Land registration: as clear as day?

From April 2016, most UK companies, LLPs and certain other entities have been required to disclose the details of their beneficial ownership in a People with Significant Control register at Companies House. Since then, the government has made several announcements about introducing greater transparency into the ownership of UK real estate, partly to combat the use of land for money laundering and other criminal activities and partly on the basis that there is a legitimate public interest in visibility of land ownership. This article looks at which changes have materialised so far. Registration of overseas entities First announced in 2016, the overseas entities register is designed to extend the PSC regime to overseas entities that own land in the UK. It will affect bodies corporate, partnerships and other entities deemed to be legal persons under the law by which they are governed. It will not apply to trusts, some of which will instead be required to register with the Trust Registration Service (see below). The relevant entities will be required to provide Companies House with details of their beneficial owners. The definition of beneficial ownership will mirror the PSC regime which, in broad terms, means ownership of more than 25% of the shares or voting rights in an entity, or the ability to appoint/remove the majority of directors or otherwise exert significant control over the entity. The information held by Companies House must be updated annually and will be publicly available apart from certain personal or protected data. How will the regime be enforced? On receipt of the required information, Companies House will allocate an ID number to each compliant overseas entity. An overseas entity will, unless exempt, need to provide its ID to the Land Registry when it applies for registration as proprietor of a freehold or leasehold interest. The Land Registry will place a restriction on titles of land already owned by overseas entities so that no dispositions can be registered until that entity has complied, subject to an 18-month transitional period. When will the register go live? The government had intended to set up the register in June and in March it published an integrated review of security, defence, development and foreign policy, which confirmed that it will introduce the Registration of Overseas Entities Bill as soon as parliamentary time allows. It was therefore surprising that it was not mentioned in the Queen’s Speech in May. There is currently no information in the public domain as to likely timing or what the next steps for implementing the Bill will be. Registration of trusts Since 2017, certain express trusts (meaning trusts that have been set up deliberately rather than arising by operation of law) have had to register with the Trust Registration Service and provide information about their beneficial ownership. However, the scope of the register was significantly extended in 2020 as part of the UK’s implementation of the Fifth Anti-Money Laundering Directive, to combat money laundering, terrorist financing and other related threats to the integrity of the international financial system. Which trusts now need to register? The rules are complex but HMRC issued updated guidance in May. In broad terms, unless they fall within an exclusion (see below), the four categories of trust that must now be registered are: all UK express trusts; all non-UK express trusts that are liable to pay one or more specified UK taxes; all non-UK express trusts where one or more trustee becomes the registered proprietor of freehold or leasehold land in the UK (for instance, offshore unit trusts such as JPUTs); and all non-UK express trusts that have at least one trustee resident in the UK and enter into a “business relationship” with a regulated UK entity (such as a bank or a letting agent) of at least 12 months’ duration. A number of the exclusions are relevant to the real estate sector. Following the rationale for the change of law, many of these are excluded as they simply reflect the mechanisms that are commonly used in commercial contractual arrangements to ensure they function properly, rather than being used to hide beneficial ownership. They include the following trusts, provided they are not liable to UK tax: trusts created when professionals hold client money; trusts created in the course of providing professional services, such as acting as an escrow agent or as a trustee of an authorised unit trust scheme; charitable trusts that are registered or exempt charities; trusts arising during the registration gap, when a seller holds the legal title on trust for the buyer pending its registration as proprietor; trusts holding tenants’ service charge contributions arising under section 42 of the Landlord and Tenant Act 1987; co-ownership arrangements where the trustees and beneficiaries are the same, such as where two or more persons hold property for themselves as “tenants in common” or where spouses hold as joint tenants; and trusts created to enable or facilitate transactions effected for genuine commercial reasons where the use of the trust is incidental to the principal purpose of the transactions, such as in a syndicated loan arrangement. The sorts of real estate arrangements that may therefore require registration with the TRS include express bare trusts, nominee arrangements, and co-ownership structures where the trustees and the beneficiaries are not the same entities. There are remaining uncertainties as to exactly which mainstream commercial arrangements will be affected in practice, which will no doubt be resolved as the new rules bed in. What information must be provided to the TRS? This depends on the category of trust but, as a rule of thumb, trusts with no UK tax liabilities need to disclose less information than taxable trusts, for example they do not need to give any information about the trust assets. However, all registered trusts will need to disclose their beneficial owners’ country of residence, nationality and the nature and extent of their interests. UK trusts and non-UK trusts with at least one UK trustee and either a UK business relationship or which acquire land in the UK must now also disclose information about any third country entity in which the trustees hold a controlling interest. Who can access this data? Law enforcement agencies can already access information about a trust and its beneficial owners. The new rules will also allow HMRC to give information to third parties in specific limited circumstances in furtherance of genuine crime-combatting activities. Trustees will also be able to use the register to share their own information with their professional advisers and other regulated businesses. What are the deadlines for registration? The trusts that will be caught by the extension to the regime were originally expected to have to register by 10 March 2022. However, the updated online registration service is still in the process of being created and is expected to go live this autumn, so HMRC is likely to extend the deadline until later in 2022. After that date, trustees will generally have only 30 days from the event triggering registration (or from the date of any change to the registered information) to comply with their registration obligations. Registration of contractual controls over land In 2020 the government launched a call for evidence about its proposed new register of “contractual controls over land”, meaning conditional contracts, options and pre-emption agreements over registered land. Unlike the TRS and the register of overseas entities, this proposed register is not motivated by concerns about money-laundering or other criminal activities. Instead, the government’s stated goals are to improve local communities’ abilities to play an informed role in the development of their neighbourhoods, to encourage more companies to enter the housebuilding market, to understand the prevalence of land-banking, and to improve the development process for both planners and developers. How would the proposed register work? The proposals would involve the government collecting and publishing additional data about contractual controls, via the Land Registry, focusing on long-term conditional contracts that relate to the development of land. Enforcement would be achieved via changes to the land registration system whereby unilateral notices (and possibly also restrictions) could no longer be used to protect options, pre-emptions or contracts. Instead, they could only be protected by agreed notices once the required data had been submitted. What feedback did the consultation elicit? The main piece of feedback is that the contractual control data is too commercially sensitive to be open to the public and its publication may mean compliant developers lose their commercial edge over their competitors without any tangible benefit to the community. There were other suggestions about the scope of the proposed regime, for instance to exclude both contracts over parcels of land that fall below an agreed size threshold, and options for the grant of a lease. When will we know whether or not the new register will be implemented? The consultation closed in November 2020 and the government is analysing the feedback it received. There is no indication as to when it will report back. Forging ahead While recent parliamentary time has been dominated by Brexit, the response to the pandemic and the march towards net zero carbon, it is highly likely that the government will continue to move ahead in increasing transparency around the ownership and control of land in the UK. For overseas entities Overseas entities which own or acquire land in the UK should be aware that once the new regime is implemented, then they will need to register details of their beneficial owners or dispose of the land before the end of the transitional period. For trusts Trusts caught by the extension to the rules, which includes non-UK express trusts that acquire land in the UK, will need to consider whether they fall within a statutory exclusion. If not, they must register with the TRS and provide details of their beneficial owners by 10 March 2022 (or the new implementation date once known) or 30 days from the relevant land registration date. For developers Developers who enter into options over land which are registered at HMLR should be aware that if the contractual controls register is implemented then the details of their beneficial interests could become publicly available. They will not be able to apply for the option agreement to be designated an “exempt information document” under rule 136 of the Land Registration Rules 2003, a route which is usually available to keep private any title documents that contain prejudicial information. Emma Pereira is a partner and Sarah Quy is a knowledge counsel in the real estate team at Travers Smith LLP Picture © Pixabay/Pexels