The rise of branded residences: key UK tax considerations for owners and investors

Branded residences occupy a unique intersection between luxury residential property and the hospitality sector, giving rise to a distinct set of legal and commercial considerations (as well as risks) for all parties involved. These types of residences, which combine a recognised international brand and hotel-quality amenities with the attraction of private ownership and investment potential, have become a real focus for the hospitality sector in recent years. The range of brands entering the space has now expanded well beyond the traditional hotel operators and we see schemes appearing in an increasingly diverse array of locations globally.

For many buyers, the decision to acquire a branded residence is as much a financial one as it is a lifestyle one. The attraction and potential advantages of an investment in a branded residence may be obvious, but the potential issues which it could raise may not be, and it is important to consider both before taking a decision to invest.

A key factor which must be considered before investing in a branded residence in the UK is the extent to which such an acquisition could affect the investor's personal UK tax exposure (and potentially also that of members of their family). The residence itself will be within the scope of UK capital gains tax ('CGT') on a disposal, meaning any gain which is realised upon sale will be within the scope of CGT at a current rate of up to 24%. This is subject to the application of principal private residence relief if the property is the main residence of the owner.  In addition to this, the residence, whether held directly or indirectly through, for example, a non-UK incorporated entity, will be within the scope of inheritance tax ('IHT') on the death of the owner, subject to any reliefs or exemptions (such as the spouse exemption if it passes to the deceased's spouse outright or on life interest trust).

The UK's Statutory Residence Test

Tax on disposal of the property or death is not, however, the only consideration. Whether an individual is UK tax resident or not in a particular UK tax year is determined by applying a series of tests known collectively as the Statutory Residence Test ('SRT'). The SRT is administered by applying the tests in a priority order, beginning with a set of tests for automatic non-UK tax residence, followed by a set for automatic UK residence, and finally a test based on an individual's 'ties' to the UK.   One of those ties is the 'accommodation tie'. An individual will have an accommodation tie to the UK if that individual has accommodation available for their use for a continuous period of at least 91 days during the tax year and the individual actually stays in the accommodation for at least one night during the tax year.  

We do not endeavour to set out all of the SRT here (a full analysis for a particular individual can become quite complex and there are a number of pitfalls to be aware of) – but in the context of branded residences, it is important to be aware that the acquisition of a UK branded residence is likely to give an individual an accommodation tie. The residence will generally constitute 'accommodation' for the purposes of the test (the bar for this is low) and, unless it is rented out to a third party on a commercial basis, will generally be treated as being available to the owner for the requisite length of time each tax year. The result of this is that, if the owner uses the residence for at least one night in the relevant tax year, there will be an accommodation tie.  Moreover, the owner's close family members will likely also be treated as having an accommodation tie, on the basis that the residence would be available to them too (assuming they stay in it at all).

If the owner (or family members) do not satisfy any of the automatic non-UK residence or automatic UK residence tests under the SRT, this accommodation tie could affect the number of days in which they can be present in the UK each year while remaining non-UK tax resident (assuming that is the position they wish to maintain). This will depend on how many other ties to the UK the relevant individual has, as well as whether the individual has been UK tax resident in any of the three preceding UK tax years.

An individual who becomes UK tax resident is generally subject to UK income tax and capital gains tax on their worldwide income and chargeable gains. If the individual is eligible for the UK's new foreign income and gains regime (which requires a previous period of 10-years non-UK tax residence), then UK tax exposure can be reduced for up to four consecutive UK tax years. In any event, it is important for any individual spending time in the UK to be aware of their UK tax residence position so that, if they are subject to UK tax reporting obligations, these are complied with. Failure to comply will result in interest on unpaid tax and potentially also significant penalties.

Long-term UK residence

It was reported last year that many individuals who formerly lived in the UK as remittance basis tax payers were abandoning their private members clubs on the strength of advice that to do so would shore up their new non-UK tax resident status. We commented on the wisdom of this reported advice here.

Under new rules introduced from 6 April 2025, 'domicile' has been replaced by a test for long-term UK residence as the connecting factor for determining who is within the scope of IHT on their worldwide estate.  An individual's domicile can be uncertain. While the term 'domicile' may be (and commonly was) assumed to have a straightforward meaning, the actual legal test for whether an individual has acquired a different domicile has a subjective component which could be difficult to evidence, and which historically created uncertainty when individuals moved jurisdiction. Matters have been somewhat improved by the introduction of the long-term UK residence test which (broadly speaking) asks whether an individual has been UK tax resident (under the SRT) in any 10 out of the previous 20 tax years. If they have, then they are long-term UK resident and within the scope of IHT on their worldwide estate.

Previously, for an individual who was born in the UK but had left and lived abroad for many years, the retention (or acquisition) of a UK residence could undermine the argument that the individual had acquired a domicile elsewhere (and, in doing so, fallen outside the scope of IHT on their non-UK situate estate). Under the new long-term UK residence system, ownership of a UK residence itself is no longer directly relevant to the question of whether the individual's estate is generally within the scope of IHT or not. The residence could be relevant to determining UK tax residence year by year, on the basis that it creates an additional tie, as explained above. For this reason, as noted above, it is important for any individual spending time in the UK to monitor the position carefully in order to ensure that they are clear on their UK tax residence status each year.

The upshot of all this is that the new long-term UK residence test brings a degree more certainty.  Arguably, it improves the position for those who started life with a UK domicile and moved out of the UK permanently – for such individuals, the retention of a UK residence should not, in and of itself, prevent their estate from eventually falling outside the scope of IHT (to the extent it does not comprise UK situate property or UK residential real estate) after a sufficient number of years of non-UK residence (which number fluctuates depending on the number of years of tax residence the individual clocked up before leaving).

Our work with branded residences 

Withers advise hotel owners, operators, luxury brands and developers across the lifecycle of branded residence projects — from structuring brand licence and hotel management agreements to navigating the interplay between the residential and hospitality elements of a scheme.  

For purchaser clients, we provide guidance on the additional complexities and potential pitfalls of acquiring within a branded scheme, including understanding rights and obligations under the relevant brand and management arrangements. Given the complexity and mix of elements from across the real estate and hospitality sectors, it is critical to consider all potential issues with input from seasoned advisers on these sectors before committing.

With significant experience acting on cross-border transactions across multiple jurisdictions, and a strong grounding in private wealth and succession planning considerations, we are well placed to advise on all aspects of branded residence ownership, development and investment.