UK companies and LLPs are subject to rules which require them to identify and publicly record the identities of the individuals who own or control the legal entity on a "register of people with significant control" (a "PSC register").
The rules are aimed at achieving transparency of the individuals who control companies and who previously may have been hidden behind opaque corporate or trust structures. Non-compliance is a criminal offence.
A person with significant influence or control of a company (a "PSC") is an individual who meets one or more of the following conditions:
- holds, directly or indirectly, more than 25% of the shares;
- holds, directly or indirectly, more than 25% of the voting rights;
- holds, directly or indirectly, the right to appoint or remove the majority of the board;
- has the right to exercise, or actually exercises, significant influence or control; or
- holds the right to exercise, or actually exercises, significant influence or control over a trust or firm which would satisfy one of the first four conditions if it were an individual.
To date foreign investors have not been troubled by these rules but the government is casting its net wider and intends to extend these rules to overseas companies (and other legal entities) that own or buy UK property.
The main proposals are as follows:
- The new overseas PSC register will be held by Companies House and will be publicly accessible for free. On registration, and following the supply of the relevant information, an overseas company will be given a registration number. The current proposal is that the information will have to be updated once every two years and entities will need to include details of the all the changes since the last update.
- The regime will apply to overseas companies who have owned or acquired registered freehold properties and leases for more than 21 years.
- Companies incorporated in countries with equivalent domestic disclosure requirements to those under the proposed new regime will be exempt.
- An overseas company that already owns UK registered property will have one year to comply when the regime comes in. After that time, it will not be able to sell, or otherwise deal with the property until it has complied (by virtue of a restriction that will be placed on the title register). The government is also considering whether to make it a criminal offence for those overseas companies that have not complied with the regime after one year.
- An overseas company proposing to buy a UK property will not be able to register title without providing its Companies House registration number. Following registration, a restriction will be entered on the title register preventing a sale or grant of a long lease or mortgage where the owner is not compliant with the regime.
- Lenders may have difficulty enforcing security if they cannot exercise their power of sale because of the restriction on the registered title of a non-compliant overseas entity.
- To prevent beneficial ownership passing to an overseas company on completion of a transfer prior to registration (where the company has not complied with the regime), one option being considered is to void the transfer.
We expect draft secondary legislation which will implement these rules will be published in the summer and the register will go live by 2021. A key message for the draftsperson is that a disproportionate compliance burden may discourage foreign investment and a balance should therefore be struck.
The proposal to "void" a transfer made by a non-compliant overseas entity could have serious legal and practical consequences. We understand that the government has been persuaded to drop this measure but we cannot be convinced of this until we see the draft regulations.
Therefore it would be advisable for overseas real estate funds and joint venture entities to consider beginning preparation for the implementation of these new rules by identifying the relevant persons of significant control or influence as this may be quite time-consuming in light of the complexity of some holding structures.
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