1. Who is affected by the ROE?
The Register of Overseas Entities (ROE) was launched in 2022 and requires any overseas entity which is the legal owner of a UK property interest to report details of its “registrable beneficial owners” to Companies House.
This article considers the position for nominees and further articles will be published this month considering the position for trusts (more specifically trusts which are not bare trust or nominee arrangements) and corporate beneficial owners.
2. What is a “registrable beneficial owner”?
The ROE legislation requires any overseas entity which is in scope (as a result of owning a relevant UK property interest) to analyse its beneficial ownership and provide information to Companies House in relation to its registrable beneficial owners.
In short, beneficial owners of the overseas entity are persons who meet any of the following tests:
- hold directly or indirectly more than 25% of the shares of the entity; or
- hold directly or indirectly more than 25% of the voting rights of the entity; or
- hold directly or indirectly the right to appoint or remove a majority of directors of the entity; or
- have the right to exercise or actually exercise significant influence or control over the entity; or
- have the right to exercise or actually exercise significant influence or control over an entity which is not a legal person under the law of that jurisdiction (for example a trust, partnership or unincorporated association) which meets any of the tests above.
Not all beneficial owners will be registrable beneficial owners though. A registrable beneficial owner is a beneficial owner who is also either:
- (i) an individual;
- (ii) a legal entity which is subject to its own disclosure requirements; or
- (iii) a government or public authority.
A legal entity is broadly “subject to its own disclosure requirements” if:
- (i) the entity reports details of its beneficial ownership at Companies House via the persons with significant control (PSC) register. This would apply, for instance, to UK companies;
- (ii) the entity is itself caught by the ROE and so reports details of is registrable beneficial owners at Companies House;
- (iii) the entity has voting shares admitted to trading on a regulated market in the UK, EU, the EEA or one of a number of other markets specified in regulations; or
- (iv) the entity provides trust services and the provision of trust services is regulated in that country or territory by a supervisory authority.
The position relating to trust services is due to change and this will be considered further in our second article considering the ROE and Trusts.
If there is a beneficial owner in the ownership structure which does not meet the test to be a registrable beneficial owner then broadly speaking it’s necessary to continue looking up the ownership chain to consider whether anyone higher up the ownership chain meets the test.
3. Where is the nominee?
Firstly, it is worth clarifying that for the purposes of this article nominee is being used as a synonym for a bare trust. The important feature of this type of relationship is that someone is holding property on behalf of someone else absolutely. The legal owner of the property (who is holding the property for the beneficial owner) has no discretion as to how to deal with the property and merely acts at the direction of the beneficial owner/s (as their nominee).
There appear to be two main options for where a nominee may exist in this type of structure.
Either (1) there may be a nominee arrangement higher up the ownership structure (for instance, the shares in the overseas entity itself may be held as nominee) or (2) the overseas entity which is the legal owner of the UK property interest may be acting as nominee.
3.1 Nominee in the ownership of the overseas entity
The ROE legislation is very clear on the first position. “A share held by a person as nominee for another is to be treated … as held by the other (and not by the nominee)”. As a result, where the ownership of the overseas entity includes a nominee arrangement this is simply looked through and the beneficial owner is treated as the owner for the purposes of determining who the registrable beneficial owner is.
As a result, the fifth beneficial ownership test set out above is not relevant here as no trust arrangement is treated as existing.
3.2 Overseas entity acting as nominee
If the overseas entity itself is acting as a nominee then in certain instances the legislation as currently drafted does not result in any reporting of the beneficial owner/s of the property (as distinct from the beneficial ownership of the entity).
Suppose that an overseas company (the Nominee Company) owns five UK properties under five separate nominee agreements for five unconnected individuals (the Beneficial Owners).
The shares in the Nominee Company are 100% owned by another individual who is unconnected to the Beneficial Owners (Person X) and Person X is also the director of the Nominee Company.
The only beneficial ownership information that currently needs to be reported on the ROE in relation to the Nominee Company seems to be information in relation to Person X and not any of the Beneficial Owners. The Beneficial Owners are the beneficial owners of the five properties, but not of the Nominee Company.
Where an overseas company holds property as nominee for one person then there appears to be a strong argument that the beneficial owner under that nominee arrangement meets the “significant influence and control” test for beneficial ownership. It seems likely that they meet condition 4 as they have the right to exercise or actually exercise significant influence or control over the entity given that the beneficial owner can direct the entity in relation to how it uses its sole asset. However, where an overseas entity is nominee of multiple properties for different people then this conclusion seems more difficult to reach.
We commented on this position when the legislation was first published in March 2022 and noted that it would not be surprising if further amendments were made in due course to address this shortcoming and allow for reporting of beneficial ownership of the property itself. Now those amendments have been made and will be coming into force shortly.
4. What is changing?
The Economic Crime and Corporate Transparency Act 2023 was enacted on October 26, 2023. This will bring in some important changes to the ROE when the relevant provisions come into force. All of the changes require secondary legislation to bring them into force and so they are not in force yet. However, the government has stated that these changes in relation to nominees will come into effect in 2024.
The key change where nominees are concerned is the introduction of an additional beneficial ownership test whereby a person is also treated as a beneficial owner of an overseas entity if the overseas entity holds a property interest for that person or any entity of which that person is a beneficial owner.
Once this new legislation comes into force it will result in a fundamental change to the reporting requirements for overseas entities that are nominees. In the example included in section 3.2 above there will be a requirement for reporting to be undertaken for all five individual Beneficial Owners in addition to Person X.
What should be done now?
As mentioned, the precise date from which this change will come into effect is not known, but the government have confirmed that it will be in 2024.
The first update for most overseas entities was due January 31, 2024 and so it’s now unlikely that this will come into force ahead of the 2024 update. As a result (because ROE reporting is completed annually) for most overseas entities this is likely to be relevant for next year’s ROE update reporting and for future years.
However, the impact should be considered ahead of then and the consequences of this change should be discussed with the person (or persons) for whom the land is held as nominee.
More detail on the specifics of the ROE can be found in the March 2022 article: The Overseas Entities Register for UK Property: What you should know.
Ronnie Myers is a director in the private client team, specialising in the provision of tax advice to high net worth and ultra-high net worth international individuals, financial institutions and international trust companies, Burges Salmon.
