The International Tax Round Winter 2022
06 Dec 2022
Worldwide Disclosure Facility (WDF): HMRC promising 'many more' tax investigations
22 Sep 2022
Statutory Residence Test (“SRT”): Exceptional circumstances
06 Sep 2022
The International Tax Round Autumn 2022
01 Sep 2022
What is a domicile status and how is it often misunderstood?
23 Aug 2022
Following our previous article on the Register of Overseas Entities (ROE), the legislation is now fully operational with the registration process via Companies House effective from 1 August 2022.
Whilst applicable to overseas companies/partnerships owning UK land, other entities may be affected. Here we take a look at trust structures holding UK real estate to examine the different scenarios when overseas entities may need to register with Companies House. These include:
· Direct ownership by a non-UK trust
· Ownership via an underlying company held by a non-UK trust
· Ownership via a nominee company on behalf of a non-UK trust
Before we delve deeper into these scenarios, here’s a reminder of what makes a beneficial owner registerable.
A “registerable beneficial owner” is an individual, entity or government body that meets any of the following conditions in respect of the entity (the Conditions):
Condition 1 - It holds (directly or indirectly) more than 25% of the shares
Condition 2 - It holds (directly or indirectly) more than 25% of the voting rights
Condition 3 - It has the right (directly or indirectly) to appoint or remove a majority of the directors
Condition 4 - It is able to exercise “significant influence or control” over the entity or
Condition 5 - It is able to exercise “significant influence or control” over the activities of a trust, partnership, unincorporated association or entity that is not a legal person, and the trustees of that trust or members of that other entity meet one or more of Conditions 1-4 above.
Direct ownership by a non-UK trust
If the UK land is directly held by a trust whose trustees are all individuals, the ROE won’t be applicable as it is only legal entities governed by foreign law that are potentially caught by the registration requirement.
There will generally be a requirement to register on the ROE where non-UK incorporated corporate trustees directly hold the land. If registerable, information about the corporate trustee will need to be given, together with details on any persons who qualify as registerable beneficial owners of the company.
Information on the trust (which include details of the trustee(s), settlor(s) and beneficiaries), is not required where the overseas entity holding the qualifying land is the trustee.
Further consideration is needed for private trust companies, where the trustee holding the property is a widely-held overseas company or where the trustee holding the property is an overseas subsidiary of a widely-held overseas company.
Consideration must also be given as to whether the trust should be registered on the Trust Registration Service (TRS).
Where the trust is a non-UK trust, there is a requirement to register on the TRS if the trust has a UK tax liability or the trust acquired an interest in UK land on or after 6 October 2020.
As a result of the TRS, there is no requirement to provide details of the trust on the ROE even if the trust is not currently registerable on the TRS.
Ownership via an underlying company held by a non-UK trust
If an underlying non-UK company owns UK land, there will usually be a requirement for the company to be registered on the ROE. Where the trustee holds more than 25% of the shares in the company, it will be a registerable beneficial owner.
Information on the trust will be required where the trustee is the beneficial owner.
The extension to all beneficiaries under the trust goes beyond those simply named in the trust or letter of wishes and description of any class of beneficiaries, as is the case for the TRS. Importantly, however, any information provided in respect a trust as a result of the trustees being registerable beneficial owners is not available for public inspection.
It is not required where the company holding the land is itself the trustee.
Ownership via an underlying company will not trigger a TRS registration requirement where the underlying company holds the legal title. However, registration will be required if the trust incurs a UK tax liability.
Ownership via a nominee company on behalf of a non-UK trust
The final structure is one where the legal title is held by a company as nominee for the trust.
If the nominee company is registerable, it would need to provide details of its registerable beneficial owners.
If the trustee is not a registerable beneficial owner, there is no requirement to include details of the trust.
It is highly likely that a nominee arrangement will be considered an express trust for the purposes of the TRS. As a result, where the trust is a non-UK trust, and the trust has a UK tax liability or the trust acquired an interest in UK land on or after 6 October 2020, it will need to be registered on the TRS.
The deadline for registration is 31 January 2023. The overseas entity must also file an annual update one year after it was registered, and every year after that.
Where land is deemed to be caught by the legislation, a restriction will be added to the legal title preventing a disposition until the overseas entity can provide either confirmation of registration via the Overseas Entity ID, which is provided once the application to register has been accepted, and confirmation it has complied with any annual update requirements, or, evidence that an exemption applies.
Given the complexity of the legislation and the many elements which need to be considered when reviewing the requirement to register, it is anticipated that there will be a grace period where prosecution and penalties will not apply for late registration. Having said that, we encourage everyone to take reasonable steps to ensure registration where applicable, is done in good time.
It is also important sufficient time is given for the registration as it can take several days between the submission and rejection/acceptable position from Companies House. Companies House has recently published information about registrations to date. 31% of filings have been rejected, and most of these rejections were due to errors in respect of the information being provided as such it is crucial to ensure to get it right.
GE can advise as to whether a trust structure falls within the scope of ROE and/or TRS regime, contact Sonal Shah if you need any support.Back to top