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The Economic Crime and Corporate Transparency Act 2023: 6 Key Changes to Trust Reporting under the Register of Overseas Entities

On 26 October 2023, more than a year after its first reading in Parliament, the Economic Crime and Corporate Transparency Act 2023 (the 2023 Act) finally received Royal Assent. This includes a significant shake-up of the reporting requirements for the UK’s Register of Overseas Entities (ROE), first introduced on 1 August 2022 (see here for further detail), particularly for entities connected with trust structures. The changes contained in the 2023 Act have not yet taken effect but when they do, they will have a substantial impact, not only on newly registered entities, but also on entities complying with their annual updating duty or applying for removal from the register. 

As a reminder, the ROE applies to non-UK incorporated entities which are - or intend to become - the registered proprietor of a “qualifying estate”. Within England and Wales, this means a freehold estate or a leasehold interest granted for more than seven years. Such entities must register on the ROE and provide details of their registrable beneficial owners (RBOs). Where an RBO is a trustee, information is also required in respect of the relevant trust. 

In the context of trusts, the 2023 Act makes six key changes to the ROE. These are set out below, together with the broad implications for affected entities. The ROE legislation is complex and the summary below is non-exhaustive. Given the potentially serious sanctions for non-compliance, professional advice should always be taken with respect to a specific entity’s reporting requirements. 

1) Persons for whom overseas entities hold UK land interests as nominee will qualify as RBOs

When establishing whether a person is an RBO of an overseas entity, the first step is to determine whether that person qualifies as a beneficial owner (RBOs being a subset of beneficial owners). Currently, the five conditions for beneficial ownership pertain to a person’s rights and interests in the overseas entity, not the underlying qualifying estate. The focus is therefore on who owns the overseas entity that is the legal owner of the land, not who owns the land beneficially. At present, the capacity in which land is held is irrelevant, so where an overseas entity holds land as nominee, there is no requirement under the ROE legislation to provide information about the beneficial owner of that land (though see here for potential registration requirements under the UK’s Trust Registration Service (TRS)).

The 2023 Act introduces a new sixth condition, which has two limbs. It provides that a person will qualify as a beneficial owner of an overseas entity where the entity holds a qualifying estate as nominee for that person (Limb 1). It further provides that where the overseas entity holds a qualifying estate as nominee for another entity, any person who is a beneficial owner of that entity under any of the original five beneficial ownership conditions will qualify as a beneficial owner of the land-owning overseas entity (Limb 2). The new condition can be regarded as a deeming provision, as in reality a beneficial owner of land under a nominee arrangement is not (by virtue of that interest) a beneficial owner of the entity that is acting as the nominee. This new condition is clearly focussed on identifying the actual beneficial ownership of the land, where the land-owning entity is a nominee. It differs from the current beneficial ownership conditions in two respects. 

First, any person caught by either limb of the new condition will qualify as an RBO, without exception. This obviously means that an individual for whom land is held by an overseas entity, acting as nominee, will be treated as an RBO of the overseas entity. It also means that a legal entity that is a beneficial owner of land under a nominee arrangement will be treated as an RBO, whether or not the entity is “subject to its own disclosure requirements” (see below). So too will any persons who are beneficial owners of the entity for whom land is held under the arrangement, as they will be caught by Limb 2. 

The second difference from the existing conditions is that where a trustee qualifies as an RBO under this new condition, this will not trigger a requirement to provide information in respect of the relevant trust for inclusion in the ROE (though depending on the circumstances, there may be a requirement to provide information regarding the nominee arrangement under the TRS).

It might be expected that Limb 1 of the new condition would be subject to a de minimis, such that information would not need to be provided regarding a beneficial owner of UK land under a nominee arrangement where the beneficial owner’s interest falls below a certain threshold, e.g. five percent of the total. However, there will be no such de minimis. This means that any person with a direct beneficial interest in UK land held by an overseas entity as nominee will qualify as an RBO in relation to that entity, no matter how tiny that person’s fractional interest in the land. 

“Nominee” is not defined in the legislation. However, for land to be held by one person as nominee for another, there is surely a requirement for the second person to have beneficial ownership of the whole or a specified fraction of the land held by the first person, under a bare trust. Generally, it will be obvious where land is held as nominee or subject to a bare trust. The new condition should not generally catch unit holders in Jersey Property Unit Trusts (JPUTs), as in most cases there is likely to be a strong argument that the arrangement is not a bare trust, or (more analytically) that the unit holders do not have aliquot beneficial interests in the assets of the JPUT.

A related change is that any title numbers of qualifying estates held by the overseas entity must also now be provided under the ROE. However, the title numbers are not linked to RBOs for whom the interests are held as nominee, nor made publicly available, so the impact of this change seems limited. 

2) All corporate trustees will qualify as RBOs

Currently, a legal entity beneficial owner can only qualify as an RBO if it is “subject to its own disclosure requirements” (SODR). After the ROE legislation was enacted, the definition of SODR was extended to include most non-UK corporate trustees, provided they are (broadly) subject to regulatory oversight. The purpose was to ensure that the requirement to provide trust information in such cases would be triggered.

The 2023 Act repeals this extension and instead disapplies the SODR requirement for legal entities which are beneficial owners by virtue of being a trustee. This will mean that the small number of corporate trustees that currently fall outside of the extended SODR definition (i.e. on the basis that they are not subject to regulatory oversight) will now be capable of qualifying as RBOs, triggering the requirement to provide trust information. The 2023 Act also provides that the exemption from registration for beneficial owners who hold their interest in the overseas entity indirectly through a legal entity that is SODR will no longer apply to persons who are beneficial owners by virtue of being a trustee. 

The thrust of this change is that a trustee with a sufficient direct or indirect interest in the overseas entity will qualify as an RBO, regardless of whether it is SODR or holds its interest via an entity that is SODR; and information will need to be provided not only regarding the trustee but also regarding the trust for which it holds such interest. This will be of particular importance for Private Trust Company (PTC) structures where, for example, the shares in an overseas entity might be held by a PTC as trustee of a discretionary trust, with the shares in the PTC held by the trustee of a purpose trust. Both the PTC and the trustee of the purpose trust will now qualify as RBOs, meaning information on both the discretionary trust and purpose trust must be provided.

3) No exemption for interests held via corporate trustees

Repealing the extension of the definition of SODR to non-UK corporate trustees also has implications for beneficial owners who are not trustees. Currently, individuals who hold their interest in an overseas entity through a direct or indirect shareholding in a non-UK corporate trustee are in most cases exempt from being registered, on the basis that their interest is held via a legal entity that is SODR. Where following the repeal, the corporate trustee no longer qualifies as SODR, these individuals will cease to be exempt and will therefore be reportable as RBOs alongside the corporate trustee. The same applies for any legal entity beneficial owners, assuming they are themselves SODR. 

4) Requirement to report changes to beneficiaries 

In addition to the “snapshot” of trust information that an overseas entity must provide when filing its annual update statement or applying for removal from the register, additional reporting will apply where a trustee has ceased to be an RBO during the relevant period. This will require the entity to provide details of any person who became or ceased to be a beneficiary during the trustee’s tenure. 

5) Retrospective requirement to report transitional period changes

Overseas entities that were required to register by the original 31 January 2023 deadline were not required to disclose any changes in beneficial ownership which had occurred prior to the application, except where a qualifying estate was disposed of prior to the deadline. This meant any restructuring that occurred in advance of the original deadline was outside the scope of the reporting. Somewhat controversially, the 2023 Act now requires entities to provide details of any changes in beneficial ownership, including information regarding trusts, which occurred between 28 February 2022 and 31 January 2023. 

6) Limited public access expected for trust information

A final change does not concern the information that is reported, but rather the extent to which it is made available to the public. Under the current ROE regime, where a person is an RBO in a trustee capacity, there is generally a requirement to provide information about the trust, but such information cannot be viewed by the public. 

When the provisions of the 2023 Act are brought into force, the required information about a trust will be no longer be unavailable for public inspection in all circumstances. Instead, Companies House will be able disclose this information to members of the public through an application process. The nature of this process is yet to be confirmed, but presumably the intention is to bring the ROE regime into line with the TRS. Under the latter, information about certain trusts may be disclosed to an interested party, but the applicant must demonstrate a “legitimate interest” in the beneficial ownership of the trust in question (see here for further detail). 

What next? 

At the time of writing, the date that the changes described above will come into force is yet to be announced. When they do come into force, an additional 3-month extension will apply in respect of changes 4 and 5 above for entities complying with their updating duty. 

The result will be that when many overseas entities come to file their next update statement, the information held on the register will no longer be correct under the revised rules. They will therefore need to provide details of changes to the information reported, even if the ownership structure has remained the same; and such new details will need to be verified.

Failure to comply with the updating duty and false filing are both offences under the legislation by the entity and every officer who is in default. Persons guilty may be liable to a fine, and in some cases, imprisonment.  In addition, the overseas entity ID will become invalid, meaning the entity will no longer be able to buy, sell, transfer, lease or charge property or land in the UK until it complies.

Once again, professional advice is crucial to ensure compliance. 

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