Policy paper

Factsheet: beneficial ownership

Updated 26 October 2023

1. Why is it useful to collect beneficial ownership information?

Beneficial ownership means those who ultimately own or control an asset, for example, a property or company. It is useful to know who the beneficial owner(s) of corporate structures are, as the beneficial owner(s) may be different from the legal owner(s).

For example, where an overseas entity is registered as the legal owner on the title deed of a property at HM Land Registry, the beneficial owner(s) are the individual(s) who own or control the overseas entity.

For example, where a corporate shareholder (eg a company) is provided as the owner of a company at Companies House, the beneficial owner(s) are the individual(s) who own or control the corporate shareholder.

2. What are the beneficial ownership registers kept by Companies House?

In 2016, Companies House set up the People with Significant Control (PSCs) register, which was the first of its kind in the world. This requires UK companies, and other legal entities, to identify who owns and controls them (are their PSCs), register their details with Companies House, and keep these details up to date. The two main objectives of the PSC register are to provide transparency around the ownership and control of UK corporate structures and to help prevent misuse of UK corporate structures.

In 2022, Companies House set up the Register of Overseas Entities (ROE), which was also the first of its kind in the world. This requires overseas entities who own UK property to identify who their registrable beneficial owners are, register their details with Companies House, and keep these details up to date. The two main objectives of ROE are to help combat money laundering and achieve greater transparency in the UK property market.

3. What makes an individual a PSC of a UK company?

Under Schedule 1A of the Companies Act 2006, an individual (“X”) meets one or more of the following conditions in relation to a company (“Y”), they must be registered as a PSC:

1. X holds, directly or indirectly, more than 25% of the shares in company Y.
2. X holds, directly or indirectly, more than 25% of the voting rights in company Y.
3. X holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of company Y.
4. X has the right to exercise, or actually exercises, significant influence or control over company Y.
5. The trustees of a trust or the members of a firm that, under the law by which it is governed, is not a legal person meet any of the other specified conditions in relation to company Y, or would do so if they were individuals, and, X has the right to exercise, or actually exercises, significant influence or control over the activities of that trust or firm.

4. What makes a person a beneficial owner of an overseas entity?

Under paragraph 6 of Schedule 2 to the Economic Crime (Transparency and Enforcement) Act 2022, a person (“X”) is a beneficial owner of an overseas entity or other legal entity (“Y”) if one or more of the following conditions are met.

1. X holds, directly or indirectly, more than 25% of the shares in Y.
2. X holds, directly or indirectly, more than 25% of the voting rights in Y.
3. X holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of Y.
4. X has the right to exercise, or actually exercises, significant influence or control over Y.
5. The trustees of a trust, or the members of a partnership, unincorporated association or other entity, that is not a legal person under the law by which it is governed meet any of the conditions specified above in relation to Y, and, X has the right to exercise, or actually exercises, significant influence or control over the activities of that trust or entity.

5. Why are the thresholds set at 25% - it would be easy to avoid this by having five 20% shareholders?

The 25% threshold is in line with global norms set by the Financial Action Task Force for what is considered “significant influence or control”. It was chosen because it fits with existing and long-standing broader elements of UK company law, in particular that those with less than 25% shareholdings, voting or appointment rights will be unlikely to be able to block special resolutions in the entity and therefore could not be said to have significant influence. The government has no intention of reducing the thresholds and deems it a disproportionate burden to require companies to provide the same amount of information about their minority shareholders as they do their PSCs.

The government recognises that some may deliberately reduce their shareholding in an effort to avoid scrutiny. That is why condition 4 above exists. Condition 4 ensures that anyone who has a right to or actually exercises significant influence or control over a company is still required to be registered, even if they own less than 25% of the shares.

Failure to declare a person with significant influence or control is a criminal offence and if a court were to find that a person was exercising significant influence or control without disclosing their details, then the person and their company would be at risk of prosecution.

It is also an offence to deliver false information to Companies House and anyone who delivered, or caused to be delivered, such information would be at risk of prosecution.

6. What is to stop a person recording a nominee or family member to circumvent the requirements?

Under paragraph 19 of Schedule 1A to the Companies Act 2006 and under paragraph 19 of Schedule 2 to the Economic Crime (Transparency and Enforcement) Act 2022, a share held by a person as a nominee for another is to be treated as though the shares are held by the true owner (and not by the nominee).

And again, condition 4 of the above definitions effectively ‘looks through’ any nominee arrangement. If the nominee shareholder is simply taking instructions from a third party, that third party may be deemed to be ‘actually’ exercising significant influence or control.

Failure to declare a registrable beneficial owner is a criminal offence and if a court were to find that a person should have been registered, then the person and their company would be at risk of prosecution.

It is also an offence to deliver false information to Companies House and anyone who delivered, or caused to be delivered, such information would be at risk of prosecution.

7. Can legal entities be recorded in a company’s PSC register and recorded as a registrable beneficial owner on the Register of Overseas Entities?

The legislation allows a legal entity to be recorded in a company’s PSC register, or registered as a registrable beneficial owner in limited circumstances, where the legal entity is deemed to be “subject to its own disclosure requirements”. This includes where it is required to keep its own PSC register or it is listed on certain regulated markets, such as those in the UK or EU. This is to minimise duplication of disclosure requirements.

For UK companies, a legal entity can be recorded in the PSC register of a company if it meets the criteria to be a “Relevant Legal Entity”.

For the Register of Overseas Entities, regulations currently deem a legal entity which provides trust services to be “subject to its own disclosure requirements”. Where a registrable beneficial owner is a trustee, the overseas entity must provide information to Companies House about the trust and persons connected to it, such as the beneficiaries. This information is not made publicly available but is shareable with HMRC and law enforcement partners.

This ensures Companies House receives the same information from an overseas entity where an individual trustee is a registrable beneficial owner, as where a legal entity trustee is a registrable beneficial owner.

Without this, the overseas entity would have had to “look through” the legal entity trustee to find a natural person to record as its registrable beneficial owner. It is much more useful to have transparency about the trust and persons connected to it, than transparency over who owns a legal entity trustee, in order to meet the policy intent of the Register of Overseas Entities.

8. What amendments to the scope of beneficial ownership are being made to the Register of Overseas Entities via the Economic Crime and Corporate Transparency Bill (“the ECCT Bill”)?

The Register of Overseas Entities was introduced by the Economic Crime (Transparency and Enforcement) Act 2022 (“the ECTE Act”). The government intends to amend the ECTE Act via the ECCT Bill to ensure that overseas entities are required to record a legal entity trustee as a registrable beneficial owner, whether or not it is “subject to its own disclosure requirements”.

The government also intends to amend the ECTE Act, so that wherever there is a trustee in the chain of ownership of an overseas entity, it would fall under the definition of registrable beneficial owner.

For example, an overseas entity required to register may be owned by a UK company, which would meet the criteria to be recorded as a registrable beneficial owner, as it is “subject to its own disclosure requirements”. The UK company may in turn be owned by a legal entity trustee. Without the amendment, only the UK company would be required to register as a registrable beneficial owner, which would mean the information about the trust would not need to be disclosed.

The government also intends to amend the ECTE Act, to provide a power for the Secretary of State to expand the description of persons who are registrable beneficial owners further, where the overseas entity is part of a chain of entities that includes a trustee.

These amendments ensure the maximum amount of transparency about the involvement of a legal entity trust in a chain of ownership, given there may be complex arrangements which attempt to circumvent the requirements of the ECTE Act.

9. What other measures are being made via the ECCT Bill which will make the PSC register and Register of Overseas Entities more effective?

All existing and new PSCs, and “relevant officers” of Relevant Legal Entities, of UK companies will be required to verify their identities with the Registrar. Failure to maintain a verified status whilst being registered with the registrar, will be a criminal offence. This will make it much harder to register fictitious beneficial owners, which will improve the reliability of the information on the companies register. For more information, please see this factsheet.

The government will introduce four new objectives the registrar will have to seek and promote when exercising her functions. The objectives are (i) ensuring that any person who is required to deliver document to the registrar does so, (ii) ensuring that documents delivered to the registrar are complete and contain accurate information, (iii) minimisation of the risk of records kept by the registrar creating a false or misleading impression to the public, and (iv) minimisation of the extent to which companies and others carry out unlawful activities or facilitate such activities being carried out by others. The government will equip the Registrar with powers to support these objectives, including a new power to require additional information and greater data sharing powers. These objectives together with the new powers will make both registers more effective. For more information, please see this factsheet.

The Registrar may send an overseas entity a notice under her new power to require additional information, to determine whether an overseas entity complied with obligations and requirements imposed on it. Additional information may be required, if she receives evidence suggesting a nominee was recorded as registrable beneficial owner instead the beneficial owner. If the overseas entity does not provide the requested information in accordance with the notice, the overseas entity will not be treated as a “registered overseas entity”. This means the overseas entity will be restricted from dealing with its land, as it will not be able to transfer title to a purchaser or lessee.

10. When will these measures come into force?

These amendments will need new guidance and systems development, and some will need secondary legislation. The amendments will come into force following Royal Assent of the Bill.