Key Takeaways
- • The UK Budget, delivered by Chancellor John Healey, avoided a bond-market shock, with gilt yields not spiking, though investors were left without measures to lower borrowing costs or stimulate development.
- • The government proposed replacing sovereign immunity from direct taxation with a statutory regime from 1 January 2029, making certain UK property income and capital gains taxable for sovereign investors, with a 15% rate on qualifying REIT property income distributions.
- • Sovereign wealth funds invested £6.2B in UK property from 2021 to 2024, according to a March BPF and CoStar report, making the proposed tax change a material concern for the sector.
- • Industry leaders including Real Estate:UK's Rachel Kelly and Moorfield's Charles Ferguson-Davie warned the change adds costs and complexity and could deter large-scale capital, while CBRE Investment Management's Alex Lund remained cautiously positive.
- • BTR construction starts fell 63% year on year to 4,696 groundbreakings in September versus 12,674 a year earlier, per Savills data for RE:UK, and Oxford Economics expects a 25bp Bank of England rate rise to 4% on 5 November.
Summary
The UK Budget, presented by Chancellor John Healey, avoided a bond-market shock, and gilt yields did not spike, averting a further rise in financing costs. However, property industry participants noted that the budget offered limited progress on development viability and no measures capable of lowering borrowing costs. Business rates changes provided some relief to high street occupiers but fell short of the structural reform many property owners sought.
The most contentious element is a government consultation on replacing the largely uncodified sovereign immunity from direct taxation with a statutory regime effective 1 January 2029. Under the proposal, certain UK property income and capital gains would become taxable. The reforms include bespoke access to the REIT regime, with a 15% tax rate on qualifying property income distributions. State-operated overseas pension funds and certain investment management activities would remain exempt. The government argues the changes will improve transparency and certainty for sovereign investors.
Real Estate:UK Assistant Director of Finance Rachel Kelly called the change "a really unhelpful change," saying it adds costs to a significant source of real estate investment while development viability is under severe pressure. Moorfield CEO Charles Ferguson-Davie noted that sovereign funds often co-invest, so changes could affect co-investors and joint ventures, and questioned who would fill the gap if sovereign capital slowed, given few groups can deploy over £500M. CBRE Investment Management Director Alex Lund said the firm will study the rules during the consultation but expects the policy will not decimate investment, citing the UK's depth and transparency.
Industry commentators also linked the budget to broader housing pressures. Ferguson-Davie said cumulative regulatory and tax burdens on the private rental sector have prompted sales and exits, and that BTR construction starts fell 63% in the last year, with 4,696 groundbreakings in September versus 12,674 a year earlier, according to Savills data for RE:UK. Knight Frank's Head of London Research Shabab Qadar said the budget's impact on London is mixed, citing a temporary increase in the bank surcharge that could affect the tenant pool and no measures to improve development viability.
Market participants were largely relieved the budget did not trigger volatility. Oxford Economics expects the Bank of England to raise the bank rate by 25 basis points to 4% at its 5 November meeting, with one further 25bp increase forecast, and warns risks are skewed toward tighter policy. Lund said opportunities remain for equity investors making "careful, asset-based acquisitions," while Kelly urged government to support viability to avoid a continuing housing and construction crisis.
The most contentious element is a government consultation on replacing the largely uncodified sovereign immunity from direct taxation with a statutory regime effective 1 January 2029. Under the proposal, certain UK property income and capital gains would become taxable. The reforms include bespoke access to the REIT regime, with a 15% tax rate on qualifying property income distributions. State-operated overseas pension funds and certain investment management activities would remain exempt. The government argues the changes will improve transparency and certainty for sovereign investors.
Real Estate:UK Assistant Director of Finance Rachel Kelly called the change "a really unhelpful change," saying it adds costs to a significant source of real estate investment while development viability is under severe pressure. Moorfield CEO Charles Ferguson-Davie noted that sovereign funds often co-invest, so changes could affect co-investors and joint ventures, and questioned who would fill the gap if sovereign capital slowed, given few groups can deploy over £500M. CBRE Investment Management Director Alex Lund said the firm will study the rules during the consultation but expects the policy will not decimate investment, citing the UK's depth and transparency.
Industry commentators also linked the budget to broader housing pressures. Ferguson-Davie said cumulative regulatory and tax burdens on the private rental sector have prompted sales and exits, and that BTR construction starts fell 63% in the last year, with 4,696 groundbreakings in September versus 12,674 a year earlier, according to Savills data for RE:UK. Knight Frank's Head of London Research Shabab Qadar said the budget's impact on London is mixed, citing a temporary increase in the bank surcharge that could affect the tenant pool and no measures to improve development viability.
Market participants were largely relieved the budget did not trigger volatility. Oxford Economics expects the Bank of England to raise the bank rate by 25 basis points to 4% at its 5 November meeting, with one further 25bp increase forecast, and warns risks are skewed toward tighter policy. Lund said opportunities remain for equity investors making "careful, asset-based acquisitions," while Kelly urged government to support viability to avoid a continuing housing and construction crisis.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.