Overseas Entities Bill – Registration of Overseas Beneficial Owners
It was announced in May 2016 that the UK government intended to introduce a publicly accessible register of beneficial ownership of all overseas entitles which own property in the UK to increase the transparency of information about who owns land in the United Kingdom. In turn, the Department for Business, Energy and Industrial Strategy (BEIS) published a response setting out how the government planned to implement the new register.
The Registration of Overseas Entities Bill (the Bill) was subsequently published in July 2018 with parliament appointing a committee to consider the bill and suggest amendments. The parliamentary committee published a report setting out its recommendations in May 2019 (the Report).
Amongst other recommendations, the Report highlighted concerns that:-
- As the definition of "overseas entities" under the Bill does not cover trusts, there is a risk they could be established as a structure to conceal property ownership. The Report requested that clarification be provided as to what arrangements would be put in place for trusts which hold UK land. In order to mitigate this risk, the Report recommended that the Fifth EU Anti-Money Laundering Directive, which is intended to expand the trusts beneficial ownership register held by HMRC, should be implemented at the same time as the bill to ensure "that trusts do no slip into any gaps between the two frameworks".
- A 25% ownership and voting threshold for the definition of beneficial ownership could undermine the Bill's aim to capture the true beneficial ownership of overseas entities as individuals could use multiple companies which each owned less than 25% of the beneficial ownership to avoid disclosure.
- The requirement for annual updating of beneficial ownership information only provides a "snapshot" of the beneficial ownership on the update date meaning that any changes throughout the year would not be caught. It was suggested that overseas entities update the register before any disposition is made to "capture information at the point of transaction, where any potential money laundering might occur".
The BEIS has now published its response to the Report dismissing points 1 and 2 above on the basis that:-
- In accordance with the 2017 National Risk Assessment of money laundering and terrorist financing it considers that "the risk of criminals exploiting UK trusts to launder money is assessed to be low" and that "any overseas entity holding land on behalf of a trust will be required to register with Companies House, even though the trust itself will not". Furthermore, a trust that generates a UK tax consequence is required to be registered with the Trust Registration Service (TRS), which captures full beneficial ownership information of the trustees, settlors, beneficiaries and other beneficial owners of the trust, and it is not the government's intention that a trust should be required to register twice under both systems.
- The 25% ownership threshold is in line with global norms and the Government will keep these thresholds under review.
However, the Government did agree that it was important to keep the register as accurate as possible at the point dispositions take place and will give further consideration as to how best to achieve this aim.
We consider the stance taken by the BEIS in its response to be a sensible one in the circumstances and in particular, agree that the exclusion of trusts from the Bill should not be seen as problematic.