The register of overseas entities launched on the 1^st August 2022. According to Land Registry data, there are over 31,000 overseas entities that own over 93,000 properties in the UK. The introduction of the register could have a significant impact on the UK property market. Especially after the slow start the register has got off to.

As a reminder, under the new rules, overseas entities that own or lease property in the UK must register with Companies House and disclose their beneficial owners. They have until the 31^st January 2023 to do so; however, any overseas entity that is currently in the process of buying property or land will need one from the 5^th September. After that date they will not be able to register with HM Land Registry without one. The challenge is that obtaining an ID may not be straightforward.

The new rules are a mix of existing anti-money laundering rules and persons of significant control rules but there’s an important difference that those in the property sector, especially estate and lettings agents need to be aware of. The register of overseas entities rules state that the information needs to be verified by a UK regulated agent. The list of these agents includes accountants, legal professionals, tax advisors, insolvency practitioners and also estate and lettings agents themselves.

To verify or not to verify

Before estate and lettings agents choose whether to offer this service there’s a few things to be aware of. Though estate and lettings agents will be well aware of their AML obligations. This is not AML. Unlike AML there is no risk-based approach. Instead, the agent will need to follow a methodical process of verifying all information the entity has supplies on all its beneficial owners. Also, getting it wrong could be breaking the law. Those who help clients submit false information without a reasonable excuse could face a fine or imprisonment. The specialist nature of the compliance, and the criminal penalties has caused a number of professional advisors in other sectors to carefully consider whether they can offer this service. The Law Society and the ICAEW, the institute for chartered accountants, have both advised their members to proceed with caution.

Estate Agents should take this moment to reconsider the compliance controls that they have in place. Although AML policies may well be embedded these new rules and the penalties for getting it wrong are something we haven’t seen before. Management should firstly consider if they are going to undertake this specialist compliance work and if they are how they can avoid conflict of interest between sales and compliance. It is also worth checking your professional indemnity insurance that is in place to see if the firm is covered.

The impact on the UK property market

With over 93,000 entities owned by overseas entities, there are potential knock-on effects for the broader UK property market. At the time of writing, three weeks after the Register went live there were only 133 out of 31,000 entities on the register. One of the reasons for the slow start may be the challenges with verification. Not only finding someone to carry out the process but also the time it takes to verify the entity, beneficial owners and trusts. In particular with trusts the rules require all past and present trustees to be verified all the way back to day 1, including if the are deceased. In this scenario it’s easy to see how deals my be delayed.

The advice to estate agents and lettings agents is to carefully consider whether they can offer this service to their clients and how any current deals they may be working on, on either the buy or sell side, may be affected by the new rules.

Nick Lindsay is a solicitor and director of Elemental CoSec, a UK-regulated agent who are providing verification services for the register of overseas entities.