UK: Register of Overseas Entities Legislation Reforms Reporting Requirements

There are severe sanctions for non-compliance under the ROE, including criminal and civil penalties. Furthermore, OEs will not be able to deal with a qualifying estate unless registered on the ROE and registration of legal title to a newly acquired qualifying estate will require registration on the ROE first.

Under ECA, RBOs include individuals, entities or government bodies that meet at least one of the following conditions:

1. They hold, directly or indirectly, more than 25 per cent of the shares in the OE.
2. They hold, directly or indirectly, more than 25 per cent of the voting rights in the OE.
3. They hold the right, directly or indirectly, to appoint or remove a majority of the board of directors of the OE.
4. They hold the right to exercise, or actually exercise, “significant influence or control” over the OE.
5. They hold the right to exercise, or actually exercise, “significant influence or control” over the activities of a trust, partnership, unincorporated association, or entity that is not a legal person, where the trustees of a trust, or the partnership members, unincorporated association or other entity meet any of the conditions specified above.  

Due to the term “indirectly”, in most cases where registrable land is held through a chain of companies, the OE is required to work up through the structure and determine its ultimate beneficial owners.

The 2023 Act

In October 2023, the Economic Crime and Corporate Transparency Act 2023 (the 2023 Act) received Royal Assent. This represents a significant reform of the reporting requirements for ROE, notably for entities with connections to trusts. Subsequently, the Economic Crime and Corporate Transparency Act 2023 (Commencement No. 2 and Transitional Provision) Regulations 2024 has brought into force a number of the changes made under the 2023 Act. The key changes effected by the 2023 Act include those summarised below, many of which, including the significant changes regarding trustees and nominees noted below, came into force on 4 March 2024.

Nominees: Additional Condition For Registrable Beneficial Owners

Under the ECA, where an OE held land in a nominee capacity, it was necessary to provide details regarding the beneficial owners of the entity, but not the land itself. This perceived lacuna has been remedied under the 2023 Act through the insertion of a sixth condition for beneficial ownership. The sixth condition has two parts:

1. The first part provides that a person will qualify as a beneficial owner of an OE where the entity holds a qualifying estate as nominee for that person.
2. Under the second part, where a qualifying estate is held by an OE as nominee for another entity, a person who is a beneficial owner of that other entity under any of the above noted five beneficial ownership conditions will qualify as a beneficial owner in relation to the OE.

Notably, there is no de minimis for part a). No matter how small the individual’s direct beneficial interest in UK land held by an OE under the nominee arrangement, that individual will be an RBO in relation to the UK land.

There is no definition of 'nominee' in the legislation but it is understood that to hold UK land as a nominee requires holding the land on bare trust, and that for a person to be a beneficial owner of UK land that is held in a nominee capacity, that person must be beneficially entitled to all or an identifiable share of the land.

Surprisingly, although the 2023 Act includes a new requirement for an OE to provide relevant title numbers to the UK land it holds, it is not required to relate these to RBOs. As a result, where the sixth condition is in point and the OE holds more than one piece of UK land, it is not clear how anyone reviewing the ROE can ascertain which parcel of land is held for which beneficial owners.

Corporate Trustees As RBOs

Under the ECA, a beneficial owner of an OE (which is a legal entity) could only qualify as an RBO if it was “subject to its own disclosure requirements” (SODR). The definition of SODR was detailed, and  extended to capture most non-UK corporate trustees, as long as they were, broadly, subject to regulatory oversight.

The 2023 Act removes this extension and disapplies the SODR requirement for legal entities which are beneficial owners by virtue of being a trustee. In practice, this means certain corporate trustees which were outside the SODR definition (because they are not subject to regulatory oversight) will now be capable of qualifying as RBOs, triggering the requirement to provide trust information.

Furthermore, under the ECA, a beneficial owner that was an individual or legal entity may be exempt from being registered on the basis that it holds its interest in the OE indirectly, through a legal entity which was SODR. As a result, information about the individual or entity would not need to be provided for inclusion on the ROE. However, under the 2023 Act this exemption from registration no longer applies to persons who are beneficial owners by virtue of being a trustee. Coupled with the changes affecting corporate trustees noted above, beneficial owners who are trustees will now qualify as RBOs regardless of where they are placed in the ownership chain. This change is likely to have significant implications for trustees of purpose trusts which own private trust companies.

Public Access To Trust Information

Under the ECA, where a person is an RBO in a trustee capacity, there is generally a requirement to provide information about the trust, but such information cannot be inspected by the public. The 2023 Act now gives the Government power to allow applications for access to trust information held on the ROE.

The nature of this application process is yet to be confirmed. The UK government’s recent consultation briefing on the “Transparency of land ownership involving trusts” (para 69-71)[i] indicated it intends that the new regulations will allow applications in respect of a specific trust without an applicant having to provide evidence that there is a legitimate interest in the information being released. However, all applicants would need to explain how they intend to use the information, and Companies House may place restrictions on how the information may be used. In contrast, where an applicant wishes to request access to information about more than one trust, they will be required to provide evidence that they have a legitimate interest in the information being requested. It is anticipated that the test for “legitimate interest” may align with that already used for access to trust information under the UK’s trust registration service (which has a high bar), but the details are yet to be confirmed.

Requirement To Report Changes In Transitional Period

Under the 2023 Act, further reporting requirements have been added for OEs which needed to register by the original 31 January 2023 deadline. Apart from where a qualifying estate was disposed of prior to the deadline, under the ECA an OE was not required to disclose any changes in beneficial ownership that occurred prior to the application. Therefore, any restructuring that occurred in advance of the original deadline was outside the scope of the reporting. Now, under the 2023 Act, such OEs will be required to provide details of any persons who became or ceased to be RBOs between 28 February 2022 and 31 January 2023. Where any person was an RBO of an OE by virtue of being a trustee, the entity must provide the required information in respect of the relevant trust.

The 2023 Act also requires that where a statement has been made to the effect that a person who ceased to be a RBO was a trustee, details must be provided in relation to any person who became or ceased to be a beneficiary during the trustee's tenure.

OEs and their trustee beneficial owners should take advice on the implications of these new requirements as non-compliance may result in severe criminal and civil penalties.

Changes In Beneficial Ownership

Instead of providing a snapshot of the position as at the annual update, it will be necessary to disclose changes in beneficiaries of trusts that have occurred during the relevant annual update period.

Principal Office Address

OEs and corporate beneficial owners and managing officers will need to use their principal office address on the ROE rather than their registered office.

What Next?

When OEs come to file their next update statement, it is likely that in many cases, the information held on the register will no longer be correct under the new rules. OEs will need to provide details of changes to the information reported, even if the ownership structure has not changed and verification of such new details will be required. It is an offence by the OE and every officer in default, to fail to comply with the updating duty and false filing under the ROE legislation. Individuals may be liable to a fine and imprisonment. Furthermore, the OE ID will become invalid, so that the OE cannot deal with the land until it complies. As always, it is crucial that professional advice is taken to ensure compliance is accurate and timely. 

[i] Transparency of land ownership involving trusts - GOV.UK (www.gov.uk)

Matthew Radcliffe TEP
Matthew provides advice to offshore, onshore and multi-jurisdictional individuals, families, trustees and beneficiaries regarding taxation, trust and estate planning matters. He is familiar with devising and coordinating tax and estate planning across a number of jurisdictions and in particular specialises in tax and estate planning where there are US, UK and Canada cross-border issues. He also has expertise in advising on the UK tax treatment of foreign entities including foundations and trusts and UK residential property holding structures.