30 September 2020 - Events
The UK General Election at the end of 2019 resulted in a substantial majority for Boris Johnson and the Conservative party, bringing with it an element of relative stability that has been sorely missing from UK politics ever since the 2016 EU referendum. While significant questions remain regarding the nature of the UK’s future relationship with the EU and other world powers, we now know that the Conservative party will, in all likelihood, have control of the UK legislative agenda for the next five years.
Well-informed non-UK residents, therefore, may now see an opportunity to invest in or restructure existing UK residential property interests while low interest rates continue to make finance options affordable and the threat of a significantly more hostile UK tax regime has subsided. Prime real estate in particular may appear attractive with average prices reported as being more than 20% lower than they were in 2015. For foreign investors the situation may seem even better as Sterling remains historically weak, having relinquished some of its immediate post-election gains. US Dollar denominated purchasers appear to consider UK residential property as especially good value and we have seen a notable increase in such transactions.
The politicisation of housing in the UK, however, means that further increases in SDLT rates may be around the corner: The Conservative party manifesto included proposals for an additional SDLT surcharge for non-resident buyers which would, if introduced, make investing less attractive. No concrete plans have been put forward by the Government as of yet but, with the UK budget announcement scheduled for 11 March 2020, it may only be a matter of time before changes to SDLT are introduced. Although we consider it unlikely that any changes will be introduced with effect from 11 March 2020, those considering UK residential property interests currently have a window of certainty in which to invest.
One key issue facing investors at any time is the UK inheritance tax (“IHT”) regime, which can apply a 40% charge to the value of UK residential property interests. The changes to the IHT regime introduced in 2017 were well reported as making traditional holding structures inefficient but, despite this, the proportion of non-residents subject to IHT charges remains small. With proper planning, the risk of incurring a substantial tax liability can still be considerably reduced.
Common solutions include spreading ownership among family members and making use of appropriate debt finance to reduce the net value of property in an individual’s estate. These can be combined with suitable life insurance to ensure that any IHT exposure is managed effectively.
We have a wide range of in-depth experience structuring UK residential property interests and dealing with the related IHT considerations and other tax issues. Our offices in London, Hong Kong and Singapore, in particular, mean we are well placed to help you structure any such investments sensibly so as to reduce IHT exposure and maximise efficiency more generally. If you are considering an investment in UK residential property or you wish to re-structure an existing interest, please do not hesitate to contact a member of our team.