The Register of Overseas Entities is live and could hit SDLT receipts

With the introduction of the Register of Overseas Entities, the Government is aiming to stop those with criminal links acquiring land and property in the UK. However, for genuine investors hoping to sell or acquire UK property, action needs to be taken now to ensure these transactions can go ahead, especially before 5 September 2022. Given many are still unfamiliar with the rules, we could see a slowdown in property transactions involving overseas investors and a dip in stamp duty land tax (SDLT), land and buildings transaction tax and (LBTT) and land transaction tax (LTT) receipts

After a long parliamentary process, the creation of a register for overseas entities owning UK property finally received Royal Assent in March 2022. The measures being introduced will require overseas entities to provide information on their beneficial owners. For these purposes, an overseas entity includes companies, partnerships and any other similar entities that are governed by the law of a country outside the UK.

Entities will be required to identify their beneficial owners and provide information such as their name, date of birth, nationality and address. If the beneficial owner is a trustee of a trust, additional information is required including the name of the trust, the date it was created and details of the trustees, beneficiaries and settlor. For some trustees, this may lead to another compliance burden along with the recently expanded Trust Registration Service rules.

Now that the register has gone live as of 1 August 2022, entities that own UK property will have six months to complete any necessary reporting which makes 31 January 2023 an important deadline. Penalties and potentially imprisonment may be the consequence for not complying.

In addition, non-compliance can lead to restrictions resulting in the inability to sell, mortgage or grant leases of property, which could have a significant impact on the currently thriving property market. Whilst there is a small amount of breathing room in order for impacted parties to become compliant, this will end by 5 September 2022, at which point offshore entities will not be able to register UK property transactions if they are not compliant. As such, we may well see a flurry in the market before this date to ensure that all transactions are completed in time before this deadline.

After this date, the property market may see a real downturn, especially when combined with inflation and the current cost of living crisis. Latest statistics show that £605m of SDLT revenues were generated from non-residents in the year to 30 June 2022 in 10,200 property transactions. Whilst the rules do not impact non-resident individuals buying UK property directly, many overseas investors use a corporate or other vehicle to acquire UK property and the new register could put the brakes on this market.

Over the years, the additional tax and administration burdens, as well as the removal of inheritance tax benefits, the introduction of SDLT surcharges, and now having to disclose potentially personal information, surely has made using offshore structures to acquire UK property less attractive for foreign investors. This does beg the question of whether we should be penalising legitimate inward investment with such stringent regulations. Similar statistics are not published for LBTT or LTT but the impact is not limited to England and Northern Ireland.

The key point here is that offshore entities purchasing UK property are going to hit real turmoil by 5 September if they don’t have their registration in place, but could this reduce the currently booming property market to benefit UK-based purchasers?