House, declaring who their beneficial owners or managing officers are. The rules also apply to those who are mortgaging a property or granting a long lease.
Secondary legislation introduced in June this year has created powers to impose financial penalties for offences related to the ROE.
Official data shows that, of the 1,578 overseas entities which have bought Scottish property since December 2014, only 27% have registered in the ROE.
Louise Norris, a Partner in our Commercial Property team, said: “The introduction of this secondary legislation is a clear signal that officials at Companies House are preparing to investigate alleged breaches and take action, where appropriate.
“There is no cap on the level of fines which may be imposed for the offence of failing to register, but the Secretary of State for Business and Trade has indicated that the starting point for fines will depend on the estimated value of a property.
“There are three bands, starting at £10,000, then £20,000 and £50,000 respectively.
“Where the overseas entity owns more than one property, a fine will be charged to each property in its portfolio. With interest on unpaid penalties accruing at 8%, sizable penalties will quickly rack up.”
An overseas entity is not just a company. It can be a trust of partnership which has a legal personality under a foreign jurisdiction.
Entities which fail to register can face criminal and civil sanctions and will be unable to transact with their land due to the restrictions placed over it. Companies House has said it is assessing cases for enforcement action, working in partnership with law enforcement bodies. The financial penalties came into force on 21 June 2023.
Penalties can be imposed if Companies House is satisfied beyond reasonable doubt that the person/s involved have engaged in conduct amounting to an offence under the law passed last year.
Louise added: “This latest step is a timely reminder for property and landowners to ensure they have done all that they are legally required to. Any oversights could prove costly.”
Law Society of Scotland rules mean that Lindsays is unable to provide verification of application services for the ROE, but our lawyers can signpost clients to providers.
This article was published in the media on 28 July 2023.
