The government is proposing a radical shake-up in the treatment of offshore-owned property in the UK and the transparency of its ownership.
Under proposals in a consultation paper launched by the Department for Business, Innovation and Skills, overseas companies investing in UK property may need to name the specific owners, or beneficiaries, behind the companies.
The aim is to increase transparency and reduce corruption, but could it also have an impact on wider investment?
Estates Gazette tells you what you need to know.
What is going on?
Rumblings around tax avoidance have been going on for a number of years, but the Panama Papers has pushed the rhetoric into overdrive and led to more concrete action around transparency in the shell companies that own London and UK property.
What’s new?
On 11 April, prime minister David Cameron said in a speech to the House of Commons that from June all beneficial ownership information of UK incorporated companies would need to be supplied to Companies House.
That means people or organisations genuinely profiting from the shell companies would have to be named. In the same speech he said the government was consulting on whether to do the same for foreign companies that own property in the UK.
“This government is also consulting on requiring foreign companies that own property or bid on public contracts to provide their beneficial ownership information, and we are happy to offer technical support and assistance to any of the devolved administrations also considering such measures,” he said.
What’s in the document?
That consultation paper has now emerged. Available to view here, the consultation into beneficial ownership transparency, is the responsibility of Baroness Neville-Rolfe.
She said: “The overwhelming majority of foreign companies contribute productively to the UK economy. However, there are unfortunately exceptions and to tackle corruption even more effectively, the UK government is improving transparency in ownership and control of foreign companies.
“Enhanced transparency and trust are good for business, good for growth and good for investment in Britain.”
It says the government is considering whether to require foreign companies to provide information on their beneficial ownership before they are able to buy land or property in England or Wales or enter into public procurement contracts in England.
This could then be made available in a public register to allow greater transparency, for instance in a register held by Companies House.
What about Crown dependencies?
The vast majority – more than 70% – of overseas owned property in the UK is held through Crown Dependencies and Overseas Territories.
The prime minister said they have agreed to exchange taxpayer financial account information automatically, and will begin doing so from September, providing UK law enforcement and tax agencies with full access to information on the beneficial ownership of companies.
However, it is not yet clear if this applies to a public register of ownership. Though dependencies linked to the UK, they are separate jurisdictions, and do not automatically have to adopt domestic changes.
It is expected this information will be included in any proposed public register, though this has not yet been made explicitly clear.
How could this be enforced?
UK companies that fail to list beneficiaries can be prosecuted. Though again, the consultation makes no mention of Crown Dependencies.
The consultation says it would be more difficult to prosecute foreign companies, but that additional civil and criminal sanctions could include imposing a daily fine, restrictions on buying more property, and sanctions linked to company needs or on other economic activity undertaken in the UK.
When will it close?
The original closing date for the consultation was 4th April, this was extended, but has since been closed, with the government now reviewing options.
Any changes, according to the Department for Business, Innovation and Skills, would require primary legislation in order to be delivered.
What are the potential effects?
The question is whether increased transparency requirements will deter investment or not?
The vast majority of overseas investment is legitimate, and held through vehicles completely acceptable under UK law.
As the prime minister pointed out, there are thousands of investment funds with many millions of Britons who own shares.
“Such funds, including those listed outside the UK, are included in the pension funds of local government, most of Britain’s largest companies and, indeed, even some trade unions. Even a quick look shows that the BBC, the Mirror Group, Guardian Newspapers and – to pick one council entirely at random – Islington all have these sorts of overseas investments.
“This is not to criticise what it does; it is to make the point that this an entirely standard practice, and it is not to avoid tax.”
As a result, for the vast majority it will have little effect, though viewpoints differ.
Significant effect
Increased transparency requirements from government for overseas-owned property – showing the beneficiaries of ownership – could be the tipping point in the wavering London office market.
According to Matthew Oakeshott, chairman of Olim property, the transparency requirements could have a significant effect on the market.
“Central London offices are priced for paradise, off high rents and high yields, but they face a perfect storm, Brexit, rates revaluation and transparency,” he said.
Oakeshott said that Savills has already moved yields out for West End offices by a quarter of a point, with Brexit casting a long shadow and the looming rates revaluation based on 2013 rental levels set to hit central London offices hard.
“The crackdown on money laundering and secret ownership will also have a disproportionate effect on central London.
“If the market was priced for that, would be OK, but it’s not. London office could easily fall by a quarter,” he said.
Minimal effect
On the other hand, a highly placed figure at a UK property consultancy took the opposite view.
They said that most offshore companies are owned by overseas Institutions and sovereign wealth funds who would have tax free status in their own country, due to pension fund status, but not when investing in the UK.
As a result, to level the playing the field, they use offshore companies.
“There is a very established tax regime for that,” they said, “Most of the things we work on, typically the wall of capital buying up London, are institutions not routing investment through offshore for privacy reasons, it’s for administrative reasons.”
“My honest view is it will not make much difference to the market.”
Andrew Goldstone head of private tax at Mishcon De Reya agreed.
“In my view, even a concerted global move towards disclosure of who really owns offshore companies is unlikely to have a major effect on the UK property market,” he said.
“Many see the privacy afforded by offshore companies as a “nice to have” but not a necessity. They’ll keep buying, whether in personal names or through newly-transparent offshore companies.”
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• SEE ALSO: Crackdown on offshore shell companies
