When the government published legislation that aimed to improve transparency over ownership of UK land property in 2022, it ignored the criticism of legal experts who had noted a loophole in the proposed rules. The House of Lords now proposes to plug this gap in the rules.
The definition of a beneficial owner for the purposes of the Register of Overseas Entities (ROI) requirements falls short of clearly defining the people who any normal person would think might be the actual beneficial owner.
Using the Person of Significant Control criteria to identify who controls any entity that is shown on the Land Register means that if you cannot identify a beneficial owner (in the usual sense) you add a Managing Officer as owner. This means that some offshore entities continue to conceal their ownership through the use of nominees.
The House of Lords suggest significant improvements to the legislation aimed at combating this problem to ensure that all offshore entities disclose their beneficial owners
The ROI rules are introduced by the Economic Crime (Transparency and Enforcement) Act 2022 (ECTE). It had a slow journey through parliament due to Brexit and COVID-19 and went through without amending the ownership loophole. It's surprising for a government which claims that it wants to fight kleptocracy, impede sanctions-busting and crack down on the proceeds of crime. The result is that the supposedly ground-breaking legislation that is designed to make the UK property register more transparent does nothing of the sort if you chose to bend the rules.
So much for the government's Economic Crime Plan.
The House of Lords has been reviewing ECTE's sister bill the Economic Corporate Crime & Transparency Bill, and has taken this as an opportunity to amend the rules. Their proposed amendments mean that where an overseas entity holds certain interests in land as a nominee for another person that person is treated as a beneficial owner for the purposes of the register of the overseas entity.
It is an offence for an entity not to report its beneficial owner, but if the beneficial owner is hidden behind a backdrop of opaque offshore trusts and other non-registerable entities it's going to be very difficult to track them down.
The government could amend the rules, it can already seize UK land and property if it suspects that it is the proceeds of crime. It could do a lot more when the beneficial owner cannot be identified.
HMRC is now starting to try and trace owners of overseas property who have not yet registered their details.
How do offshore owners bend the rules?
Broadly, if you are the owner of an offshore entity, you can avoid your details being put onto the UK's Companies House register by registering your land and buildings to an offshore managing company. The managing company then appears on the UK's Land Registry. As this entity will be owned, run and managed by its own officers, the full details fail to be reported on the registered beneficial owner. In such a case there must (of course) be a side agreement between the real beneficial owner and the managing company but unless someone admits it to the enforcers, such as HMRC or Companies House, they will have no means of finding the real owner.
The other route to hold property is through an offshore shell company, managed from abroad as its ownership flows through a series of different entities including foreign limited partnerships. Make ownership totally opaque and it becomes very difficult for the shell company managers to identify the actual owners. Again, this means that they will report themselves as the Registerable Beneficial Owner.
There are also loopholes in the Personal Of Significant Control rules but companies are required to include details of a beneficial owner on their share register and not to record the details of a nominee.
Parliament has closed for its summer holidays and the House of Lords amended version of the bill will return to the House of Commons in the Autumn. The beneficial owners of overseas entities who are still hiding behind nominees have been given a lot of time to cover their tracks. Maybe they are also good at lobbying Parliament.
Let's see what happens when this is debated again.
Useful guides to this topic
Register of Overseas Entities: Agent Guide
Registration of Overseas Entities: How to register an Overseas Entity that owns, buys or sells UK property. A detailed guide for Overseas Entities and their UK Agents.
Register of Persons with Significant Control
What is the Register of Persons with Significant Control (PSC)? Who must complete it? Who is a Person with Significant Control? What details must be included on the Register?
Trust Registration Service
What is the Trust Registration Service? What trusts does it apply to? What are the requirements and deadlines?
What's New at Companies House
What is the Economic Crime and Corporate Transparency Bill? What new reforms will apply to Companies House and Partnerships? What data needs to be supplied to Companies House in respect of accountant's clients?
External links
Economic Corporate Crime & Transparency Bill: House of Lords amendments
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