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Investing in U.K. real estate: ownership transparency
By Jane Dockeray
The U.K. real estate market has long been considered a good proposition for overseas investors. Market transparency is high, a robust legal system safeguards property rights and a broad spectrum of investment opportunities offers a plethora of choice. It’s early days to consider the effects of COVID-19 but at least Brexit doesn’t seem to have stemmed the flow of foreign money into the sector.
However, the political scene in the U.K. has become increasingly introspective. Successive political parties have faced criticism for allowing foreign wealth to push residential property prices up and out of reach of domestic homeowners. At the same time, legitimate questions have been raised about the source of some foreign funds and there has been a drive towards even greater transparency.
In response to these pressures, some key changes are on the horizon which will impact foreign investors. Specifically, the identity of anyone who controls an overseas entity which owns real estate in the U.K. will need to be disclosed in a public register.
Since June 2016, most U.K.-registered entities have been required to provide information about their ultimate owners and controllers to Companies House (the U.K.’s registrar of companies). A similar transparency is proposed where property is owned by overseas entities, by introducing a “beneficial ownership register”.
A beneficial owner is anyone with “significant control” and the onus is on the overseas entity to look through the layers of ownership to ascertain who actually has significant control. This mirrors the regime that was introduced for U.K. corporates.
An important distinction to note is that the register relates to the beneficial owner of the entity that owns the legal title to the real estate. It is not concerned about the beneficial owner of the real estate itself. So, for example, it is common for a general partner and/or nominees to hold legal title to U.K. property, with the beneficial ownership of the property being held by a limited partnership. In such a structure, it is the beneficial owner of the general partner and/or nominees that will need to be registered as will the beneficial owner of anyone further up the ownership chain. The identity of the limited partnership and ownership of the ultimate investors in the limited partnership is not relevant.
The beneficial ownership register was the brainchild of the last government, but the current government has confirmed that it will be progressing legislation to achieve greater transparency in the U.K. property market. Although the timetable is unclear, the register was originally expected to be operational by 2021.
