Economic Crime and Corporate Transparency Act: changes to the register of overseas entities

On 4 March 2024, certain provisions of the UK's new Economic Crime and Corporate Transparency Act 2023 ('ECCTA') came into force arming Companies House with powers to (among other things) take action on improving the accuracy of the information it holds and to bear down on economic crime. 

In particular, ECCTA has brought in key changes to the UK's register of overseas entities ('ROE') regime, which are relevant to those who hold properties through any corporate or trust structure involving overseas entities.

These are the most significant updates to the ROE regime since its inception and we explore some of the more material updates below. 

Background

The ROE regime was brought in on an accelerated basis following Russia's invasion of Ukraine. It was designed to create a register of all overseas entities which hold interests in UK real estate.  Those entities caught by the ROE regime must register and disclose publicly who has control over them. 

Nominees

The ROE regime aims to reveal the connections between individuals and UK real estate held for them through overseas entities (historically, holding UK real estate through overseas entities could prevent any connection being made between the owner and the asset).   

The ROE does this through a number of tests which are meant to establish who is a 'registrable beneficial owner' (or 'RBO').

Of course, an individual who controls an overseas entity is not necessarily the same as the individual who actually enjoys or uses the real estate.  The purpose of the new rule relating to nominees is to (in part) plug this gap.

Under this new rule, if an overseas entity holds UK property as nominee for another person, or an entity which that other person controls, then that other person will be an 'RBO' and their connection to the UK property should be publicly disclosed.

Trusts

Under the ROE regime, trustees who are RBOs of overseas entities must deliver to the registrar information about their trusts.  That information is not currently published on the public register but is shared with government bodies.

Due to a gap in the rules (concerning what types of entity are capable of being registrable beneficial owners), certain trustees fell outside the scope of the requirement to disclose trust information. Under ECCTA this gap has now been closed, so that all trustees at any level within an ownership structure of overseas entities holding UK real estate are required to file the relevant trust information. 

New retrospective rule for 'transitional' cases

A significant and controversial aspect of ECCTA's changes to the ROE regime is the proposed introduction of a new disclosure rule with retrospective effect.

Once this rule comes in (on a date yet to be confirmed), overseas entities will need to disclose to the registrar all persons who became or ceased to be their RBOs (along with other classes of persons) between 28 February 2022 (when the ROE legislation was published) and 31 January 2023 (the deadline for registration on the ROE) – this being the 'relevant period'.

The legislature's objective is to retrospectively obtain the details of those individuals who were not disclosed because of a reorganisation which took place during that 'relevant period'. 

The ROE regime had already contained a provision (the 'anti-forestalling rule') preventing overseas entities from dodging the ROE by offloading UK real estate after the publication of the legislation – those that did this still had to disclose information to the registrar.  

However, this new rule for 'transitional cases' goes much further by requiring overseas entities to submit statements confirming that there were no relevant changes to who should have appeared on the ROE during the relevant period.

The change means that holding structures of UK property that include overseas entities and which have undergone a restructuring during the relevant period should review the basis on which those reorganisations were made and take advice as to additional disclosures which should now be made.

Material currently unavailable for public inspection

Under the ROE regime information about trusts is not publicly disclosable.  However, under a potentially significant new provision, the Government has the power to create regulations under which applications to the registrar may be made for the provision of this protected information.

It remains to be seen on what ground such an application could be made (i.e. would this mirror provisions around the 'legitimate interest' test which applies in respect of the Trust Registration Service (TRS) or will it be broader in scope).

Removal of overseas entities from the register

Companies House has also recently (17 April 2024) set out guidance on how under ECCTA an overseas entity can be removed from the ROE where it is no longer the owner of UK real estate. Importantly, the guidance makes clear that information will continue to remain public after it has been removed from the ROE (for at least two years).

Other changes

There are a number of changes which have been made or may be made to the ROE by ECCTA and we have highlighted just a few of the key updates in this article.

If you own or advise an overseas entity which holds, has held or plans to hold UK real estate and would like to understand the rules and the entity's and its officers' obligations under them, please get in touch.