Frontmen of foreign shell companies which own some of London’s most exclusive properties could face up to two years in jail and unlimited fines if they fail to disclose their true owners’ identity, ministers have said.
The Government has said it will publish draft laws this summer aimed at combating the use of dirty money to buy British property.
Under the proposals foreign companies must make clear who ultimately owns the properties in question through the world’s first public register of beneficial ownership.
Labour welcomed the move but said it should be followed by further action to tackle “the scourge of tax avoidance”, including greater transparency in the British overseas territories.
It comes amid growing scrutiny of how the UK property market can be used as a vehicle for money laundering and corrupt funds.
The spotlight has also fallen on Russian ownership of London property in the wake of the nerve agent attack in Salisbury.
Business minister Andrew Griffiths said: “The UK is taking a leading role in the global fight against corruption, including cracking down on the use of shell companies to launder dirty money by buying up some of London’s prime real estate.
“Our public register will ensure we know who owns UK property wherever they are from and will help authorities come down hard on frontmen seeking to conceal their paymasters’ true identities.
“This is the first register of its kind in the world and we must be careful to ensure it strikes the right balance between improving transparency and minimising burdens on legitimate owners.”
Recent estimates suggest prominent Russian figures with ties to the Putin regime own British properties worth nearly £1.1 billion, mostly in London.
However, it is thought this figure could be even higher given the way ownership can be concealed.
The total number of Russian-owned properties in London is believed to be well over 1,000, with reports that Russians are becoming more active in purchasing both residential and commercial property in the capital.
While the majority of foreign companies which own property in the UK do so legitimately, there are concerns that some criminals are buying properties to launder dirty money.
More than £180 million worth of property in the UK has been brought under criminal investigation as the suspected proceeds of corruption since 2004.
More than 75% of properties currently under investigation use offshore corporate secrecy.
Peter Dowd, shadow chief secretary to the Treasury, said: “We are glad the Government is finally seeing the light and has accepted Labour’s calls for a register of beneficial ownership.
“While the Government’s Damascene conversion on the case for public registers is an important step, it must be followed through with meaningful action to tackle the scourge of tax avoidance through the introduction of a full public register of offshore trusts in UK overseas territories and crown dependencies.
“Labour is calling on the Government to go further and adopt our tax transparency and enforcement programme in full.
“It is the only way to ensure that everyone pays their fair share and we finally have a tax system that works for the many, not the few.”
Duncan Hames, director of policy at Transparency International UK, welcomed the move but said the lack of urgency was “disappointing”.
It is thought the register will not be in operation until 2021, later than the Government’s original deadline.
“The Prime Minister and other Government officials have not been shy in recent weeks in speaking about cracking down on corrupt money in the UK,” said Mr Hames.
“The best way to do this is to bring about transparency to holdings of UK property which overseas companies currently avoid.
“The longer we have to wait for this register, the longer corrupt individuals will be able to use the UK property market to hide their wealth. It continues to have cross-party support so there really is no reason for any further delay.”
The new register follows a series of anti-corruption measures brought in last year, providing new powers such as unexplained wealth orders.
The Government says it will publish draft legislation for the register this summer and introduce the Bill early in the second session of this Parliament.
Ministers say they will seek to introduce the register at the earliest opportunity.