Key Takeaways
- • The UK Treasury has proposed ending the tax immunity enjoyed by sovereign wealth and overseas public pension funds on direct UK property income and gains, with changes slated to begin in January 2029, according to Inside Housing Living.
- • Under the proposals, foreign sovereigns' rental income and gains from directly held UK property would face UK corporation tax at the 25% main rate for the first time.
- • Sovereigns would have access to a REIT structure with a reduced 15% rate on income and gains from property held within the REIT, while state pension funds would receive "comparable treatment" and sovereigns an exemption for UK-located investment offices.
- • The Office for Budget Responsibility estimates the change would raise £700m by 2029-30, though it describes the costing as "highly uncertain."
- • Living-sector leaders, including Real Estate UK and Lauder Teacher Associates, warn the move could deter overseas capital needed for housebuilding; the consultation closes on 20 January 2027.
Summary
Living-sector leaders have criticised the UK government's plan to tax sovereign wealth funds on their UK property income, warning that it could reduce overseas investment in housing. In a consultation opened last week, the Treasury proposed restricting the current immunity from direct taxes that sovereign wealth and overseas public pension funds enjoy on UK income and gains, starting January 2029. Under the proposals, foreign sovereigns' rental income and gains from directly held UK property would be subject to UK corporation tax at the 25% main rate.
Sovereigns would, however, be offered "bespoke access" to a real estate investment trust (REIT) structure, with a lower 15% rate applying to income and gains from property held in that REIT. State-operated overseas pension funds would receive "comparable treatment" to overseas pension schemes, and sovereigns would benefit from an exemption for their UK-located investment offices. The Office for Budget Responsibility estimated the change would raise £700m for the government by 2029-30, while acknowledging the figure was "highly uncertain" due to limited data on the affected group's tax and assets.
Sovereign investors are significant in UK build-to-rent. The Abu Dhabi Investment Authority (ADIA) launched a partnership with US developer Greystar in 2021, pledging up to £2.2bn for rental housing in London and surrounding commuter towns. South Korea's National Pension Service (NPS) committed £300m last year to Long Harbour's UK single-family housing venture and launched a joint venture with M&G targeting 3,000 urban rental homes across London and regional cities. Real Estate UK estimates six sovereign wealth funds from Norway, Singapore, China, Abu Dhabi, Kuwait and Qatar own £31bn of UK property.
Vanessa Hale, chief executive of Real Estate UK, told The Times the proposals "run counter to the government's ambition to attract overseas investment into UK homes," describing the removal of the favourable tax status as "somewhere between odd and totally incoherent." Andrew Teacher, founding partner at Lauder Teacher Associates, said the REIT route and exemptions "soften the impact, but add complexity and uncertainty for investors," and linked investor sentiment to record-low housebuilding. A Treasury spokesperson said the UK maintains a "competitive offer" for sovereign investors and that the changes would create a "more certain, transparent and sustainable regime." The consultation closes on 20 January 2027.
The proposals were announced alongside the Autumn Budget, which also raised tax on sole-trader domestic landlords by 2 percentage points from April 2027, with rates for small landlords now ranging from 24% to 49%. UK corporate landlords, who pay 25% corporation tax on rental income, were not affected by changes.
Sovereigns would, however, be offered "bespoke access" to a real estate investment trust (REIT) structure, with a lower 15% rate applying to income and gains from property held in that REIT. State-operated overseas pension funds would receive "comparable treatment" to overseas pension schemes, and sovereigns would benefit from an exemption for their UK-located investment offices. The Office for Budget Responsibility estimated the change would raise £700m for the government by 2029-30, while acknowledging the figure was "highly uncertain" due to limited data on the affected group's tax and assets.
Sovereign investors are significant in UK build-to-rent. The Abu Dhabi Investment Authority (ADIA) launched a partnership with US developer Greystar in 2021, pledging up to £2.2bn for rental housing in London and surrounding commuter towns. South Korea's National Pension Service (NPS) committed £300m last year to Long Harbour's UK single-family housing venture and launched a joint venture with M&G targeting 3,000 urban rental homes across London and regional cities. Real Estate UK estimates six sovereign wealth funds from Norway, Singapore, China, Abu Dhabi, Kuwait and Qatar own £31bn of UK property.
Vanessa Hale, chief executive of Real Estate UK, told The Times the proposals "run counter to the government's ambition to attract overseas investment into UK homes," describing the removal of the favourable tax status as "somewhere between odd and totally incoherent." Andrew Teacher, founding partner at Lauder Teacher Associates, said the REIT route and exemptions "soften the impact, but add complexity and uncertainty for investors," and linked investor sentiment to record-low housebuilding. A Treasury spokesperson said the UK maintains a "competitive offer" for sovereign investors and that the changes would create a "more certain, transparent and sustainable regime." The consultation closes on 20 January 2027.
The proposals were announced alongside the Autumn Budget, which also raised tax on sole-trader domestic landlords by 2 percentage points from April 2027, with rates for small landlords now ranging from 24% to 49%. UK corporate landlords, who pay 25% corporation tax on rental income, were not affected by changes.
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