What CDD must a property business complete?

Property professionals have long been regulated for AML. Yet HMRC still reports significant gaps in customer due diligence (CDD). Both estate agents and letting agents must complete CDD, but the triggers and depth of checks can differ depending on the service offered.

We’ve looked at HMRC’s Anti-Money Laundering Supervision: Estate Agency and Letting Agency Businesses (HMRC AML guidance) to bring you a quick guide to when CDD applies, what the regulations require and how expectations vary between estate and lettings agents.

The legal basis for customer due diligence in property businesses

Under the Money Laundering Regulations 2017 (as amended) (MLRs), estate and letting agents must complete customer due diligence when they:

• establish a business relationship;
• carry out an occasional transaction above the relevant threshold;
• suspect money laundering or terrorist financing in the future; or
• doubt the veracity or adequacy of information previously obtained.

HMRC’s guidance for estate and letting agency businesses reinforces these duties and sets out how CDD should be applied in practice.

When estate agents must complete CDD

Estate agents must conduct customer due diligence on both the seller and the buyer. The trigger is clear: CDD must be completed as soon as the business relationship is established, which is defined in Section 6.8 as ’the point at which an offer is accepted, having already entered into a relationship with the seller, usually at the point of marketing the property’ and includes:

• identifying and verifying the seller before marketing the property;
• identifying and verifying the buyer before the offer is formally accepted;
• completing CDD even if the sale does not complete; and
• refreshing CDD where circumstances change or new information raises risk.

Customer due diligence applies regardless of property value, whether the parties are individuals or companies, and whether the agent acts for one or both sides.

CDD for corporate buyers and sellers

Where clients are companies, estate agents must identify and verify beneficial owners, including any individual with more than 25% ownership or control. HMRC’s guidance expects agents to understand the ownership structure and verify identities accordingly.

This includes:

• obtaining company formation documents;
• understanding the control structure;
• identifying and verifying beneficial owners; and
• making sure the person giving instructions is authorised to act.

When letting agents must complete CDD

Letting agents fall under the Regulations only when they handle lettings of £10,000 or more per month. Customer due diligence must be applied to the landlord and the tenant, when the agent establishes a business relationship. This is defined as when ‘the tenant’s offer is accepted, where the tenancy is for at least a month, and…before the tenancy agreement is confirmed.’ 

For letting agents, HMRC expects CDD to cover:

• identifying and verifying landlords, including beneficial owners when the property is owned by a company or trust;
• identifying and verifying tenants where the rent exceeds £10,000 per month; and
• obtaining information on the source of funds used for deposits and rent where risk indicators appear.

In lets below £10,000 per month, letting agents are not regulated for AML purposes and do not need to complete CDD. But if suspicious activity is identified, the agent has an obligation to report it under the Proceeds of Crime Act 2002 (POCA), regardless of AML registration status.

What customer due diligence must include

HMRC’s guidance sets out minimum requirements every property business must follow, whether dealing with estate transactions or regulated lettings business.

1. Identify the customer

You must collect sufficient information to understand who the client is and the nature of the relationship. This applies to individuals, companies, trusts and partnerships.

2. Verify identity

Verification must be based on reliable, independent source documents, data or information. HMRC highlights acceptable documents (e.g. passports, driving licences) and advises businesses to consider digital verification where appropriate.

3. Identify and verify beneficial owners

If the client is not a natural person, you must find out who ultimately owns or controls it. This often requires reviewing:

• Companies House filings
• ownership charts
• trust deeds
• registers of overseas entities (where applicable)

4. Understand the purpose and nature of the transaction

This includes:

• why the client is buying, selling or letting;
• how the property fits into their wider activities; and
• whether the transaction is consistent with the client’s profile.

5. Establish source of funds and, where appropriate, source of wealth

Estate agency transactions and high-value lettings, often involve large sums and opaque structures. HMRC expects checks proportionate to the risk, including:

• verifying deposits;
• understanding how the purchase or rent will be funded; and
• obtaining evidence where explanations are unclear or inconsistent.

6. Complete a client risk assessment

A detailed client risk assessment must be completed on both the buyer and the seller including many risk factors such as client, transaction and geographic as well as proliferation financing risk.

7. Conduct ongoing monitoring

Customer due diligence is not a one-off event. Property businesses must:

• update records when circumstances change;
• identify unusual payment patterns;
• reassess risk if the client’s behaviour shifts; and
• refresh ID if the relationship is ongoing or transactions continue.

Higher-risk situations might require EDD

Both estate and letting agents must apply enhanced due diligence (EDD) when risk is higher. HMRC’s guidance highlights common risk factors, including:

• politically exposed persons;
• high-risk jurisdictions;
• complex or opaque ownership structures;
• transactions with no clear economic rationale; or
• clients reluctant to provide documentation.

EDD may involve:

• obtaining further documentation;
• deeper source of funds and source of wealth checks;
• more frequent monitoring; or
• senior management approval to proceed.

Common CDD pitfalls in the property sector

HMRC’s supervisory findings show several recurring issues:

• Completing CDD too late in the process
• Relying solely on estate agency identity checks without assessing risk
• Failing to verify beneficial owners of companies or overseas entities
• Accepting funds from third parties without explanation
• Applying the same CDD to all clients rather than using a risk-based approach
• Missing CDD for buyers (a common estate agency inspection failing)

They’ve penalised many firms for inconsistent client due diligence, weak record-keeping and poor understanding of source of funds requirements. The guidance stresses that firms must keep documented, verifiable evidence to demonstrate compliance.

Final thoughts

Customer due diligence is not a formality. For property businesses it’s your primary defence against being used to move illicit funds through the UK property market. 

Estate agents and letting agents face different triggers and expectations, but the core principles are the same: start CDD early, gather enough information to understand and verify the client, and build your checks around the risk they present. To achieve this a detailed client risk assessment must be carried out.

Doing this well protects your firm, reduces the chances of supervisory penalties and helps maintain trust in one of the sectors most targeted by money launderers.