Real Estate Bulletin – June 2022

New Government White Paper: A Fairer Private Rented Sector

Further to the election commitments and consultations undertaken by the current UK Government, on 16 June 2022 a White Paper was published as a precursor to the Renters Reform Bill which is planned to come forward in the current third Parliamentary session (specific dates yet to be confirmed).

The White Paper details a 12-point plan of action which sets out the government's commitment to 'robust and comprehensive changes to create a Private Rented Sector that meets the needs of the diverse tenants and landlords who live and work within it'.

In our article we look at the proposed reforms as they impact on the terms of tenancy agreements relevant to the "professional" PRS market. The key point to keep in mind at this stage is that there is no draft legislation available yet, so we can only speculate as to much of the relevant detail. We are maintaining a watching brief and will provide updates on the points set out in the White Paper as they are announced.

Register of Overseas Entities - draft regulations and update from Companies House

As has been widely reported, Part 1 of the Economic Crime (Transparency and Enforcement) Act 2022 (the Act) creates a new Register of Overseas Entities.  The Register is presently in the process of being built by Companies House, with the assistance of HM Land Registry.

On 23 June 2022, the government published in draft The Register of Overseas Entities (Delivery, Protection and Trust Services) Regulations 2022 (the Regulations) which go some way to completing the picture of what the new Register will look like and how it will operate. 

In brief, the Regulations will:

(1) permit the delivery of documents to Companies House by electronic means;

(2) set out a procedure for the protection of information relating to certain individuals; and

(3) provide further guidance on the meaning of the term "registrable beneficial owners".

The Regulations are an important first step in the creation of the Register but other regulations will follow.  For example, the Act creates a safe-harbour for lenders who have lent money on the security of UK real estate and which need to enforce their security.  The full extent of the safe-harbour available to them is not yet known.  Taking one example, the meaning of a "specified insolvency practitioner" (as used in the Act) will be specified in further regulations.

The progress made to date, and the important role which further regulations will play, was acknowledged in a blog that was posted by Companies House on 23 June 2022.  This stated that "Work on the new register is progressing incredibly quickly. Two further sets of secondary legislation will be published soon, plus a commencement order which will confirm the start date for the new register." Market participants are eagerly looking forward to the publication of the further draft regulations.

TOGCs and property development and letting businesses

The FTT has held that the sale of a property with the benefit of planning permission and with short term leases for the buyer's contractors did not amount to a TOGC: Haymarket Media Group Ltd v HMRC [2022] UKFTT 00168. The FTT rejected the taxpayer's contention that the sale was of a property development or property letting business.

The decision indicates that that it is necessary to apply the concept of economic and commercial reality to the question whether a business has been transferred or the transfer is merely of an asset. Since the intention all along was to transfer the freehold of the site with vacant possession so the buyer could carry out the development itself, there was no transfer of either a property development business or property letting business from the seller.

You can read more about this case here.

New UK/Luxembourg double tax treaty agreed

HMRC has published the text of a new double tax treaty agreed between the UK and Luxembourg, but not as yet in force. The new treaty was signed on 7 June 2022 and contains some significant changes compared with the existing treaty. In particular, changes to the provisions dealing with capital gains will mean that, once the treaty is in force, Luxembourg resident investors in UK real estate held indirectly will be subject to UK tax on any gains arising on indirect disposals of that real estate (eg through a share sale) in many cases.

The new treaty will not enter into force for UK corporation tax/capital gains tax purposes until April 2023 at the earliest. As a result, investors in UK real estate held through Luxembourg structures should take this opportunity to review those structures and take action where necessary.

We look in more detail at this here.

Trust registration service: extension to non-taxable trusts

From September 2022, a wide range of additional UK and non-UK trusts will need to register with HMRC under the Trust Registration Service (TRS). At present, only trusts taxable in the UK are required to register, but the scope of the rules is being widened by regulations designed to implement the Fifth EU Anti-Money Laundering Directive (AMLD5).

The new rules extend the registration obligation, in principle, to all UK express trusts as well as many non-UK express trusts which do business or acquire property in the UK. Whilst there is a list of exempt trusts, trustees and businesses affected by these changes should take action now and carry out any necessary due diligence to ensure that they are compliant with the new rules. Whilst the rules contain wide-ranging exemptions in the commercial context, those affected will need to make sure that they are familiar with these exemptions and have in place processes to identify any registration obligations.

UK Government Announces Data Protection Reforms

On 17 June 2022 the UK Government published its long-awaited plans to reform the UK Data Protection Act.

The UK Government's response to the consultation set out its plans to reform the UK's Data Protection Act through five main areas:

• reducing burden on business;
• protecting consumers from nuisance calls and unnecessary cookies;
• modernising the ICO;
• enabling the innovative use of data; and
• empowering international trade.

We look in more detail at this here.