Over two thirds of properties held by overseas shell companies remain anonymous

Over 70% of UK properties held via overseas shell companies – 109,000 out of 152,000 ¬– still do not publish information about who really owns them, according to a report compiled by researchers from the London School of Economics (LSE), the University of Warwick and the Centre for Public Data.

The UK’s Register of Overseas Entities (ROE) was introduced by the Economic Crime (Transparency and Enforcement) Act 2022 with the stated aims of tackling money laundering and illicit investments using UK land and increasing transparency and public trust over land ownership in the UK.

It was brought in following Russia’s invasion of Ukraine with a pledge to “require anonymous foreign owners of UK property to reveal their real identities to ensure criminals cannot hide behind secretive chains of shell companies”. The register became operational in August 2022, with a deadline of 31 January 2023 for overseas entities already holding UK land to register.

The new report – titled ‘Catch me if you can: Gaps in the Register of Overseas Entities’ – was released on 3 September, the day before the House of Commons returned to debate the Economic Crime & Corporate Transparency Bill, which is currently going through Parliament.

The House of Commons is to consider amendments made by the House of Lords that seek to ensure that nominee and trust arrangements cannot be used to hide ownership of UK companies or property. Both are currently opposed by the UK government.

The Report combined data from Companies House and HM Land Registry to quantify the scale of the missing information, and the reasons behind it. It found that for 35% of properties owned via overseas shell companies (54,000 out of 152,000), even law enforcement agencies did not know the true identities of the beneficial owners.

In 10% of cases (15,000 properties), the company was missing from the ROE altogether, while in a further 25% (39,000 properties) essential information had not been reported.

In 87% of cases, where the researchers found that beneficial ownership information was missing or inaccessible to the public, it was due to the information being out of scope of the legislation rather than rule-breaking by overseas companies. Rule-breaking accounted for only 6 to 9% of cases, while a further 4 to 7% were due to out-of-date or poorly documented records.

The biggest reason for missing or inaccessible information on beneficial owners was the use of trusts, which accounted for 63% of all properties (69,000 out of 108,000) where beneficial owners were hidden from the public.

“There is no point building a dam halfway across a river. These gaps are threatening the efficacy of the entire register and the government should close them at the earliest opportunity,” said Andy Summers, Associate Professor at LSE Law School and LSE’s International Inequalities Institute (III).

The proposed amendments would allow Companies House to publish information about trusts controlling offshore companies holding land in the UK, bringing the transparency requirements that apply to other forms of property ownership to these arrangements. They would also require nominees and trustees owning shares to disclose to Companies House who they are acting for on the People with Significant Control (PSC) register.

“Sovereign Corporate & Trustee Services (SCATS) is a UK-regulated agent for the purposes of the ROE and has been heavily involved in assisting overseas entities holding UK land to register and in undertaking the verification checks that are required,” said Stuart Stobie, Managing Director of SCATS.

“This compliance process has highlighted to us that many UK property owning structures are no longer fit for purpose. Simply owning a UK property through an offshore company no longer provides any effective mitigation from UK capital gains tax (CGT) and inheritance tax (IHT).

“Clients who own property in the UK should therefore consider restructuring the ownership as a matter of urgency. There are a number of better options available, including Qualifying Non-UK Pension Schemes (QNUPS), Family Investment Companies (FICs), Exempt Property Unit Trusts (EPUTs) or even, where appropriate, Employee Ownership Trusts (EOTs). For further information or to discuss restructuring your UK property holding, please contact us,” said Stobie.

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