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Economic Crime (Transparency and Enforcement) Act 2022
Episode 828th November 2022 • Real Estate Law Bitesize Series • Travers Smith
00:00:00 00:11:34

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Episode 8 of the bitesize series covers the Economic Crime (Transparency and Enforcement) Act 2022, and the upcoming deadline of 31 January 2023 to register overseas entities on the new Register of Overseas Entities at Companies House. Sarah Faull and Gareth Wynne discuss how the Economic Crime (Transparency and Enforcement) Act 2022 will affect all overseas entities who own or are looking to own qualifying real estate in the UK. Failure to comply can result in financial or even criminal penalties so it is important that entities are made aware and start the registration process sooner rather than later.

Transcripts

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Hello and welcome to a new podcast from the real estate team here at Travers Smith.

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I'm Gareth Wynne

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a senior associate in the real estate team.

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And I'm Sarah Faull, one of the knowledge counsel in the real estate team.

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So we're speaking to you today about the Economic Crime,

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Transparency and Enforcement Act 2022.

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We've had lots of questions from clients concerned

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about what they have to do in response to it.

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So put simply, this is an act from enforced

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by the government to identify ultimate owners of property in the UK.

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And specifically there is an aim to provide greater transparency

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on property ownership in the UK by requiring overseas entities to register

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at companies house and disclose the beneficial owners of that property.

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So it's quite a technical act

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and for those who are interested,

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we have briefings on it which we can provide links to.

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But for the moment we're concentrating on property in England and Wales.

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So if you have an overseas company that holds UK real estate,

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you should have now received a letter from Companies House

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informing you of the obligation to register.

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And we've had lots of questions from clients asking what steps

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need to be taken and specifically by when.

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So the first thing to note is that the act is now in force.

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So we do need to be aware of the critical dates.

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And there are three critical dates that we need to be aware of.

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The first to have passed to the first is the 1st of August 2022,

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and that's when the register went live.

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From that date, overseas entities have been able to register

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their ownership at Companies House.

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We understand there are about 31,000 overseas entities

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that will need to register

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by the end of the transition period, which will come on to shortly.

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So you can see there's quite a long way to go.

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The second date was the 5th of September 2022,

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and from that date, the land registry is going to be entering restrictions

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on title to all of those titles owned by overseas entities.

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And again, we we have heard that there are approximately 90,000 of those titles.

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One thing to note is that if there are already applications

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or priority searches against those titles at the then registry,

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the restriction will go on after those applications have been processed.

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And the third date to be aware of is the 31st of January 2023.

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And that's the end of the transitional period,

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which is six months from the 1st of August 2022.

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And that's the deadline by which all overseas entities that were holding UK

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property and acquired it from the 1st January 1999 and the 1st of August 2022

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, would have needed to have registered on the register of overseas entity.

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And would have had to have obtained an overseas entity ID number.

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And if they don't register

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by that 31st of January date, they'll be committing offenses under the act

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and they'll be liable to either fines or potentially criminal offenses as well.

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They'll also be prevented by the restriction on title,

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which will become effective at that date,

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and they will be prevented from selling, leasing or charging their property.

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So as Sarah mentioned there, the first date

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when something actually happens in response to the act

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has passed being the 5th of September where the restrictions will go

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on the title of properties owned by overseas entities.

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There's two forms of those restrictions, and the first one applies to all property

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that was owned since first January 99 and 1st of August 2022.

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And those restrictions will prevent the transfer charge

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or lease of more than seven years to be registered if.

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But it only actually occurs or bites, should I say,

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after the 31st of January 2023.

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So the restriction will go on now, but it won't actually be effective

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or you won't need

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to do anything in response to it until after that transitional period date.

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The second form of restriction is conversely for bites

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now is for property that you're dealing with at this current moment in time.

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So you have to remember that if you are leasing or acquiring a property

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now with an overseas entity, you will need your overseas entity I.D.

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for that .

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From this point in time and your sort of your legal adviser

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should be advising you on that and making you aware of it as the process goes.

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But then ultimately, by the 31st of January next year,

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all overseas entities who have a property at any point

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since the 1st of January 1999 in England and Wales

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will need to have applied for an overseas entity ID number.

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So the other question we get asked a lot by clients at the moment is

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if they still need to register, if they've disposed of their property

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before that 31st of January deadline, we're saying we have this six months

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transitional period.

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In theory, don't need to register before the end of that date.

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But if you're disposing now, what do you have to do?

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So of course, if the restriction is already on the title,

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then there's nothing actually you have to do in response to that, as we

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said, because you be disposing or dealing with that property before the deadline.

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But there is a point in there to say that

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if you are dealing with that property after the 28th of February, 2022,

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you still need to disclose the information about beneficial owners

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to companies house as if you were applying to be on the register,

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even though there's no registration and the sort of requirement in that.

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Next question we've been asked a lot

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is how to work out exactly who needs to be registered on the register.

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So the first thing you'll need to do is look at your property interests

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and work out whether overseas entities own them.

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And having identified those overseas entities, you then need to look up

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the chain, the ownership chain, to find out who the beneficial owners are

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and then whether any of those

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beneficial owners are what's termed a registry beneficial owner.

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And the beneficial owners and registered beneficial owners

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can be either a corporate entity or could be an individual as well.

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The test of whether an entity is a beneficial owner is broadly

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the same as the PSC regime, which many companies are familiar with broadly.

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That's whether they own 25% of the voting rights

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or the shares in the overseas entity, or whether they exercise

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a significant degree of control or influence over the overseas entity.

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And then once you've

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identified the beneficial owners, you then need to look at whether

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they register both pursuant to the act and for a company.

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This usually means that they're either registered under the PSC regime,

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that they've registered their own overseas entity.

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It's perhaps because they also hold a property in the UK

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or whether that is a UK or EU market.

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And there are some other subtleties as well,

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but these are broadly the categories.

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And then once you've found a

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beneficial owner, you can stop looking at the chain at that point.

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And that's the entity that you register.

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You don't look about that.

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If you don't get to an entity that's a very beneficial owner,

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you have to keep going right up the chain potentially until you get to individual

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owners or managing offices of corporate entities.

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And one of the questions that we've had in from a number of our fund's clients

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is, is does this catch a fund manager in the in the sort of the fund structure?

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So although not being sort of

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ownership by way of shares of the of the entities,

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but they are beneficial owner or potentially a beneficial owner

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by virtue of exerting a degree of control

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over the overseas entity.

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So our view on this is that unfortunately, yes,

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the fund manager will probably need to be registered as well.

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But then you do have to bear in mind this.

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There's obviously

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the degree of control that they own.

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So we're going up that chain and getting to the beneficial owner

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on that side of the register or beneficial owner subject to everything

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that Sarah has said in terms of where you can stop in that chain.

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And then conversely, you still have the actual owners

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of the entity itself who will potentially be registering beneficial owners as well.

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So you need to look at both strands in terms of the fund structure.

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The Register for overseas entities details.

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The verification system, which is very similar to the money

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laundering regulations and the regulations, state

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that a variety of categories of people are permitted to verify the information.

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When we get that list, it's the UK regulated credit

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and financial institutions, auditors,

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insolvency practitioners, external accountants and tax advisors.

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Independent legal professionals, trust or companies, service

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providers and estate agents and letting agents.

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So there is quite a long list there

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where the relevant person is verifying information about an individual.

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They can't be a family member or close associate.

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For example, it could be someone sitting on the same board of directors

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or partners in the same firm or someone who's part of the same.

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JP And in general, it's envisaged that not many law

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firms in the UK will be in a position to verify this information.

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And what we're

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finding at the moment is that having looked at the companies

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that have registered overseas entities that have registered the companies house,

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it tends to be accountants and companies,

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service providers who are doing the bulk of the verification at the moment.

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I'm conscious here that we've spotted a lot of information

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and there's a lot of jargon that goes in here.

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So there is a few key takeaways that that are applying here,

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the key things that you should be thinking about of what to do

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now if you have property owned by an overseas entertainer.

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England, Wales are in the first instance to dust off your structure charts

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and identify your ultimate beneficial owners

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for each relevant entity that

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concerns.

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And then you analyze which ones are a vegetable.

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So then you pull together

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the relevant information for those reputable entities and the people,

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which will need to be part of the application process

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to register at Companies House.

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As Sarah has just mentioned, the information needs to be verified

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so you can confirm who is going to do that verification process for you

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and ultimately who is going to apply to companies house for the registration.

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Remember that for existing properties, this will need to be done

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by the 31st of January 2023,

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but if you are dealing with that property in the sense of you

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are selling or leasing it at this very moment in time,

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just be aware that your purchaser or potential tenant will will

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no doubt want to see that information just in case timing slip.

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And so it's good to have that in order now.

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And finally that if you are acquiring property

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with an overseas entity or leasing it from this moment in time,

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you will need to look to deal with the registration right now.

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And of course, it goes without saying that we are here to advise

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you and answer any queries that you may have about the process.

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Thank you for listening.

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If you'd like any further information or to discuss any of your ownership

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structures, then you can find our contact details on the Trevor Smith website.

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