1. Summary
The Register of Overseas Entities (ROE) was launched in 2022 and requires any overseas entity which is the legal owner of a UK property interest to report details of its “registrable beneficial owners” to Companies House. More detail on the specifics of the ROE can be found in our March 2022 article: The Overseas Entities Register for UK Property: What you should know.
This is the second of three articles which look at how ROE operates for different ownership structures. This article considers the position for trusts (more specifically trusts which are not bare trust or nominee arrangements) and our previous article considers the position for nominees. We will shortly be publishing a further article exploring the position for corporate beneficial owners.
2. What is a 'registrable beneficial owner'?
The ROE legislation requires any overseas entity which is in scope (as a result of owning a relevant UK property interest) to analyse its beneficial ownership and provide information to Companies House in relation to any registrable beneficial owners.
In short, beneficial owners of the overseas entity are persons who meet any of the following tests:
- hold directly or indirectly more than 25 per cent of the shares of the entity; or
- hold directly or indirectly more than 25 per cent of the voting rights of the entity; or
- hold directly or indirectly the right to appoint or remove a majority of directors of the entity; or
- have the right to exercise or actually exercise significant influence or control over the entity; or
- have the right to exercise or actually exercise significant influence or control over an entity which is not a legal person under the law of that jurisdiction (i.e. a trust, partnership or unincorporated association) which meets any of the tests above.
Not all beneficial owners will be registrable beneficial owners though. A registrable beneficial owner is a beneficial owner who is also either:
(i) an individual;
(ii) a legal entity which is subject to its own disclosure requirements; or
(iii) a government or public authority
A legal entity is broadly subject to its own disclosure requirements if:
(i) The entity reports details of its beneficial ownership at Companies House via the persons with significant control (PSC) register. This would apply, for instance, to UK companies;
(ii) The entity is itself caught by the ROE and so reports details of is registrable beneficial owners at Companies House;
(iii) The entity has voting shares admitted to trading on a regulated market in the UK, EU, the EEA or one of a number of other markets specified in regulations; or
(iv) The entity provides trust services and the provision of trust services is regulated in that country or territory by a supervisory authority.
The position relating to legal entities providing trust services is due to change and this is considered further in section 6 below.
If there is a beneficial owner in the ownership structure which does not meet the test to be a registrable beneficial owner then broadly speaking it is necessary to continue looking up the ownership chain to consider whether anyone higher up the ownership chain meets the test.
3. Where is the trust?
There are a couple of key points to clarify before considering the position for trusts where the ROE is concerned. For these purposes, we assume that the trust is not a nominee or bare trust. For nominees or bare trusts the position is considered in our recent article considering the position for nominees.
Firstly, the ROE is in effect an extension of the UK’s PSC register which applies to UK companies. Although a threshold test to be met in order for an overseas entity to be caught is that a UK property interest must be owned, the ROE currently looks at the beneficial ownership position of the entity and not the beneficial ownership position of the property.
Secondly, an entity is defined in the legislation as meaning a body corporate, partnership or other entity that (in each case) is a legal person under the law by which it is governed. While this is ultimately a foreign law question, in the vast majority (if not all) jurisdictions that have trust law, a trust is not a legal person. As a result, if a UK property interest is owned by a trust then the details of the trust should not be reported on the ROE unless trusts are a legal person under the governing law of the trust. It is clear from the ROE information reported at Companies House that there are a number of filings which have been incorrectly completed for a Trust or a Settlement.
If a UK property interest is owned by a trust then it is necessary to consider who the legal owner of the UK property is, i.e. for English land who is reported as the Registered Proprietor on the Title Register. As trusts are not legal persons (the legal title is owned by the trustees for the beneficial owners) the position is likely to fit into one of three classes:
- Purely individual trustees are the Registered Proprietors as trustee of the trust. In this instance there is no ROE reporting required as the trust is not an entity and nor are the individuals who own the legal title as trustees of the trust.
- One or more offshore companies are listed as the Registered Proprietors as trustee/s of the trust. These offshore companies are legal owners and so must complete ROE reporting in relation to their own registrable beneficial owners. As mentioned, the ROE requires beneficial ownership of the overseas entity to be reported (the trust is not an entity for these purposes) and so no beneficial ownership information for the trust is reported.
- A corporate nominee is listed as the Registered Proprietor holding as nominee for the trustee/s of the trust. Currently there may be no reporting in relation to the trust. However, the position is likely to change this year as a result of amendments to the legislation which are discussed in our recent article considering the position for nominees.
As a result, counterintuitively, trust information is not usually reportable under the ROE where property is directly held by the trustees of a trust. Instead, trust information is reportable where the trustees of a trust own, or are otherwise beneficial owners of, an Overseas Entity (i.e. foreign company) which owns UK property.
4. What Trust Information is reported?
Where the trustees of a trust are a registrable beneficial owner then in addition to reporting information about the trustee (as the beneficial owner) “trust information” also needs to be verified and reported under the ROE. This includes:
- the name of the trust;
- the date on which the trust was created;
- the trustees’ names and date/s on which they became a registrable beneficial owner of the overseas entity as trustee;
- Information for each settlor/grantor;
- Information for all beneficiaries (including discretionary beneficiaries); and
- Information about any person who, under the terms of the trust, has rights in respect of—
- the appointment or removal of trustees; or
- the exercise by the trustees of their functions.
Where the trustees of a trust are reportable it is also vital to consider whether anybody meets the fifth test for beneficial ownership (set out in section 2 above) as a result of having the right to exercise or actually exercising significant influence or control over the trust. Importantly, Companies House guidance confirms that this test is met if someone has the right to direct or influence the running of the trust’s activities and this includes powers (including consent or veto powers) to appoint or remove any of the trustees, direct the distribution of funds or investment decisions or amend or revoke the trust.
5. Who can access trust information?
Importantly, this reported information (in relation to the trust) is not currently publicly available. When first reported, it was only available to HMRC. However, this has been expanded from 11 April 2023 so that the information is now also disclosed to a number of law enforcement agencies[1].
As a result of upcoming changes, it is likely that trust information will be much more widely available in the future. This is considered in section 6.1 below.
6. What is changing?
The Economic Crime and Corporate Transparency Act 2023 (the ECCTA) was enacted on 26 October 2023. This will bring in some important changes to the ROE when the relevant provisions come into force. All of the changes require secondary legislation to bring them into force and so they are not in force yet. However, the government have stated that the changes will come into effect in 2024 and that they will make regulations to expand access to trust information in the next few months[2].
A number of the changes brought in by the ECCTA apply to trustees and the reporting of trust information and each is considered in more detail below.
6.1. Access to Trust Information
The ECCTA amends the ROE legislation to permit regulations to be made to allow disclosure of trust information to a wider class of persons.
As mentioned above, trust information reported under the ROE (as listed in section 4 above) is not currently available on the Companies House website and is only disclosable to law enforcement agencies. The government have made it clear that they intend to expand access by regulations shortly to put in place a system whereby applications can be made by anyone to access the information held on a specific trust. The information will be provided without an applicant having to provide evidence that there is a public or legitimate interest in the information being released. However, applicants will be required to explain how they intend to use the information and Companies House may place restrictions on how the information may be used.
In addition, the government have stated that if an applicant wishes to request access to information about more than one trust, they will be required to provide evidence that they have a legitimate interest in the information being requested and Companies House may place restrictions on how the information may be used[3].
Currently, the government have only published very limited details of how this will operate in a few paragraphs of a much wider consultation document looking at enhancing transparency of trusts owning land. We have considered this consultation in the following article.
We will await the regulations with interest and unfortunately (as this is secondary legislation) no consultation is expected on their scope. However, a lot will depend on how this enhanced transparency will be regulated. For instance, how will the test of whether someone has requested access for more than one trust be monitored, is there a time limit (i.e. will it not be possible to request information for more than one trust a day, a week, a month, indefinitely?), how will the explanation as to why access is requested be reviewed or monitored and will access be denied if the explanation is not deemed to justify disclosure?
A lot of the trust information held will be for minors (classes of beneficiaries commonly include minor children of family members) and vulnerable people (trust structures are commonly used for people who are unable to manage their own affairs). As a result, it will also be important to put in place processes for vulnerable people to be protected against disclosure. Currently, because trust information is not available to the public, there is no process for protecting trust information. The government have already acknowledged that a protection regime will be brought in as part of the regulations.
In addition, it will be important to understand what counts as a “legitimate interest”. Such a test already applies for access to trust information under the TRS (where the threshold for access is high) and it will be interesting to see whether the same test applies to access for information on multiple trusts under the ROE.
The expectation is that regulations will be published in the next few months. However, these regulations will not come into force until the wider changes under the ECCTA also come into force.
6.2. When trustees count as Registrable Beneficial Owners
As mentioned above, where a trustee is an overseas company then it is only a registrable beneficial owner if the provision of trust services is regulated in that jurisdiction. In addition, where a trustee is a beneficial owner, but there is another registrable beneficial owner in the ownership chain between the trustee and the overseas entity then under the current legislation means there is no reporting for the trustee (or the trust).
The type of structure which the government has concerns about here consists of a trust owning shares in a UK company, which owns shares in an overseas entity.
In this structure, currently the overseas entity would report the UK company as its registrable beneficial owner (as a company subject to its own disclosure requirement). The ROE legislation, as it currently applies, does not require disclosure of the Jersey company (acting as trustee). The justification for this is that it is possible to discover the beneficial owners of the UK company via the PSC register. However, importantly, the PCS register does not require any disclosure of the fact that Jersey Co is holding as trustee and nor does it require disclosure of trust information.
As a result, the ECCTA changes mean that trust information is essentially disclosable for any trusts in the beneficial ownership chain (regardless of whether they own through an entity which is subject to its own disclosure requirement). This will mean that more trust information is reported to Companies House.
In addition, the requirement for the trustee to be trustee in a country where trust services are regulated is being removed. A legal entity trustee will be a registrable beneficial owner simply where they are a beneficial owner of the overseas entity by virtue of being a trustee.
6.3. Changes to beneficiaries
Currently, there is a requirement to report information about beneficiaries as at the date of a reporting update. The ROE information needs to be updated annually and so there were concerns under the current legislation that it would be possible to change the beneficiaries between reporting dates such that the true beneficiaries were not reported. This potential loophole will be closed by changes under the ECCTA which will require information to be reported on any changes in the beneficiaries in between reporting dates.
6.4. Corporate Settlors
Currently where trust information is provided and the settlor of that trust is a company it is only necessary to provide details about the company itself (and not its beneficial owners).
Again, this will be changed once the provisions of the ECCTA come into force such that it will be necessary to also provide information about that corporate settlor’s registrable beneficial owners.
6.5. Changes between 28 February 2022 and 31 January 2023
The first ROE reporting was required by 31 January 2023. This first reporting was of the registrable beneficial ownership and trust information position on the date of reporting unless property had been sold after 28 February 2022 (in which case the position immediately before the sale also needed to be reported).
Importantly, for trusts, we are aware that a number of trusts were restructured (e.g. to narrow the class of beneficiaries) ahead of the first reporting deadline in order to make reporting easier and to avoid the need to verify large numbers of people who were within the class of beneficiaries.
Changes under the ECCTA will require retrospective reporting of:
(a) any person or persons who became or ceased to be registrable beneficial owners between 28 February 2022 and 31 January 2023;
(b) any person or persons who became or ceased to be beneficiaries under a trust (the trustees of whom were registrable beneficial owners) between 28 February 2022 and 31 January 2023; and
(c) any changes in trust information where trustees of a trust were registrable beneficial owners at any point between 28 February 2022 and 31 January 2023.
It will be important for overseas entities and their trustee beneficial owners to consider the impact of these changes. Failure to complete reporting on these retrospective changes when the law comes into effect will (as with all reporting under ROE) carry the threat of criminal and civil penalties.
7. What should be done now?
As mentioned, the precise date from which these changes will come into effect is not yet known, but the government have confirmed that they expect at least some (if not all) of these changes to come into force this year.
For most overseas entities this means that the changes are likely to be relevant for next year’s ROE update reporting and for future years. However, the impact should be considered ahead of then and the consequences of these changes should be discussed with the relevant stakeholders (both current and potentially former) in the entity.
[1] The Register of Overseas Entities (Disclosure and Dispositions) Regulations 2023
[2] Paragraph 8 of the government’s transparency of land ownership involving trusts consultation document
[3] Paragraphs 69 to 71 of the government’s transparency of land ownership involving trusts consultation document
If you or your client would like further guidance on the impact of the ROE or these changes then please contact Ronnie Myers or your usual contact at Burges Salmon.