Where are we now with the Register of Overseas Entities?
By Chris Gaunt, senior associate in Rosling King’s property team, and James Curry, associate in the firm’s finance team
The deadline for overseas entities that own registered land in the UK to disclose information about their beneficial ownership with Companies House was 31 January 2023. Failure to register on the Register of Overseas Entities (RoE) by this date means an overseas entity and its managing officers have committed a criminal offence, punishable by a fine or imprisonment. These requirements were introduced last year by the Economic Crime Transparency and Enforcement Act 2022 (ECTEA 2022).
As a reminder of the key tenets:
· An overseas entity means a legal entity that is governed by the law of a country or territory outside the UK and ‘legal entity’ means a body corporate, partnership or other entity that (in each case) is a legal person under the law by which it is governed.
· An overseas entity is within the scope of the RoE if it owns land purchased (i) in England and Wales on or after 1 January 1999; (ii) in Scotland on or after 8 December 2014; and (iii) in Northern Ireland on or after 1 August 2022.
· An overseas entity must register all qualifying estate i.e., any freehold estate in land or leasehold estate land granted for a term of more than seven years from the date of the grant.
What are the consequences for non-compliance?
A recent report suggested that as many as 18,000 overseas entities holding 52,000 properties between them remain unregistered. 1 As mentioned above, failure to register with the RoE by 31 January 2023 means these overseas entities and their managing officers have committed a criminal offence, punishable by a fine or imprisonment.
ECTEA 2022 provides that non-compliant overseas entities and their managing officers could receive fines of up to £2,500 per day, or a prison sentence of up to five years or both. Therefore, it is vital for all overseas entities to ensure that they are registered at the RoE, in order to comply with the ECTEA 2022.
Any attempt to dispose of a qualifying estate held by an unregistered overseas entity will also be treated as a criminal offence, with any completion monies being considered proceeds of crime.
The ECTEA 2022 also imposes a number of restrictions on overseas entities at the Land Registry.
An overseas entity seeking to purchase, lease or grant security over registered land in the UK will now need to have registered on the RoE before completing the acquisition or financing. It is important to
ensure that such an overseas entity does this as quickly as possible, so as to avoid any possible delays to the transaction; in particular if lenders are involved.
An overseas entity is also prohibited from transferring, granting a lease (for a term of more than 7 years) or creating a charge over its qualifying estate, unless it is registered on the RoE or if one of the narrow exemptions applies.
One exemption involves certain trusts, for example Jersey Property Unit Trusts (JPUTs) which are not treated as being Overseas Entities as they are not a separate legal entity however, they will need to register with HMRCs new Trusts Registration Service. Another example of one of the narrow exemptions is where the beneficial owner holds a written notice of exemption from the Secretary of State, and there are many more situations exemption can occur.
The inability to register land at the Land Registry, due to the restrictions mentioned above, is in addition to criminal sanctions mentioned above.
What if an overseas entity is registered?
Once registered on the RoE, overseas entities must be mindful of their reporting requirements. Each overseas entity has a duty to annually update their information at the RoE i.e., to disclose information about their beneficial ownership and/or managing officers even if there has been no change. Failure to do so could result in similar criminal sanctions as those mentioned above.
If an overseas entity fails to annually update their information on the RoE, they will be treated as an overseas entity that has not registered at all which will limit their ability to dispose of the qualifying estate at the Land Registry.
All overseas entities need to ensure that they have complied with the ECTEA 2022, to avoid the risk of criminal liability for non-compliance or prejudicing future land transactions.
If you are an overseas entity that has not yet registered on the RoE, then you must consider registering immediately. As ECTEA is still relatively new it remains to be seen how strictly the criminal sanctions and penalties will be enforced.