Any foreign company that already holds or wants to buy UK property will have to join a new public register of beneficial ownership information under a policy announced by former prime minister David Cameron at the Anti-Corruption Summit in London on 12 May this year.
With the Panama Papers having pushed transparency up the global agendaE, this policy should be of interest to the entire property sector.
The policy announcement follows a consultation paper, which was published by the UK Government in March. Although the government has confirmed it will be going ahead with the policy – and that it will apply to foreign companies already holding property - much of the detail is still outstanding.
Notwithstanding the current political landscape, the policy itself seems unlikely to be influenced by Brexit, having been driven by Westminster rather than Brussels. The detail and the timing of its application may, however, ultimately be driven by the desire to ensure that UK property remains an attractive investment proposition as the UK exits the EU.
If implemented as set out in the consultation, beneficial ownership information, equivalent to that recorded on the new “people with significant control” (PSC) register of UK companies, will need to be registered.
The registered information will identify the individuals who ultimately control the foreign company and state the nature of their control. Non-compliance would constitute a criminal offence, though the paper acknowledges the potential challenges of enforcement against foreign companies.
From a legal perspective, the breadth of the proposal raises a number of pertinent questions:
- What is a “foreign company”? At present “foreign company” is not defined, and therefore the proposals would apply to any non-UK registered entity, including the US and EU countries. Although there is no suggestion made in the consultation, it may be prudent to limit the application to specific jurisdictions which are generally considered to be “high risk” or commonly associated with money-laundering.
- How will information be verified? This question is particularly relevant to foreign companies incorporated in jurisdictions where levels of corporate governance and reporting are fundamentally different to that required in the UK, an example being China, recently one of the most active foreign investors in the UK property market.
- Will a value threshold be introduced? If so, this could mean that the obligation to disclose beneficial ownership would only apply on acquisitions by foreign companies in excess of a certain monetary value. At present no value threshold has been proposed meaning that beneficial ownership information would be required to be registered on all acquisitions of properties in England and Wales by foreign companies, however small.
- What about foreign companies which already own land in the UK? In March 2016, the Land Registry released data which revealed that up to 31 October 2015, more than 100,000 registered freehold and leasehold properties in England and Wales were registered to foreign companies. In light of this data, retrospective application would impose a huge administrative burden on both the Land Registry and all of the 100,000 plus existing foreign companies that already own UK property. How will this process be managed?
This announcement is the first step towards the establishment of a beneficial ownership registry for UK property and forms part of the government’s plan to implement its G20 commitment towards beneficial ownership transparency.
While we wait for details of the implementation plan to be published, the industry must prepare to engage with the government and shape the register so that it fulfils its objectives in a proportionate manner.