Nick Lindsay, a solicitor and director of Elemental CoSec, a UK-regulated agent who are providing verification services for the register of overseas entities, writes that for individuals engaged in UK property transactions, the 5th September may be a critical deadline.
After this date overseas entities will not be able to complete the registration of land in the UK without a new government supplied ID, called the overseas entity ID. Organisations and individuals who may be affected should act now because obtaining one is not always straightforward. For overseas entities that currently own land in the UK, there is a more significant deadline early in the new year.
The UK government launched the Register of Overseas Entities on 1 August. We are now well in to a five-week period where those who currently have deals in progress and who are affected either need to complete and register the transaction with HM Land Registry before the 5th September or use the time to obtain an overseas entity ID. Otherwise, come the 5th September deadline they will not be able to register with HM Land Registry until they have one. Clearly if there is any risk the deadline will be missed, organisations should consider registering straight away.
However, as a UK regulated agent Elemental is speaking to a number of overseas clients who have struggled to get help to obtain an id and there are several reasons for this:
– Although the new rules are based on established practice, namely the persons of significant control register (psc), there is a new requirement for the information to be verified. This means before the information can be submitted to Companies House, a UK regulated agent needs to obtain proof on all the beneficial owners, wherever they may be in the world. This can take time.
– The verification process is particularly challenging for those entities where the beneficial owner is a trust because there is a requirement to verify all the trustees, both past and present, which could mean going back through decades for certain entities.
– The rules were rushed in by the UK Government in order to crackdown on Economic Crime and as a response to Russia’s invasion of Ukraine; however, many providers would not have had the time they would normally to bring a service to market.
– Professional bodies, such as the Law Society, have issued guidance to its members to proceed with “extreme caution” and many law firms have chosen not to offer this service to clients.
It would appear the market has taken a wait-and-see approach and in particular professional advisors have been slow to offer clients the verification service due to the threat of criminal sanctions associated with filing incorrect information. A quick google search shows very few providers promoting this service.
At time of writing, there are only a few entities on the register. In our experience the process of registering can be completed in a couple of days and it only takes a few hours for Companies House to process the application. Though this may change. In total there are 31,506 entities that fall into scope of the new rules, according to HM Land Registry data. If the market continues its wait and see approach, there could be significant pile-up towards the end of the year.
All this points to potential major implications for anyone looking to buy or lease property or land through an overseas entity in the UK. However, there will also be knock-on effects. Sellers may find that deals can’t go ahead because the other party lacks the required ID and we have also seen overseas entities looking to refinance are now increasingly being asked for an ID by the Bank.
Those involved on both sides of deals, buying or selling, where an overseas entity is involved are encourages to start planning now. Especially with the 5th September deadline and then soon after that with regards to the 31st January deadline which impacts a much broader audience.