How Public Should Property Ownership Be?

When it comes to property ownership via legal entities – which is the logical route for many high-net-worth individuals – transparency is a nuanced topic: where’s the line between privacy and secrecy? How restricted should property ownership be at beneficial owner level? What, if any, information should the general public be able to view, and what controls are there on how they make use of that data if they can access it?

The conversation about the transparency of property ownership via legal entities has long been convoluted, complex and contentious, and it’s again in the spotlight.

On 22nd November, the European Court of Justice ruled that the European Anti-Money Laundering Directive – which requires that some personal data relating to beneficial ownership of companies incorporated within the European Union is made available to the public – “constitutes a serious interference with the fundamental rights to respect for private life and to the protection of personal data.” The case was bought to the Luxembourg District Court by two Luxembourg-domiciled entities but is likely to have far-reaching effects throughout the EU. In response to the EU Court of Justice’s decision, Luxembourg and the Netherlands have already moved to restrict public access to their UBO registers in the short term. 

Each EU state had to enact the Directive individually, which means there are differences in how the Directive was applied at the level of each country. However, any individual with beneficial ownership of a legal entity that holds property will most probably be affected as legislators react and interpret the implications of the ruling. Ultimately, this may affect anyone that owns property via any EU-domiciled corporate structures. The validity of the UBO registers and the requirements for relevant individuals to submit the personal data required by law were not part of the Luxembourg legal action, which focused on the general public’s ability to access the UBO registers. 

Understanding The Complexity and What’s Next

UBO registers have long been a controversial topic, especially regarding property ownership. On the one hand, there is a widely recognised need for transparency around the beneficial ownership of corporate entities that hold real estate, including high-value residential property. Campaigners have argued that UBO registers are a crucial stepping stone to fighting economic crime and over-aggressive tax planning and make it clearer who ultimately owns a property.

On the other hand, there are concerns about how much personal information should be available to the general public, how easily accessible it is and what that data might be used for in the public sphere. The other point of contention was what happens to personal beneficial owner data once the general public accesses it: could its use reasonably be protected, how publicly is it likely to be disseminated by individuals, and how much of a legitimate infringement of personal data – and in many cases, security risks – does this pose?

It’s important to note that most high-net-worth individuals and families don’t dispute the necessity or logic of sharing relevant ultimate beneficial ownership information with applicable authorities or governments. This is done as a matter of course with or without UBO registers. The move towards more global transparency of legal entities at the level of the UBO has been a clear trend for some time. In a world where more stringent compliance, AML, KYC and reporting is accepted as the norm, there is generally widespread support for adopting measures that make asset ownership and reporting more transparent to governments, authorities and relevant bodies. 

These days, owning property via a legal entity is rarely a pure play for fiscal optimisation. Instead, the individuals that own properties via legal entities do so because it supports financing (in many cases, for example, it is challenging to get a high-value mortgage in Europe without using a legal entity), it helps limit direct owner liability and streamlines asset ownership, structuring, administration and supports succession planning. Structures are also used for privacy. Crucially, the angle here from most owners is not to hide information from authorities but maintain privacy from press intrusion, from those who don’t have legitimate reasons or justification for knowing who owns a property and – most importantly – for very valid security reasons.

Ultimately, the ruling – and the EU Court of Justice’s legal stance on the matter – is likely to impact UBO registers in all EU states, although how countries react on an individual level remains to be seen. Notably, Tuesday’s ruling does not currently affect the UK’s Register of Overseas Entities relating to the sale, purchase or transfer of property or land in the UK through an overseas entity. However, the legal precedent may reignite the conversation around UBO registers in Europe and the UK.