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Our response to the Consultation on Transparency of Land Ownership involving trusts

Our response to the Consultation on Transparency of Land Ownership involving trusts
Our response to the Consultation on Transparency of Land Ownership involving trusts
Thu Feb 29

On 27 December the Department for Levelling Up published a Consultation on Transparency of Land Ownership involving trusts (“Con Doc”).  We have already alerted the public via LinkedIn of our concern to publish the names and addresses of minors who happen to beneficiaries of trusts which own an interest in land in the UK.

Our response, including two illustrative case studies, is set out below, first as a speed read, and for those of your interested in privacy, data protection and prevention of crime etc., there is more detail below it.

Speed read our response

  • Key points
    • The case for identifying beneficiaries of trusts and making their details publicly available has not been made.   There is a case for HMRC and Proceeds of Crime authorities to know these details, but powers already exist in relation to these.  
    • In respect of land, the Trustees are the person with the ability to deal with the property and the “problem”, i.e. they really control the land, and the “problem” is one of enforcement, which should not be an issue given that there is by definition land in the UK against which enforcement measures can be levied.
    • However, as a precondition to enforcement, authorities must be clear that the person they are enforcing against exists, is aware of their breach of whatever legislation is in point, has had a chance to remedy that breach and remains in default.
    • As may be the case with people who are paid to be trustees claiming that they have to consult their client, then if that is indeed true, then they are not acting as trustees but as nominees and appropriate steps should be taken.
  • As the Con Doc admits, the Consultation is a sham, as the Government is able to obtain details of beneficiaries under legislation already passed in 2023 (ECCTA 2023). 
  • The Con Doc repeats, as if it was fundamental truth, such as all men are born equal, that transparency of trusts is a good thing.  It is not when it could affect the privacy of an untold number of private individuals across the world.
  • The question asked (question 4) on whether personal details of minors should be put on the ROE does not have a “never” option.  The answer is never. 
  • Any proposals enacted should first be applied to trusts which include in their actual, class of, or potential, beneficiaries,  Members of both Houses of the current Parliament and of future Parliaments, and civil servants who are Grade 6 or 7 and Senior Civil Service.   After a two year trial period, a report should be compiled on the effectiveness of these proposals.
  • There are real problems with rogue landlords, planning law abuses etc but there are ways of dealing with these but none of these issues require a blanket disclosure of private holdings.  The minister in his second paragraph talks about the UK business environment but these proposals apply to everyone and not just businesses, in the UK or anywhere in the World.
  • Trust beneficiaries can be anywhere in the World.  Those living in countries with strong privacy laws, e.g. France, Italy, could well have legal claims against the Government, and Ministers, for invasion of their privacy.

Further reading

Our introduction

We have provided two case studies, based on generic but realistic scenarios.   We hope that these demonstrate the real impact the proposals in this Con Doc, its ineffectiveness and invasion of privacy.

B Comments on The Con Doc

The Executive Summary

Here is the first paragraph of the Executive Summary, which goes on for 4 pages (!) so is not much of a summary,

 “Transparency around who owns and controls land is a vital aspect of our land market. People buying land need to know who they are buying it from and there needs to be a way to identify people who attempt to hide their ownership of property for criminal purposes. Although land may be owned by individuals, companies, trusts or other entities, all citizens have a collective interest in ensuring that land is used properly and for the benefit of society.

Transparency around who owns and controls land is a vital aspect of our land market.”  Incorrect.  For the last 99 years, the land market in England has worked purely on the basis of being able to identify the person with the right to sell and give good title, and specifically ignores the person who really “owns and controls” the property.

People buying land need to know who they are buying it from…”.  NO THEY DO NOT.  See above.  They need to know that they are buying a clean title, free from the real1 economic owners.

“… and there needs to be a way to identify people who attempt to hide their ownership of property for criminal purposes.”    Agreed re identifying criminals but the word “and”  creates an absurd non sequitur. What has identifying criminals got to do with individuals, businesses and other selling or buying property, and the smooth operation of the property market?   NOTHING.

Although land may be owned by individuals, companies, trusts or other entities, …” 

What does this mean?  Is it a veiled threat to suggest that the individuals, companies and trusts etc are not people to whom land should be entrusted?  Should the state own and control all land?   Karl Marx, the United Nations Agenda 30 and the WEF would all agree.  I think most people in England would not.

…all citizens have a collective interest in ensuring that land is used properly and for the benefit of society.”   AGREED.   Indeed it appears that some of the ideas on transparency and the public interest in who owns land have been borrowed from the Labour Party’s 2019 publication “Land for the Many”2, the title a nod to Jeremy Corbyn’s political slogan.

The issue is how to go about it in a sensible manner.

Land can be owned by people who are dead (but someone will be collecting the rents or living there, or maybe not); in prison, in a coma, abroad and completely unaware that Aunt Agnes left them property in a long forgotten will.  Companies are struck off, liquidated etc.  Land may have been “lost”, common in the days of nationalised industries which had a lackadaisical approach to title deeds etc. and is in effect owned by no one and should therefore revert to The Crown (managed through its agent The Crown Estate3).  Bad things happen.

The reality is that the concern in relation to a particular property is different, depending upon who is concerned.

HMRC would like to know for a variety of reasons, CGT on part disposals, taxation of rental income, whether the occupier should be taxed under offshore trust provisions, and many other reasons.  This could include needing to know who the trust beneficiaries are.

A local authority has no need whatsoever to know who the beneficiaries of a trust are.   Its powers, including council tax, relate to the occupier or the person who can make things happen with the land.   Invariably the legal owner.

NB the comment that a trust company can be the legal owner on behalf of many trusts so no one can tell who the real owner is, is naive and can be dealt with by a form of statutory notice.   

As already mentioned, in most cases the person you need to speak to are the legal4 owners, i.e. the Trustees.  

The ultimate sanction for non-compliance should be to garnishee the rental stream (if any) and / or a compulsory purchase order.   Having said that, there are many properties which have been empty for years but which local authorities do nothing about.  I recall counting 7 in a small local village which remained empty for years.

The following are specific comments on parts of the Con Doc, matching its headings.

Introduction (para 11 onwards)

Legal ownership v beneficial ownership

Paragraph 15 – the use of the term beneficial owner as travelled a long way from its legal definition5, partly due to an international failure to understand what a trust is.

Paragraph 18 – A Trust has three core elements

  • The trustees, who own the assets, control their use, sale or purchase and any income generated.
  • The assets themselves (usually boring shares in private companies, and not the piles of gold and US dollars imagined by most campaigners and those practising the politics of envy).
  • The beneficiaries.  These can include other trusts, other entities, nearly always some charities and individuals.   Their rights can vary from a right to income, a right to capital at a certain age, or a hope that someday, they might receive something at the discretion of the Trustees.

Some trusts also have a protector.  This person usually has one power, the power to replace the trustees.  The protector often has other ‘powers’ which are really veto rights, i.e. they can stop something happening, but they cannot initiate anything.

However, some trusts, known as bare trusts, are nominee arrangements and in these cases, and only in these cases, the beneficiary should be disclosed.    How you achieve this is a separate matter.

Increasing transparency of land ownership involving trusts

The Con Doc repeats, as if it was fundamental truth, such as all men are born equal, that transparency of trusts is a good thing.

First, paragraph 36, the public does not understand self-assessment, let alone trusts; giving them data will make them no wiser.  Journalists do not understand trusts, neither do HMRC and most MPs.

The statement is made (para 37) that details of beneficiaries should be recorded on the ROE.  Why?   Just because they are beneficiaries, it does not make them persons who can control the entity, unless they actually exercise significant influence over the entity, which is already covered in the ROE rules.

Example 1

The examples given for the application of the ROE are meaningless and pointless.  The outcomes are the ones one would expect and are sensible.  Anything else is merely pandering to those who wish to make stories out of nothing.  Paragraph 39 states that any departure from the current situation would be a departure from a long standing norm.  We agree.  All the more reason not to change the regime any more than is necessary.

One should note that HM Government has a plethora of powers in respect of terrorism6, crime, proceeds of crime, and tax collection.  Outside, that, and given that we are looking at land which is in the UK and is capable of being compulsorily acquired, we can see no need for other remedies which would invade the private lives of not just UK citizens but individuals the world over.

Further the privacy laws in some countries are very strong and the government could be sued by individuals in countries whose privacy laws are breached.  Italy, for example, reversed the publication of businesses VAT numbers, a key requirement to an efficient and fraud free VAT system, on the grounds of privacy. 

Chapter 1: The case for changes

Greater transparency

This opens at para 46 with a quote from the Law Commission.  It is an obscure one from 1985 Law Commission report on Land Registration (https://cloud-platform-e218f50a4812967ba1215eaecede923f.s3.amazonaws.com/uploads/sites/30/2016/07/LC.-148-PROPERTY-LAW-SECOND-REPORT-ON-LAND-REGISTRATION-INSPECTION-OF-THE-REGISTER.pdf , paragraph 18.(iii) on page 15.   This was written in the context of making the Land Register itself public which it now is.  It is utterly shameful that it is repeated wildly out of context as it referred to registers which were public in 1985 such as the register of disused local authority land7.

The next sentence has echoes of The Labour Party document “Land for the Many8”.

Paragraph 47 gives an example of a real problem but one which is irrelevant to this Con Doc.  It assumes that knowing the real beneficial owner is the answer with no justification, reason or logic behind the statement.  Why not knock on the door of the residential units?   Ask the people there who they pay rent to?  What is needed is basic real world legwork which does not require a Government database.  

Paragraph 48 – companies are a public matter.  They adversely affect creditor rights.  Trusts are entirely private, they are about “trust”.

Addressing a number of issues in the housing sector

The proposals would do nothing to alleviate the issues referred to in 50 a, b, c, d.  Indeed in 50 b, there is no reason why such groups cannot negotiate with the legal owner.    Again we would refer you to our case studies

Tackling illicit finance and corruption

These are criminal matters and the discussion of them is entirely inappropriate in this Con Doc.   Both national and local authorities have a plethora of powers at their disposal but choose not to use them.

Chapter Two Enhancing the ROE

Before taking further legislative action we would urge the Government to assess the effect of ECCTA 23.  We would refer to our case studies below.

If the Government decides to pursue these measures then we believe that they should be trialled on MPs and House of Lords first for a period of 2 years.

C Answers to questions asked

Question 1.   Do you agree that more direct information about the ownership and control of land, including where a trust structure is involved, would help address the issues in the housing sector identified above.

Answer – No for the reasons outlined above.

Question 2.   Are you aware of, or have you experienced, any housing-related issues where a lack of ownership information has caused a problem?

Answer No.

Question 3.  What further benefits do you see from increasing the transparency of land ownership, especially where trusts are involved, and hat are the risks?

No benefits whatsoever.  Please see Case Study one attached.  The risks are exposing the private details, including names and home addresses of individuals who would then be at risk of violence and harm from misguided individuals who have a range of perceived injustices to “correct”.   In addition to UK rules on privacy and fear from prejudice and assault, the individuals could be living in countries which have strong privacy rights rendering the disclosure of their information to the global internet enabled public at large unlawful.

Question 4.  Do you believe that information about minors should be available to public inspection:

a by default, with the onus by application on the overseas entity, the trust, or their representatives, to apply for protection under s25 ECTEA 2022: or

b  access permitted only by application with the applicant required to demonstrate a legitimate interest in the information?

Every person I have read question 4 to has answered,

or c, not at all.”

There cannot be any legitimate interest in obtaining and disclosing details of minors for the reasons set out in the Con Doc.  Given that minors, in practically every country in the world, have no legal authority to perform any act under law, how can having their details be of any possible advantage?

This has to be the most insane question to be put into a Government Document ever.

Question 5.  If you answer b, do you believe that it should remain accessible only to law enforcement, HMRC and public authorities.

There may be a theoretical argument that minors involved in serious organised crime should be disclosable to the authorities which investigate such crimes.  But in practice, such minors will invariably be under the control of adults.   

We can only assume that the Minister for Levelling Up is completely unfamiliar with child safeguarding legislation.

We refer to our Case Study One.  How can there be any legitimate interest in knowing the names and addresses etc of the great grandchildren of Henry Seymour?

Question 6.  Refers to options presented in paragraph 80.

On the basis of the arguments put forward in the Con Doc, and our own experience, Option 3 is the only logical, sensible and safe option.

How the Government can achieve its aims has been explained above, is already catered for in myriad legislation.  

Question 7.  What is the potential business impact of your chosen option?

None, as business would carry on as usual.  Thise with legitimate concerns about the use to which land in the UK is put, already have access to those who control its use, i.e. the legal owners, and if there are merely cyphers or nominees, then the details of who their principal is should be disclosable to HMRC (where tax is at stake) or those charged with investigating any criminal activity taking place.

Question 8.  What is the potential impact on individuals of your preferred option?

Their privacy and safety would continue to be protected.   A situation where individuals in a foreign country or the UK, have to opt out of being on an obscure public register in the UK is so fundamentally flawed as to beggar belief.   It would be a charter for criminals, estranged partners and others to locate and cause serious harm to individuals including minors.

Question 9.  If your preferred option is Option 2…

Our option is option 3.

Question 10.  Do you have any other views on this issue that you wish to share with us?

Yes please read this response and study and learn from our attached case studies.

Question 11. Do you agree that any future transparency requirements should apply to all land, regardless of use class?

Use classification is an instrument of planning law and is therefore subject to change as and when the needs or planning law dictate.  This could have unfortunate consequences in the future should transparency laws be based on them.

There is clearly a marked distinction between land used as homes for individuals (residential) and land used otherwise.  There is also clearly a greater need to protect the privacy and safety of those occupying and owning residential property than there is for commercial property.

Question 12.   Factors regarding use classes.

See reply to question 10.

Question 13. Which of the following data do you consider necessary and proportionate for the Government to collect in order to meet the objective of greater transparency of land ownership in the public interest?

First, this question presumes we agree with the proposition that greater transparency is required.  We do not believe that it is.

Data we think should be required.

  • Name of trustees
  • Identifier of Trust e.g. Name.
  • Details of land in the UK owned by the Trust.
  • Names of settlors but only for HMRC and NCA.
  • Beneficiaries’ rights over land but only if they are in occupation or receipt of rents.
  • Dates of birth – relvant only to beneficiaries and then only Month and Year as per Companies House current practice.

Question 14. Same as question 13 except for the housing sector.

See reply to question 13.

Questions 15 and 16.   Same as question 13 but in the context of money laundering and corruption.

Whatever is needed, together with increased powers to investigate those holding public office as corruption inevitably involves such persons.

Question 17, 18 and 19. See our answers above.  The questions repeat what has already been asked.

Question 20.  Please detail any situations where you think trust information should be protect [sic] from publication by default?

First, any details of minors should be outside the scope of disclosure save to HMRC.  Second, where someone is vulnerable and under the care of another person, that other person, e.g. a local authority should be listed.  Third, non-details of a person not living in the UK should be published if the country in which they live has laws preventing personal details being published in public without their consent.

27 February 2024

Stephen Coleclough

Principal

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Caesium International Tax Consultants LLP (CsI) is a Limited Liability Partnership incorporated in England under number OC441947 and whose registered  office is at Suite 13, Churchill House, 137-139 Brent Street, London NW4 4DJ.   CsI is registered with HMRC for anti-money laundering purposes. Reliance on advice is subject to (i) a signed engagement letter and (ii) in relation to UK tax law only. CsI is authorised to verify registration of Overseas Entities for the purposes of the Economic Crime (Transparency and Enforcement) Act 2022

Appendices

Case Study One

Case Study One to help answer the question “Who do you want details of?” and its supplemental question, “Why?”

Dr Heinrich Schwarzkopf was born in Bavaria, Germany in 1906 to a middle class family.  He had grown up to be working as an engineer in the petro-chemical industry and in 1935 he married his wife, Pascale, who was born in Belgium.  They had a son and a daughter but during 1938, his colleagues and friends’ reaction to his “communist” views were making him feel unsafe and was also becoming an issue at work.  He and his wife decided to leave Germany, initially for Belgium, where his wife’s family lived but, by 1939 they had decided to move to Nottingham, England with their two children.

As his parental family and siblings were remaining in Germany, as much of the family wealth as was liquid was given to him to put into a trust in Jersey, which he did.  It was a typical discretionary trust in favour of the children and remoter issue of his father who was the settlor.   The Trustees were William & Glyns (Channel Islands) Trust Corporation Limited.

However in June 1940, Germany invaded Jersey and the trust moved to the Isle of Man trust company of the  same group.

Dr Schwarzkopf also changed the family name, and his name, becoming Henry Seymour after a street where he once lived in London.

None of his parents nor siblings in Germany survived the war.   This effectively made Henry and his family the sole surviving beneficiaries of what was now called the Seymour Trust.

In the hope of a brave new world, and like many other couples, Henry and Pascale decided to have more children, the first of the baby boom generation. Not all was plain sailing.  They lost their eldest son in an aeroplane crash in Korea in 1956.

Their eldest daughter married a baronet and lawyer and had five children of her own.  All married and two remained in the UK, one emigrated to the USA, and another to Australia.   The middle child went to work in Hong Kong where he met his wife and later they and their children moved to the UK.

Henry’s second son divorced twice before fathering a son out of wedlock.  The son is within the class of beneficiaries.

His younger daughter fell in love with a suave Frenchman and moved to France where she had two daughters.

His youngest son stayed close to home, married and he and his wife had four daughters.

The family tree is shown here (figure 1)

Henry died in 1988 leaving his widow, four children and 12 grandchildren. Ex spouses are not in the class of beneficiaries.

Investments

The Trustees, in consultation with Henry, who was by then the patriarch of the family, thought that given that the beneficiaries were all in the UK, that they ought to invest in UK situs assets and Henry started looking for opportunities in residential property.

Henry suggested a number of properties and the Trust acquired them, through an Isle of Man company “Seymour Investments”.  Henry collected rents initially but soon handed the task of looking after the investments to Savills in London.

Asset management since then has been relatively passive, save for acquiring more properties.   Distributions were rarely made save for school fees.  If anything does arise, e.g. a CPO is served, then rather than make decisions on their own initiative, the Trustees would always discuss the matter with Henry first.

Changes to the Trust

When their younger daughter married and moved to France, a portion of the Trust fund was set aside in to a sub-trust to invest in French franc denominated assets for the benefit of her and her children.  Later when the French tax regime became too punitive, she and her children were excluded from benefit of the Seymour Trust.

In 1986, one of the grandchildren, together with his wife moved to the USA.  In advance of that move, portion of the Trust Fund was used to establish a new trust for US beneficiaries only and anyone resident in the USA or who was a US citizen was permanently excluded from the Seymour Trust.

Henry died in 1988.  After that the Trustees would consult the widow Pascale, and the husband of their eldest daughter.  For some reason it always falls to the son-in-law to sort things out!

In 1998, shortly after the death of Pascale, another grandchild moved permanently to Australia and a similar exercise to that done in 1986 was performed, and a new trust was established in the Cook Islands.

Today

The Seymour Trust carries on to this day.   The class of beneficiaries now includes more UK based great grandchildren of Henry and Pascale, and school and tuition fees continue to be funded by the trust.

The Baronet has suggested that the remaining Trust Fund be split into three trusts, one for his family and one each for his UK based brother in law and one for his UK based sister in law.   This is a work in progress.  However, the current class looks like this (figure 2)

Including people who have no nexus with the trust as it now is, does not fit with any of the Government’s proclaimed aims, so realistically one is left with the Trustees (now RBS International Limited) and the following individuals (figure 3)

Who makes the decisions?

The Trustees make the decisions but would not do so without considering the views of the beneficiaries, mainly the surviving children of Henry and Pascale and their spouses.  But ultimately, the Trustees decide what to do.

Other trusts may have a stronger patriarch /  matriarch in the background.  Very large trusts may have formed boards of trustees to look after the assets.

So who should the public have an interest in identifying?

Looking at figure 1, some would say all of them.  They are hiding something and therefore must be guilty of something, if not in the UK, but elsewhere.

But this presumption of guilty unless proven innocent is, whilst part and parcel of our income tax law, is not the basis for a greater invasion of privacy.

Looking at figure 2, the UK clearly has no legitimate interest in those individuals shown in red.

Figure 3 shows the widest circle of people whom UK authorities could legitimately have an interest, but then only in respect if financial crime or tax matters.  Outside that, the legitimate interest of the UK is in the person who actually controls the assets; the individuals who make the decisions.

In this case, and on the facts as we have chosen them for this case study, that would be at most the Trustees.

Case Study Two

Case Study Two to help answer the question “Who do you want details of?” and its supplemental question, “Why?”

NB All names, entities, activities etc are completely fictional and are not intended to refer to, explicitly or implicitly, to any person or entity past, or present.   This scenario, whilst containing elements which are realistic, is imaginary.

Given the UBOs in this case, there is every reason why many people “need” to know who the UBOs are.

The scenario in this case study is simple, compared to what could be expected in real life.  For example, all ownerships are 100%.  In reality they could be fragmented and include minority shareholders who believe they have a valuable interest but in reality, are unwitting participants who have been “used” to present an air of genuine diversity of ownership.

The numbers of companies, nominee arrangements, trusts etc could be multiplied may times over.   So could the number of jurisdictions. 

Common tactics are 

  • To use a bank account in a country different to the one where the entity is established
  • To have management in a different country to the one where the entity is established
  • To use the USA or US Overseas Territories which have not historically shared information with any country outside the USA, or indeed any other jurisdiction which did not share data.  And just because a country says it shares data, it does not mean that it does.

Here is the fictional structure for a house in London owned by Iranian / Russian UBOs, who no doubt bonded over their mutual oil interests.

To some extent, changing the role of Companies House from record keeper to gatekeeper as anticipated by the ECCTA 23, should track down the ultimate ownership of the English company.

The weaknesses in the current regime are shown in the next diagram, which also serves to highlight that trying to solve the issues without international co-operation is going to be difficult.

Whilst co-operation with other countries is desirable, one must also recognise that this is not always swift or practicable.  After all, officials in other countries often have priorities which rank higher than the demands of the UK government.

But what if Companies House does not receive any response, or the responses it receives are not truthful?

Dishonest replies deserve criminal sanctions, even though these are enforced infrequently and can be difficult to apply.

No doubt ministers and MPs feel that creating more criminal offences demonstrates a tangible achievement on their part; but if creating more offences worked, there surely would be less or indeed no crime?   Illicit drug use is a prime example of legislative failure.

As we are talking about land, there are many alternative solutions.

The ROE already uses the tool of preventing the land being sold, leased or mortgaged.

Many regimes, especially local authority powers, also levy financial penalties which can be secured by a charge on the property.  

One could direct tenants to pay rents to a government appointed receiver until further notice.  The real owner can claim the rents (after deduction of fees, fines, penalties etc.) upon proof of ownership.

The current flow of funds in this case study is shown here

And ultimately, subject to safeguards showing the efforts made to contact or ascertain the true owner, to the satisfaction of a Judge, the property could be compulsorily acquired for nil payment with compensation being based on the market value at the time of acquisition less

  • CGT on the compulsory acquisition at market value with nil base cost assumed (which can be rolled over pursuant to s247 TCGA 1992).  The current rate of tax varies from 18% to 25% depending upon the circumstances.
  • 20% of the post-tax value if the claim is made within 12 months of the compulsory acquisition
  • 50% of the post-tax value if the claim is made after 12 months but before 24 months of the compulsory acquisition
  • 90% of the post-tax value if the claim is made after 24 months but before 36 months of the compulsory acquisition and
  • After 36 months, zero.

Under no circumstances would the land be returned to the original owner.  This would free the land up for immediate use.

References

  1. Acknowledged in para 25 if someone reads that far.
  2. George Monbiot & Ors, 2019.
  3. https://www.thecrownestate.co.uk
  4. Acknowledged in paragraph 19 of the Con Doc.
  5. See Wood Preservation v Prior (1968) 45 TC 112, J Sainsbury v O’Connor [1991] 1 W.L.R. 963.
  6. Regulation of Investigatory Powers Act 2000. Infamously abused by local authorities to check on what council taxpayers were putting into their refuse bins.
  7. Local Government, Planning and Land Act 1980, ss. 95 and 96
  8. Supra footnote 3.

 

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