Tighter restrictions which are specifically designed to flush out ill-gotten gains have recently been introduced for UK property ownership by offshore individuals and companies. Whilst their impact could be far reaching, legitimate investors should have no reason to fear the changes and be reassured that their asset portfolios are secure.
Earlier this year, following the conflict in Ukraine, the Government fast tracked the Economic Crime (Transparency and Enforcement) Bill 2022, aimed at increasing transparency surrounding the ownership of UK property held by offshore entities – such as companies, trusts and other complex structures. The Government passed this bill back in March and it includes plans to create a new register of overseas entities and to extend the reach of Unexplained Wealth Orders.
What are Unexplained Wealth Orders?
Policy makers have been concerned for quite some time that the UK may be perceived as a hub for money laundering activities, with ‘dirty money’ finding its way into London’s prime property market. Unexplained Wealth Orders (UWOs) make it possible for law enforcement agencies to step in and confiscate assets where they are satisfied that, on the balance of probabilities, they were obtained from criminal activity.
According to data covering a period from January 2018 (when UWOs were introduced) to February 2022, they have not been widely used. Orders have been obtained on just nine occasions and relate to four individual cases. Since the end of 2019, none of these cases have been obtained, although there have been some high-profile successes and failures when seeking orders. According to a risk assessment conducted on behalf of the government in 2020, money laundering activities in the UK have most certainly increased since 2017 which suggests that UWOs have not had their desired impact.
The previous legislation
Under the previous legislation, a UWO did not in itself give law enforcement agencies the right to recover assets. However, any response by an offshore entity given to a UWO could be used in later civil recovery proceedings. Under the Proceeds of Crime Act 2002, failure by an offshore entity to respond to the order would mean that the assets in question were made subject to a civil recovery action.
The new changes
The new Bill allows UWOs to be sought against property held in trusts and other complex ownership structures, as well as removing some key barriers preventing the wider use of UWOs. For example, time will be extended for law enforcement agencies to review material provided in response to a UWO and changes affecting rules to protect law enforcement from incurring substantial legal costs following an adverse ruling.
The creation of a new Register of Overseas Entities has also been introduced with the new legislation. The aim is to prevent foreign owners of UK property from concealing their identities behind an offshore structure.
This new Register provides law enforcement agencies with more information to assist them in tracking down individuals suspected of using UK property as an investment asset for money laundering purposes.
Foreign owners of UK property are now required to reveal their identities, with stiff penalties for non-compliance. This includes restrictions affecting any plans to dispose or lease assets and, in some cases, hefty fines or other criminal sanctions. The Register applies to:
- Property bought in England and Wales since January 1999
- Property bought in Scotland since December 2014
In addition to this new legislation, a Government white paper entitled ‘Corporate Transparency and Register Reform’ was published earlier this year. This white paper sets out plans to give Companies House new powers to verify the identity of people setting up and running companies.
What action needs to be taken?
Existing offshore companies, which own UK property assets, may need to take some action to make sure they are prepared for the more transparent regime. As well as being conscious of the extended UWO provisions, giving law enforcement agencies greater powers to flush out cases where property has been acquired using illicit funds; they will need to be aware that they are now required to register details of beneficial ownership. In the case of UK property held by an offshore trust, it is already a requirement that beneficial owners are identified under the Trust Registration Service.
While understanding the extent of these new changes is key, legitimate investors should be reassured that they have no reason to fear.