Using corporate structures like overseas entities to invest in UK land while keeping the investors largely invisible is a strategy for many and a significant issue for HMRC. However, with the enactment of The Economic Crime (Transparency and Enforcement) Act 2022, this issue will largely disappear.
The Act requires overseas entities that own or plan to own UK land to register with the Registrar of Companies for England and Wales (Companies House), capturing beneficial ownership information in the new Register of Overseas Entities. Such information is held on the register and must be updated at least once a year, and most of the information will be publicly available.
To help entities comply with regulatory requirements, Companies House uses a variety of ways, including sending email reminders to entities before the deadline, free online guidance, etc. However, where the help and advice are insufficient to ensure compliance, Companies House will adopt a consistent approach to enforcement. In this article, we will explore the various sanctions that may be imposed.
Types of Sanctions
As previously mentioned, Companies House adopts a consistent approach to enforcement when the initial methods do not ensure compliance. In this section, we will explore those in detail.
Restrictions
When entities fail to register with Companies House or fail to update their information, one of the sanctions that may be imposed is restrictions. These restrictions will prevent the entities from selling, leasing, or raising charges over their land. Similarly, overseas entities will be restricted from purchasing any new property in the UK if they lack valid registration.
Prosecutions
Another sanction that Companies House may impose upon overseas entities is the prosecution. Prosecutions are usually considered when the cases are serious. Once a case is decided to be prosecuted, the prosecuting authority will have the power to investigate, charge, and prosecute the offending entity.
Typically, prosecutors will follow the Code for Crown Prosecutors in all cases when deciding whether to prosecute.
Civil financial penalties
When the registrar is satisfied beyond reasonable doubt that an offence has been committed, civil financial penalties may be imposed. The penalties can either be fixed, at a daily rate or a combination of both, depending on the offence committed.
To determine the penalty, the registrar will generally consider the harm involved and culpability in each case, such as the evidence of intent and previous conduct of the entities in question.
The estimated value of each property is used by the Companies House to estimate the potential harm caused by the entities, and the higher value of the property translates to a greater scale of potential economic crime facilitated by the offence. Where the Companies House does not have an independent valuation of properties, the penalty amount will be based on the property's council tax band if available. Each band gives either a low, medium or high penalty rate for each property.
The relationship between penalties and council tax band can be summarised as follows:
Bands (England) | Penalty Rate | Penalty (£) |
|---|---|---|
A to C | Low | 10,000 |
D to F | Medium | 20,000 |
G to H | High | 50,000 |
Where the council tax data is not available, the business rateable values will be considered instead. The penalties on the rateable values will be calculated as follows:
Rateable value | Property value | Penalty (£) |
|---|---|---|
Under £50,000 | Low | 10,000 |
£50,000 - 100,000 | Medium | 20,000 |
Over £100,000 | High | 50,000 |
Where neither the council tax banding nor the rateable value is available, Companies House will consider the House Price Index instead. Under this method, the penalty will be calculated as follows:
House price index | Property value | Penalty (£) |
|---|---|---|
Under £500,000 | Low | 10,000 |
£500,000 - £1,000,000 | Medium | 20,000 |
Over £1,000,000 | High | 50,000 |
In the cases where none of the values is available, the property's value attracts a medium-level penalty and imposes the penalty amount of £20,000.
Once the Companies House is satisfied that an offence has been committed, a penalty notice will be issued to the person in question. The penalty notice will include the grounds for issuing the penalty, the type of penalty, the penalty amount, etc.
Appeal Against the Penalty
When overseas entities receive a penalty notice, they have the option to appeal to the High Court (or the Court of Session in Scotland). They can appeal if they believe that the decision to impose a financial penalty or the amount or type of the penalty
- is illegal;
- is illogical or unreasonable;
- is based on a procedural error or otherwise violates the principles of natural justice.
To appeal, such entities must obtain the Court's permission within 28 days of receiving the penalty notice. Additionally, they must inform the registrar through email or written communication within 7 days of applying for permission to appeal.
Offences
The Act includes various activities that are considered offences. The sanctions discussed above are the possible sanctions that a court could impose. In this section, we will discuss those offences, typically including:
Non-Compliance with Updating Duty
A registered overseas entity must deliver the necessary information within 14 days after each update period as a part of the updating duty. These duties are listed in Section 7 of the Act.
Where a registered entity fails to comply with the duty to update the information on the register, an offence is committed by the entity and by every officer of the entity who is in default. A person found guilty of this offence may be liable to a fine initially, and a daily default fine will be imposed if the contravention continues. The daily default fine generally does not exceed £2,500.
Failure to Register by the End of the Transitional Period
An overseas entity, and every officer of the entity who is in default, is said to commit an offence if the entity is:
- The registered proprietor of a qualifying estate but neither registered as an overseas entity nor made an application for overseas entity registration.
A person found guilty of this offence is liable to the following:
- Imprisonment of a term generally given on similar offences, or fines (or both), if it is a summary conviction.
- In case of conviction on indictment, Imprisonment for a maximum term of 2 years or a fine (or both).
The transitional period means the period starting on 1 August 2022 and ending on 31 January 2023.
Failure to Comply with Notices
Section 12 of the Act states that an "information notice" must be given to any person identified as a registrable beneficial owner, requiring them to confirm or correct information about themselves or any trust they are involved with. This notice must be complied with within one month of being issued.
Where a person fails to do so, and a reasonable excuse is not provided either, an offence is committed. Similarly, if a person responds to the notice but makes misleading or false statements, the offence is again committed.
A person found guilty of either of these offences could get a prison sentence, a fine, or both.
False Filing Offences
A person commits an offence if, without a reasonable excuse, they are involved in:
- Submitting to the registrar any document that is misleading, false, or deceptive in a material way;
- Making statements to the registrar that are misleading, false, or deceptive in a material way.
Where a reasonable excuse is provided, an offence will not be committed. Whether an excuse is considered 'reasonable' will be considered on individual facts.
Offence when Disposing of Land
Where an overseas entity disposes of land between 28 February 2022 and the end of the transitional period, i.e. 31 January 2023, an overseas entity and every officer who is responsible commit an offence if, at the end of the transitional period:
- The entity is not registered as an overseas entity;
- The entity has not applied for registration as an overseas entity;
- The entity has failed to provide the required information about its affairs immediately before disposing of land;
- The entity has failed to provide the required information about the disposal of land
A person convicted of this offence could face a fine, and for ongoing non-compliance, a daily default fine may also be imposed.
Conclusion
In conclusion, The Economic Crime (Transparency and Enforcement) Act 2022 significantly enhances transparency in UK property ownership by mandating overseas entities to register and disclose beneficial ownership information. This aims to reduce risks linked to financial crime and money laundering. Companies House enforces these rules with sanctions like restrictions, prosecutions, and civil penalties, emphasising the need for timely compliance and accountability in property transactions. Entities must stay updated and fulfil their obligations under the Act to avoid legal consequences as enforcement progresses.
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