A special Thank you to the Association of International Accountants my professional and regulatory body who have arranged a direct contact with the representatives of the HMRC and Companies House on 11 January 2023.
Members of Parliament in the UK long wished to be able to pierce through the corporate veil of an overseas legal entity and check who is the individual behind and who the property belongs to.
This vision came into the form of the Register of Overseas Entities, which came into force in the UK on 1 August 2022 through the new Economic Crime (Transparency and Enforcement) Act 2022.
This is now the law.
The HMRC states that there are 95k title deeds in the UK. 32k of such titles deeds are registered to overseas non-incorporated bodies and legal entities, 20k of such titles are registered with the legal entities from the Isle of Man, Jersey and Guernsey and the BVI.
HMRC believes that these entities represent £178bn of UK property price paid and not the market value.
Why is this required and what is the main issue for the HMRC?
The Register of Overseas Entities came into force in the UK on 1 August 2022 through the new Economic Crime (Transparency and Enforcement) Act 2022 transposes the legal requirements of the EU 5AML (Anti-money laundering directive).
Therefore, the requirement affects not only the UK, but all the EU countries even if the UK is no longer a member of the EU.
The main issue for the HMRC is that by utilising the offshore trust and legal structures it is not possible to connect the individual who is resident in the UK to the property, which is located in the UK.
Therefore, HMRC is not always able to bring various individuals, non-incorporated and legal entities to tax charge in the UK.
Overseas companies – UK tax implications
- Increased stamp duty land tax (SDLT);
- Annual tax on enveloped dwellings (ATED);
- Permanent establishments;
- Developing/dealing in land in the UK;
- Rental income;
- Transfer pricing and corporate interest restrictions;
- SDLT surcharge on residential property;
Overseas trusts – UK tax implications
- Capital gains;
- UK residential property no longer excluded;
- UK resident settlors and domicile status;
- Settled property;
- SDLT charge on dwellings.
UK residents – UK tax implications
- Transfer of assets abroad income charge;
- Transfer of assets abroad benefit charge;
- Attribution of gains;
- Attribution of trust income;
- Deemed domicile rules.
What are registration deadlines and what to do next?
Register of overseas entities requires to register with Companies House by 31 January 2023.
Companies House urges you to notify them if you are unable to register within the specified deadline.
When registering, overseas entities must provide information about registrable beneficial owners (RBOs).
Where RBOs are beneficial owners in their capacity as trustees of trust (or equivalents of similar legal arrangements), overseas entities must also provide information about the trusts e.g. settlor, beneficiaries, etc.
The Act applies to land bought:
- in England and Wales – since January 1999;
- in Scotland – since December 2014;
- in Northern Ireland – from 5 December 2022.
If this requirement is not complied with, daily fines to be levied at £2,500.
Overseas entities will not be able to buy, sell, transfer or lease land, or create a charge against the land in the UK, unless they have registered with Companies House.
After registering, the name of the overseas entity and its beneficial owners will be publicly available on Companies House website in the UK.
This is with the exception of any information relating to trusts, although trust information will be shared with HMRC.
Is this requirement legal?
The Court of Justice of the European Union in its preliminary judgment ruling in joined cases C-37/20 and C-601/20 ruled that the requirement in 5AMLD goes beyond what is strictly necessary and is disproportionate to AML objective:
The information disclosed on the register enables a potentially unlimited number of persons to find out about the material and financial situation of a beneficial owner, and that information can never be recalled from the register, said the CJEU. Making the register fully open to the public thus violates individuals’ privacy, it said, concluding that Member States must put appropriate safeguards in place to protect privacy in accordance with articles 7 and 8 of the Charter of Fundamental Rights of the European Union. These safeguards were already present in the EU Fourth Anti-Money Laundering Directive, which required national registers to be accessible only to members of the public who could show a legitimate interest, a test that still applies to trusts.
Some EU countries, in their transposition of 5AMLD, have legislated to require members of the public to register before allowing them access to the register, or have provided exemptions to public access in exceptional circumstances. These measures are not, in themselves, sufficient privacy safeguards, said the CJEU in its judgment.
The legal implications of this judgment are still being discussed in the UK. However, a number of UK law firms decided not to undertake registration requirements in the light of this ruling.
You will need to take your own legal advice on the matter on the best way to proceed, to protect your privacy and legal position in the UK.
Should you need advice on how to best comply before the registration deadline, book a call with me.
You will be first guided to a payment page when you choose “book a call” option. After making the payment, you will be able to choose the most convenient date and time for our Zoom meeting. You can report a payment issue here.
Saule Voluckyte, M.A.E.S, LL.B, FAIA
I have been working exclusively with UHNWI in Mayfair, London since January 2008. I built specialist knowledge and expertise required to serve ultra high net worth individuals investing, operating and relocating to the UK or Switzerland.
Within the industry, I am the single adviser who is able to traverse the different areas of expertise and bring a comprehensive approach across: global structuring, UK immigration, international taxation and FOREX to develop their global wealth strategy, while they build, grow and expand their wealth worldwide.
Previous experience as one of the senior advisors for the government, made me a go-to person when delicate and uncomfortable scenarios involving heads of state need to be handled with care and preserve privacy.