How the Government’s latest Bill aims to tackle overseas corruption

By Andy Noton, Partner
andrewnoton@lubbockfine.co.uk
020 7490 7766

Plugging legal and political loopholes that had allowed foreign agencies to syphon millions of illicit pounds through the UK property market has long been a goal of governments. This is now becoming a reality, with the publication last month of the first draft bill for the “Registration of Overseas Entities”.

Staying one step ahead of criminals

The Bill marks a watershed in the fight against global corruption, proposing tighter controls, greater oversight and harsher penalties, in a bid to staunch the flow of illegal funds coming into the UK. The lack of transparency, particularly when it comes to the question of who actually owns land in the UK when it’s registered to an overseas entity, has been a real issue. Current legislation requires foreign investors simply to declare their name and territory of incorporation when making a purchase. This has allowed corruption to thrive with questionable individuals posing as legitimate investors, buying property in the UK using illicit funds. Under new rules proposed by the Bill, any overseas entity that wishes to own, let, or dispose of land in the UK will first have to identify their beneficial owners and register this information with Companies House. Any failure to do so will be met with stiff penalties, including substantial fines and, in extreme cases, a custodial sentence.

The Nuts and Bolts

The new proposals will have huge implications for the UK property market, with accountants for property investors in high demand. But who exactly is going to be affected by this landmark Bill? For a clearer insight, it’s worth examining one or two of the Bill’s key features, starting with some of the more pertinent legal definitions.

• The Bill defines an overseas entity as: “a legal entity that is governed by the law of a country or territory outside the UK.” This includes corporations, partnerships and individuals.

A beneficial owner of an overseas entity is defined as any person or other legal entity that:

• Holds more than 25% of the shares in the overseas entity, either directly or indirectly.
• Holds more than 25% of the voting rights.
• Has the right to appoint or remove a majority of the board of directors.
• Or, has the ability to exercise significant influence or control over the overseas entity.

If you’re an international property investor with interests in the UK, it’s worth doing your homework. Property law can be a minefield, and, with severe penalties for non-compliance so appointing a specialist accountant for property investors should be at the very top of your list.

The public register

A new public register will be introduced and any foreign agency wishing to invest in the UK property market will have to sign up. Here are a few stipulations outlined in the Bill:

• Any overseas entities seeking to acquire UK real estate must first register their beneficial ownership information with Companies House.
• If an overseas entity already owns property in the UK, they will have to register and update their beneficial ownership information before undertaking any transactions, such as selling or leasing real estate.
• Once registered, an overseas entity will be required to update their information on a yearly basis.
• If an overseas entity fails to register with Companies House or comply with the updating duty, they will be unable to buy, sell or lease land in the UK, and may be subject to legal sanctions.
• The register will be held at Companies House, and, minus some of the more sensitive information, will be made available to the general public. 

If you’re an overseas investor, and you’re worried about falling foul of the new regulations, don’t panic. There is no date yet for the Bill to be enshrined in law, with conservative estimates putting the date as late as 2021. So there’s plenty of time to get your ducks in a row. Seeking sound financial and legal advice is key to making sure you’re compliant, so it’s worth consulting the professionals, such as property tax specialists and property lawyers.

Financial Futures

While this new Bill is still very much in its infancy, observers think it could be a real game-changer, putting an end to illicit overseas investment by criminal gangs.

Please feel free to contact Lubbock Fine partner, Andrew Noton at andrewnoton@lubbockfine.co.uk or on 020 7490 7766 to explore this area in more detail.