Mortgages.scot

How do you know who owns a property in the UK? Simple, just take a look at the land registry. On each register whether in Scotland, England or Wales there will be a property title detailing who owns it, any charges against it and so on.

Ok, but what if the property was purchased through a limited company or an SPV? And there is the issue. By purchasing a property this way the registered owner of the property is that company. So you can't actually tell who really owns it. That is the person or people who actually live there and likely are the true property owners.

Why is this a problem? Well, a simple example is the current war in Ukraine. Many Russian Oligarchs own property in the UK but they cannot be linked to the property, why? Because they were purchased through a company which makes it very difficult or in some cases impossible to trace the path back to a person. This is what the Register of Overseas Entities was set up to solve. Although it hasn't, yet.

Why purchase a UK property through a company?

There are a few reasons, some are perfectly legitimate and others not so much. It could be for tax reasons, not specifically tax avoidance, but also for inheritance planning and other reasons where for some their tax position is not as easy as say mine would be having lived in the UK all my life rather than living elsewhere and having assets worldwide.

There are wealthy people out there who genuinely fear for their safety. Organised crime gangs can get access to the land registry to find out who lives in a property. A random person like me is not going to be as interesting to criminals vs a celebrity or wealthy business owner who is going to have better valuables. So those people purchase a property through a company to make it a bit harder to know who is in the property.

Or as mentioned above there are those who are deliberately trying to conceal their ownership of a property to prevent it from being taken from them should government agencies identify a need to do just that.

What is the Register of Overseas Entities and how does it work?

Established on 1st August 2022 following the Russian invasion of Ukraine a law was passed that required any foreign companies buying either land or property in the UK to disclose what we generally refer to as the UBO or Ultimate Beneficial Owners of that land or property.

For those overseas entities that already owned land or property in the UK, they were given 6 months from August 2022 to get themselves on the register which gave them until the 31st of January 2023.

It should come as no surprise that this law was rushed in. There has been much confusion and different interpretations as to what information should be provided and under what circumstances. In fact, new guidance was published on the 12th of January 2023 making it difficult to meet the deadlines.

An example of the confusion

One particular area that is causing confusion is a trust set-up. For example, let's say I establish a trust for my daughter and it is operated by a UK-registered and regulated firm of Trustees. All above board. My daughter needs a home so the trustees purchase it and she resides in it. The rules suggest that the trustees must name themselves on the Register of Overseas Entities. A different register exists called the Trust Register and trustees already have to register on that. It all appears to pretty much defeat the true information they want which I think, is my daughter's name. Whilst she is only a beneficiary of the trust, is she deemed to be the UBO? She would have influence over the trustees.

It's just not clear! At least not at the moment

So, not clear, and confusing and of course, you can bet the people this register is intended to flush out are going to use all of this lack of clarity and confusion to avoid providing the right information when they do register.

I am struggling with it myself as are many advisors in trying to ensure they do the right thing. Especially when the penalty for not registering is up to 5 years in prison, for someone, not clear again who that could be.

How is it really going so far?

Not that well is the short answer. It has been suggested a significant number of offshore companies have not registered. By significant a recent review by Transparency International puts the number at 18,000. Government figures suggest that there are 32,440 offshore companies holding 100,000 titles over land and property. If those numbers are accurate then 55% are not complying after the deadline.

Why are they not registering or complying with the new law? There are several reasons but there are likely a couple that will make up the bulk of reasons.

1. They don't know they need to register.
2. They did know but chose to ignore the request.
3. They have registered but failed to actually disclose the correct information.

All overseas entities were sent letters, two of them advising they needed to register. But being overseas entities many won't have understood the request, some perhaps thought they didn't need to register. Others will have simply ignored the request.

Others that have registered did so in such a way the information provided didn't actually reveal who the beneficial owners are. Some said there are no beneficial owners whilst others simply listed another foreign company as the owner. How that will be resolved for the government to sort out. There is a lot of work for them to do in the process itself.

To be clear, many have complied and the ultimate property owners have been declared. 21,000 of the 32,440 have registered so far. Although as noted above, many have not been as transparent as they should have been.

For those that have failed to comply Companies House is said to be preparing cases for enforcement action. Time will tell whether that achieves anything.

What about registering in the future?

For those companies that purchase land or property in the future, they will be told they need to register. If those companies are purchasing land or property with loans from UK institutions there is a requirement for them to ensure the company registers.

Can you see the register?

Yes, through Companies House. Although that may change. The UK register is not the only one in existence, you will find other registers across the EU. They are referred to as Beneficial Ownership Registers. The Court of Justice of the European Union ruled that having such a registrar is reasonable and proportionate in relation to preventing money laundering and terrorist financing. But, it also states that under General Data Protection Regulation (GDPR) rules, allowing the register to be public is not acceptable.

Post Brexit does that mean the UK also need to comply? Technically no but that does not mean they will disagree with the ruling and consider it appropriate to apply the same rule here. Time will tell.

And there we have it, just a brief run-through of the Register of Overseas Entities.