The UK remains keen to play a pioneering role in the growing international drive towards increased corporate transparency. So it comes as little surprise that the government is planning to extend the “PSC” (persons with significant control) rules (under which UK corporates must disclose certain details of individuals who own and control them) to cover offshore vehicles holding UK real estate.
Very simply put, the existing PSC rules require UK companies and LLPs to gather, maintain and provide the UK company registrar (Companies House) with certain personal details, including the name, service address and nature and level of control over the company or LLP, of any natural person who either directly or indirectly holds (or controls) more than 25% of the company or LLP (“PSC details”). These PSC details are then made publicly available. The full set of rules is complex, but has been deemed relatively appropriate for shedding more light on complicated corporate ownership structures (click here for a more detailed summary).
The proposals now under discussion would apply a very similar regime to foreign entities, where they either already hold or are attempting to purchase UK real estate (in both cases directly). Non-UK entities already holding UK real estate would have one year to register their PSC details at Companies House, whilst an overseas corporate entity buying UK real estate would not be allowed to register its legal ownership of the land with the relevant UK Land Registry without first obtaining a registration number, which it could only obtain by providing its PSC details to Companies House. So far it is unclear exactly how this enforcement mechanism would work, but the end result of a failure to comply would likely be a failed transaction.
Anecdotal evidence suggests that the PSC regime whilst complex has not been prohibitively burdensome for UK companies, from either a cost of compliance or a confidentiality perspective, so it seems unlikely that extending the PSC transparency rules to offshore property-holding vehicles will significantly damage the UK’s international real estate investment market. It also seems unlikely that the global direction of travel (increased transparency) is likely to change, especially given that the EU’s Fourth (and even Fifth!) Money Laundering Directive lies just around the corner.
At the same time, the devil may lie in the final detail, and intervention aimed at unearthing or deterring individuals’ criminal activity may be inappropriate for commercial real estate investments made in a regulated setting by global institutions. So we thought it was worth responding to the government on the detail, both as a firm and via the BPF. If you have any immediate concerns then please get in touch with Chris Luck, Edward Benzecry or your usual CMS / Nabarro contact, otherwise we will update you as the proposals develop from this relatively exploratory stage.
(Since this article was published, amendments have been made to the PSC regime (see “Extension of PSC transparency rules: action required within 14 days”). Our briefing note on the regime, updated to reflect the amendments, can be found here.)