1. Introduction
On 27 December 2023, the Department for Levelling Up, Housing and Communities published their consultation on the transparency of land ownership involving trusts. The consultation closes on 21 February 2024.
In essence, the government are seeking to ensure that “any person with an interest in land should, if they need to, be able to find out not just who owns land, but who can control or derive economic benefit from it”. This article will delve into:
(a) Why the government are prioritising this policy,
(b) Existing schemes that provide similar (but not the same) information,
(c) Principles that the government will consider when deciding next steps,
(d) The government’s next steps and proposed options, and
(e) An analysis of the consultation document.
2. Why the government are prioritising this policy
The government cite the fact that “land is the most valuable asset in our economy, accounting for over 60% of the UK’s net worth” as evidence as to the need for transparency regarding “who really controls it”. In the absence of such transparency, the government argue that “injustices, corruption and crime flourish” – for example, resulting in “swathes of desirable homes [sitting] empty [in London] with secretive offshore trusts or shell companies as their ultimate owners”, and “anonymous landlords whom tenants cannot contact in an emergency”.
The government argue that this is, in part, facilitated by trusts, which “are created with deliberately labyrinthine structures to obscure the ownership of assets”. Whilst the government accept that trusts are often created for legitimate reasons (for example, to manage the affairs of someone lacking legal capacity), they appear to have adopted a somewhat cynical view as to the purposes that trusts serve.
3. Existing schemes that provide similar information
It is fair to say that the UK is already towards the top of the rankings in regard to transparency and reported beneficial ownership information. This is largely due to three existing schemes:
(a) The Persons with Significant Control over companies register (“PSC Register”). This was established in 2016 and broadly provides a publicly accessible register of anyone who owns more than 25% of a private UK company (or its voting shares). This includes trustees of trusts and anyone able to exercise significant influence or control over the trustees of such trusts (e.g. a person with a right to appoint or remove trustees, direct distributions or investment decisions, or amend or revoke the trust).
(b) The Register of Overseas Entities (“ROE”). This seeks to provide similar transparency for overseas entities which hold UK property interests. The system is largely based on the PSC register, but with additional reporting about trust information when trusts are “registrable beneficial owners” of the overseas entity. However, trust information is not currently publicly available – it is just available to law enforcement agencies.
(c) The Trust Registration Service (“TRS”). This provides a “central register of the beneficial ownership of certain trusts”, including information about anyone who “may have control over the trust” (in particular, the settlor, trustees and beneficiaries). The scope of trusts captured by this regime is very wide (including the vast majority of UK trusts and offshore trusts that have acquired UK property or triggered a UK tax liability). However, the information is not currently publicly available – it is available only to law enforcement agencies, and those who apply for access and are able to demonstrate a legitimate interest for the purposes of investigating suspected money laundering and/or terrorist financing.
Whilst placing the UK in a strong position in relation to the transparency of company ownership, the government acknowledge that these three schemes do not enable the public at large to “match ownership to land”. In particular, the information “published by Companies House focuses on those who have influence and control over the entities themselves, not those who ultimately benefit from or control any land the company may own”. Whilst they may be the same person, this is not a given. For example, whilst the trustees control the land, it is likely that the beneficiaries (who are not on the PSC Register or ROE) may be the ones that have the right to benefit from the land (such as receive an income) and have their interests considered by the trustees when they make decisions as to its use.
4. Principles to be considered
The government is approaching the question of trust transparency in relation to “three overriding principles”:
(a) Greater transparency of land-owning trusts is a matter of public interest. This is a key goal due to land being “a finite and valuable resource”, meaning that “all citizens have a collective interest in ensuring that land is used properly and for the benefit of society”. The government argue that by, in effect, mandating transparency, the benefits of public engagement (such as via the planning system) can be realised.
(b) Greater transparency will support a housing market that better delivers for the public. For example, to ensure that liability measures on high-rise buildings (since Grenfell) are effective, and that the “swathes” of empty London homes may be occupied.
(c) Transparent ownership can help with tackling illicit finance and corruption. The government highlight this as a result of a 2020 assessment finding that “transactions made using offshore corporate structures or offshore trusts in the UK property sector… [pose] a higher risk of money laundering”.
It is interesting to note – even if merely a procedural/terminological point – that the government omits the right to privacy (more specifically, the right to respect for private and family life enshrined in English law under article 8 of the Human Rights Act 1998) from these “three overriding principles”. That is not to say that privacy has been overlooked by the government, with the phrase cropping up 19 times throughout the paper. Namely, the government acknowledge that trusts are “commonly used to manage private family affairs” and that additional transparency “could infringe the privacy rights of trust beneficiaries”.
The government also note the need to strike the right balance between privacy and transparency which is currently a topic of hot debate in light of the Sovim case (WM and Sovim SA v Luxembourg Business Registers, CJEU), with the Crown Dependencies’ and various British Overseas Territories’ recent publications on their intentions not to make beneficial ownership information for companies publicly available as a result of the Sovim case and recent European Court of Human Rights decisions. There is an oblique acknowledgement of this in the consultation document along with a suggestion that the balance may be different here as a result of the purpose behind the reporting: “international legal precedents suggest that making beneficial ownership information publicly available is disproportionate in relation to tackling money laundering if law enforcement agencies have full access to the information. The government, however, intends for this information to be used for matters beyond money laundering, as set out in chapter 1 of this document.”
5. Government's next steps and proposed options
The government propose two routes to increase transparency of land ownership – which they suggest should be considered together, rather than as alternatives.
5.1 Expanding trust information available on the ROE
Two steps in this direction have already been confirmed by the government via the Economic Crime and Corporate Transparency Act 2023 (“ECCTA 2023”) and will likely take effect at some point this year.
Firstly, information will be publicly available where an overseas entity holds land as nominee for someone else. This person will be a “registrable beneficial owner” for ROE purposes.
Secondly, the government will publish regulations via section 23 of ECCTA 2023 “in the next few months” to facilitate applications by members of the public to see “unpublished trust information in circumstances to be specified in the regulations”. The document suggests that such applications will not be subject to a “legitimate interest” test in the same way as applies to the TRS.
However, the government believe that these extensions may not be fundamental enough to achieve the land-based aims identified in the consultation. Therefore, they have proposed three options to enhance the ROE’s land ownership transparency:
(a) Trust information being made publicly available by default, except for protected information. The government pose a question to consultees as to whether minors should be covered by default protection or whether the onus should be on the entity or trust to apply for protection.
(b) Partial information being made publicly available by default. For example, information such as the name of the trust, date of creation, and the name of the settlor and/or any interested persons may be available, with the remaining unpublished information (i.e. the details of beneficiaries) being attainable via an application which will be facilitated by the section 23 regulations above.
(c) No change in public availability. Although, as mentioned, additional transparency would be partially achieved via the section 23 regulations.
5.2 Enhancing transparency of trusts not within the scope of the ROE
Appreciative of the fact that the ROE is, by its essence, an entity-centric register, the government also consider making further transparency requirements for “trusts not associated with ROE entities”.
They provide five options for this route:
(a) Retaining existing practices relating to trusts information access. Which is not the preferred route by the government, given their stance that substantial action is required.
(b) Increasing transparency of non-UK trusts that hold UK land. Though the government doubt this would be wide-reaching enough to achieve their aims.
(c) Publishing the minimum information necessary to meet the three overriding principles and retaining current privacy practices for all other data. The government speculate that this would “be sufficient to reassure those interested in pieces of land, or give citizens enough information to understand and resolve any issues”, whilst still providing some protection of information.
(d) Publishing the minimum information necessary to meet the three overriding principles and increasing access to further information through an expanded ‘legitimate interest’ test. Regarding the test, the government confirm that someone living on the land would satisfy it.
(e) Publishing all information collected about trusts by default. The government accept that this could be argued to be “an unreasonable invasion of the private affairs of citizens, and a disproportionate intervention”, and that significant exemptions would be required.
6. Analysis
6.1 Overlooking the right to privacy?
As above (section 4 of this article), the government appear to overlook the right to privacy throughout the consultation – even if just to the extent that they value the “three overriding principles” as surpassing its importance. Whilst we appreciate the importance of the three principles, we note that the ‘victims’ of any diminishing of the right to privacy will often be vulnerable people (such as children), who may well have minimal chance of ever benefitting from the land or exercising control over its use.
It also seems disproportionate for the information of an individual (noting that this may also be a minor) who is within a wide class of discretionary beneficiaries and has never received a distribution or benefit to be made publicly accessible since it is hard to see what control or indirect beneficial ownership they have over the trust fund. This not only appears to infringe the right to privacy significantly, but also serves in no way to achieve the three principles. Where discretionary trusts are within scope, the arguments around the need to report information for beneficiaries appear far weaker. Such individuals have no right to any of the trust fund, merely a hope that the trustees may exercise their discretionary powers in their favour.
6.2 Person-centric or property-centric register?
A stated aim of any proposed change is to make it easier for people “interested in pieces of land” to get access to beneficial ownership information to assist with resolving any issues in connection with the land.
If building work is being done on a neighbouring property and causing a disturbance, then there appears to be some merit in certain members of the public (i.e. those impacted) being able to look up who “really” owns the property (a property-centric register) for purposes of dealing with the issue. However, there appears to be far less merit in anyone being able to access this information. One argument could be that this information is available for individual owners (via HM Land Registry) and company owners (via the PSC and ROE). However, this does not reflect the fact that the ownership nature of a trust (especially a discretionary trust) is fundamentally different from corporate or individual ownership. The names of the legal owners (who have control over the property) under the trust is publicly available as things stand.
Moreover, if this is to be a property-centric register then it would appear sensible for this to be maintained by HM Land Registry in the same way as the Register of Persons Holding a Controlled Interest in Land (RCI) is maintained by the Register of Scotland (RoS) in relation to Scottish land.
6.3 Practicalities
As above (section 2 of this article), the government identify the “swathes” of empty homes in London and uncontactable landlords as two particular motivators for this consultation. However, on the former, it is not clear how merely knowing the identity of a homeowner would empower society to occupy that home. Similarly, on the latter, the transparency of trusts appears to be a surprising way to go about ensuring that landlords are contactable (rather than providing that a landlord must provide contact details via tenancy legislation or guidance). Ultimately, a discretionary beneficiary of a trust could do little to force the trustee to act in relation to the land and it would be the legal owner of the land (whose details should already be at HM Land Registry) that would be empowered to act.
6.4 Timeline
As mentioned above (section 5.1 of this article), the government have already confirmed some steps which are to be taken in relation to access to trust information reported under the ROE and we will very likely see these come into effect this year. Similarly, even the changes consulted upon in this consultation (discussed throughout section 5.1 and 5.2) may also take effect before the impending election, due to them being implemented via secondary legislation.
We will be keeping a keen eye on how the government respond to consultees’ views on the topic.
If you or your client would like further guidance on the impact of the confirmed and proposed changes then please contact Ronnie Myers or your usual contact at Burges Salmon.
This article was written by Ronnie Myers and Callum Duckmanton.