Beneficial ownership exists because the direct legal owner of land is not always the person who ultimately controls and benefits from the land. Governments around the world are tackling this issue to prevent corruption, tax evasion and money laundering but the consequences of creating a more transparent system to detect wrongdoing will mean more intrusion into what most consider to be private financial affairs.
As the world considers further sanctions against Russia, the spotlight in Parliament has once again turned to removing the veil between legal and beneficial ownership of land. Beneficial ownership has served as a shield for all those who wish to hide their illicit gains from law enforcement as well as those who innocently use it as a form of privacy blanket where they would prefer their wealth to be less known in an age of surveillance.
Since at least 2016, the UK has been considering how to identify the beneficial ownership of land in concert with partners around the world, particularly the EU who have already begun their own forms of public register. However, the UK is yet to publish solid plans on how it intends to register beneficial ownership.
The aim of the register is to create a transparent and accountable anti-money laundering regime whereby the relevant agencies can easily identify and target assets of criminals and prevent the veil from disguising the proceeds of crime, tax evasion and illicit foreign investment.
Whilst a public register would achieve this, it would also make public the trusts and other forms of beneficial ownership that are completely legitimate with valid reasons for privacy and security. It is yet to be seen whether exceptional protection could be given to such beneficiaries, particularly children and vulnerable persons.
Currently the anti-money laundering regulations require solicitors and conveyancers to identify the beneficial owners of all clients, including prospective purchasers or sellers of property. Although this is not made public, it is heavily regulated and well audited at all times to ensure compliance at all stages. This is a reactive measure and there are unfortunately situations where criminals and illicit monies are funnelled into property, particularly where the ultimate controller of a company then holds the beneficial ownership on trust further.
A simple method of avoiding this is to simply do-it-yourself and not use a professional throughout any dealing in land; particularly when the transaction is closest to the unlawful activities which would otherwise be subject to scrutiny through the current anti-money laundering regime. The pitfalls to this approach are the lack of expert assistance in negotiating and assessing a land transaction (which wrongdoers are possibly more likely to accept), and there is much less intrusion to the true owners if they do not have to interact with professionals who have a duty in law to conduct due diligence on their clients.
An obvious counter to this is to make registration of legal ownership conditional upon the prior registration of beneficial ownership. As is the current position when applying to the Land Registry for registration you must also submit evidence of having submitted an SDLT return to HMRC (provided the transaction meets the threshold for notification to HMRC). This approach would proactively close the gaps in the current regime as there would be no way to hold land legally and bypass the requirements to properly identify the beneficial owners.
The issue then turns to enforcement and verification. One way to do this would be to require a solicitor or conveyancer to make the application to register the beneficial interest, or some form of statement of truth to be sworn. However it is managed, the government in the UK cannot quite pin down how to do it, despite the political and now global pressure to introduce such a register.
The impact for the ordinary purchaser is yet to be fully understood, but there will be further intrusion into the financial and asset arrangements of individuals and no doubt more probing required by professionals at all stages.
Further information can be found at the following sites;
Transparency International UK
Register of Beneficial Ownership
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