UK COMMERCIAL PROPERTY – CHANGES ON THE HORIZON

In the past year the UK government has pressed ahead with some significant consultation papers and changes which will in future affect beneficial owners of non-resident legal entities owning UK commercial property. In this update, Selu Mdlalose, Client Service Director at Maitland in the Isle of Man, highlights the three changes likely to be of most interest to clients.

 

UK Land Registry database of property owned by corporates now free to access

With effect from 7 November 2017 HM Land Registry made its database of property owned by domestic and foreign businesses free for the public to access. The change was part of the government’s stated aim to make land ownership and interests more transparent. Access was previously offered at a cost ranging from £2,000 to £10,000. The information available includes the company’s address, name, country of incorporation, and the price paid.

Information on property owned by private individuals, charities and trusts remains unavailable to the public for the time being.

Proposed extension of capital gains tax to non-residents of UK commercial property

In the Maitland UK Autumn 2017 Budget update we highlighted the UK government’s consultation paper proposing that non-UK residents will become subject to capital gains tax (CGT) on the disposal of UK commercial property. The government intends to publish its response to the consultation and introduce the relevant legislation during 2018. The CGT charge would take affect from April 2019, with a rebasing provision to exclude historical gains.

The government’s restated objectives were to align the tax treatment of non-UK resident owners of UK property to that of UK residents and to reduce the incentive for investors to hold UK property through offshore structures.

A new UK register of beneficial owners of overseas entities owning UK property

• Overview

In April 2017 the UK government published a consultation document containing proposals to create a publicly-accessible register to record information about the beneficial ownership of certain overseas entities owning, or wanting to buy, property in the UK.  Such a register would be a world first. At the time the government asserted that introducing the register would reduce the potential for illegal activity to take place through overseas legal entities (“OLEs”) investing in the UK property sector. 

On 18 January 2018 the government announced that it intends to publish draft laws this summer and the register will “go live” by early 2021. Once passed into law, the proposals would impose a registration requirement for OLEs that already hold or purchase UK property.

• What entities are affected?

The consultation document states that the beneficial ownership proposals will apply to “all legal entities”. As UK companies and limited liability partnerships are already required to disclose beneficial ownership information on the Persons of Significant Control (“PSC”) Register with the UK’s Companies House, the proposals will mainly affect OLEs, including offshore companies and limited liability partnerships.

• What beneficial ownership information must be registered?

The beneficial ownership information required would broadly mirror the existing requirements for the PSC Register already in place with respect to UK legal entities, to include the individual’s name, date of birth, nationality, service address and residential address.

Beneficial owners will therefore mean persons who, directly or indirectly, hold more than 25% of the shares in the company or more than 25% of the voting rights in the OLE, or hold the power to appoint or remove the majority of the board of directors or persons who otherwise have the right to exercise (or actually do exercise) significant control over the OLE.

• How are offshore trusts affected?

The position of offshore trusts which own UK property is somewhat complex. A trust is not considered a separate legal entity and would not in itself appear to meet the definition of an OLE. However, the consultation document suggests that the definition of an OLE will include a company acting as trustee. Therefore the beneficial owners of the trustee company may need to be added on the register, as may other individuals who exercise “significant influence or control” over a trust.

• How the new register is likely to work in practice

The new register would be publicly accessible and most likely be maintained by Companies House.

OLEs already holding UK real estate would have one year from the implementation date to provide the information required. Failure to comply would result in the OLE being unable to transfer property title in the event of its wishing to dispose of the property.

OLEs intending to acquire UK property would need to apply for registration at Companies House and provide information about beneficial ownership. On a successful application the OLE can acquire property. Future disposals would be restricted where the OLE had not complied with the register’s ongoing requirements. The government is considering whether to make it a criminal offence to fail to provide information to the new register or to fail to keep it up to date once provided.

• Impact on clients

Beneficial owners of UK property may be liable to have their personal information made publicly available in the UK. In addition, property transactions involving OLEs may be delayed due to the requirement to obtain or maintain an ID number from Companies House.

In conclusion, there have already been some changes, and 2018 will bring yet further changes. If you are or suspect you are beneficial owners of non-resident legal entities owning UK commercial property, it will be important to keep abreast of matters.

 

For more information, please contact

Selu Mdlalose: +44 1624 630095  /  selu.mdlalose@maitlandgroup.com

www.maitlandgroup.com

About the author: Selu Mdlalose

Selu Mdlalose