Is the Register of Overseas Entities Fit for Purpose?

£4billion of UK property is owned by individuals considered to be at high-risk of involvement in money laundering. After years of debate, the UK has finally taken the first steps towards tackling this with the introduction of the Register of Overseas Entities.

The Register went live on 1 August 2022, and its property-related provisions came into effect on 5 September. Its goal is to “crack down on foreign criminals using UK property to launder money” by removing the possibility for foreign owners to buy and hold UK property anonymously.

But does the Register have the teeth to achieve this goal? Or does it simply create a lot of extra work for legitimate foreign investors in UK property while leaving loopholes for the unscrupulous?

Key features of the Register of Overseas Entities

• The requirement for the Register of Overseas Entities was established by the Economic Crime (Transparency and Enforcement) Act 2022
• Companies House is responsible for maintaining the Register
• Any overseas entity buying or owning UK land must now take “reasonable steps” to identify its “registrable beneficial owners” and share this with Companies House
• Overseas entities must have an Overseas Entity ID to apply to become the registered owner or freehold or leasehold property
• Failing to comply with the requirements of the Register could constitute a criminal offence with a maximum penalty of up to 5 years imprisonment, a fine of up to £500 per day or both
• Entities that fail to register will face restrictions on selling or leasing the property they own

Who does the Register apply to, and who doesn’t it cover?

The Register applies to any overseas entity that owns or buys land in the UK. This includes any company, partnership or other legal entity governed by the law of a foreign jurisdiction.

It also applies to any individual who holds more than 25% of the shares or voting rights in such an entity. These individuals are known as ‘beneficial owners’.

There are potential exemptions from the Register. The Secretary of State at the Department for Business, Energy and Industrial Strategy can exempt a person from registering if doing so would be:

• In the interests of nation security
• In the interest of the “economic wellbeing of the UK”
• Helpful in preventing or detecting serious crime

It should be immediately obvious that there is one major limitation of the Register – it won’t apply to any individual who owns less than 25% of the shares or voting rights in a legal entity that buys or owns a property.

This raises the possibility that individuals who wish to avoid the Register could simply spread their investment across several legal entities, ensuring their interest does not pass the threshold for any individual entity. In this way, it could theoretically be possible to invest heavily in UK property entirely anonymously.

It is also unclear who might be exempted from the Register on the grounds of protecting the “economic wellbeing of the UK” (which does not appear to have been clearly defined by the government as yet). While there is no suggestion this will lead to economic crime, it does leave a degree of uncertainty about the basis for exemptions and who might benefit.

Preventing money laundering is a laudable goal, and it is to be hoped that the Register of Overseas Entities will help to achieve this (or at least make it harder). However, it does seem like there are potential loopholes to avoid the Register, such as an individual spreading their interest across several entities to stay below the threshold.

For individuals and businesses investing in UK property, the Register creates a new obligation that must be complied with. It is critical to seek expert legal guidance to ensure compliance and avoid the risk of substantial penalties.

Speak to our commercial experts about the Register of Overseas Entities

Longmores’ Company and Commercial team has strong expertise in advising overseas entities on a range of UK transactions. Our experts can guide you through the new requirement to register the beneficial ownership of UK property with Companies House, minimising your legal risk.

To discuss how we can help with the Register of Overseas Entities, please get in touch with Partner and Head of Company Commercial, Michael Budd.

Please note the contents of this article are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.