The Economic Crime (Transparency and Enforcement) Act 2022 – The Register of Overseas Entities
On 15 March 2022, the Economic Crime (Transparency and Enforcement) Act 2022 (“Act”) was enacted by the Government in an attempt to tackle "illicit finance" in the UK property market and, in part, as a response to the Russian invasion of Ukraine.
The Act covers three separate areas:
- It establishes a register for overseas entities who own, or wish to acquire, land in the UK (Part 1).
- It makes additional provisions about Unexplained Wealth Orders ("UWOs") (Part 2).
- It makes additional provisions about sanctions (Part 3).
Whilst the Act applies across the UK, certain provisions are applied differently between England and Wales, Scotland and Northern Ireland, with some parts of the Act still to come into force. This article will focus on Part 1 of the Act and its application in Northern Ireland and England and Wales.
The Register of Overseas Entities
Part 1 of the Act sets up a register of overseas entities (“Register”), which will be held by Companies House with support from the UK’s Land Registries.
In brief, the Act applies to “overseas entities” that are registered as the proprietor of a “relevant interest” in land in the UK. The Register will include information about the “beneficial owners” of those entities, in a similar fashion to the Persons of Significant Control (PSC) regime at Companies House.
- An "overseas entity" is defined as a legal entity that is governed by the law of a country or territory outside the United Kingdom, including a body corporate, partnership or other entity that is a legal person under the law by which it is governed.
- A “beneficial owner” of an overseas entity is generally defined as someone who owns more than 25% of the shares or voting rights, the right to appoint or remove directors or otherwise exerts significant control over that entity.
- A “relevant interest” in land is defined as follows:
- In Northern Ireland, an overseas entity has a relevant interest in land if it is the (registered) owner of a freehold estate in land, the tenant under a lease for more than 21 years or it took an assignment of a lease and the relevant disposition, lease or assignment was registered in the Land Registry of Northern Ireland on or after the date when those parts of the Act come into force.
- In England and Wales, an overseas entity has a relevant interest in land if it (i) is the registered owner of a freehold estate in land or the tenant under a lease granted for a term of seven years or more and (ii) became so registered in pursuance of an application made on or after 1 January 1999.
- In both jurisdictions, the relevant interest threshold mirrors the registration requirements at the respective Land Registries, thus without registering the relevant interest the owner will not be able to acquire legal title to the land which will mean that they cannot sell it, lease it or use it as security on a loan.
Companies and LLPs incorporated in the Republic of Ireland and, potentially, in offshore jurisdictions such as Jersey, Guernsey and the Isle of Man will be caught by the Act, subject to any exemptions which will be outlined in regulations when published.
Anonymous foreign owners of property in the UK will be required to reveal their true identities, bringing the rules for foreign property owners in line with those for property owned by UK companies. Property owning overseas entities will be required to reveal who their “beneficial owners” are and this information will have to be verified by Companies House.
In Northern Ireland, any application to the Overseas Register will require either a statement that the overseas entity has not made a “relevant disposition” of the relevant interest since 28 February 2022 or details of any disposition which it has made since that date. This therefore prevents overseas entities circumventing the registration regime prior to it coming into force. A “relevant disposition” will capture a transfer, a grant of a lease of seven years or more and the grant of security.
In England and Wales, where an overseas entity acquires a relevant interest following the date that the act comes into force, the relevant interest will have to be registered on the Register before the entity can lodge its application to register the relevant disposition at the Land Registry. The Land Registry will place a formal restriction on the title of both newly acquired registered land and any land owned by an overseas entity since 1 January 1999 preventing the registration of any relevant disposition. The Register needs to be updated annually. Failure to register (or submitting false information) is a criminal offence (with each officer of an entity in default held to have committed an offence) and also prevents the entity from being able to buy or sell (or mortgage) UK property in future.
The criminal penalties for non-compliance are severe, including daily fines whilst the entity remains in default, and/or up to five years' imprisonment, depending on the type and scale of the offence. Companies House will also have the power to impose fines and HM Revenue and Customs will be able to inform Companies House about non-complying entities.
While certain provisions of the Act are yet to come into force (e.g., the registration requirements) this could be imminent. Overseas entities will be given an initial six months from the date the Act comes into force to register their beneficial owners. Non-UK entities that are caught by the Act should therefore take steps now to review their UK property portfolios and ensure that they are ready to comply with the registration requirements when they come into force.
Companies looking to sell assets to an “overseas entity” will also need to ensure the buyer has complied with the Act, or the transfer may not be capable of registration. Likewise lenders will need to ensure that borrowers are complying with the registration requirements in order to ensure that the charge can be registered correctly at the Land Registry. Extra due diligence will be required and in certain circumstances it may be appropriate to include contractual obligations to register and update the Register. Individuals who own their UK real estate through an “overseas entity” to safeguard their privacy will also need to consider the Act’s implications
This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.