UAE and Gulf based investors owning properties in the UK could potentially lose 40 per cent of the £60 billion assets under management in case of the owner’s death, due to the introduction of a series of anti-avoidance rules under the UK Death Tax.
Effective from April 6, 2017, non-UK domiciles owning properties in the UK indirectly through corporate structures – purchased either before or after this date – would be liable for a death tax at 40 per cent of the value of the properties. This tax must be paid to Her Majesty’s Revenue and Customs (HMRC) before the property can be passed to the family or heirs.
Unfortunately, most investors are not aware of this development. The family will have to raise 40 per cent of the value to pay UK Death Tax to recover the properties. Failing to do so, they are in danger of losing the whole estate.
Cut out the tax
However, there is a solution to protect their investment – a Variable Universal Life (VUL) policy. A VUL policy covering the 40 percent value of the property could help these investors from the GCC secure the properties from the tax and legal complications that might delay the transfer of the property to the family.
In case of death of the owner, the insurance contract would pay as per the VUL policy a sum assured that covers the 40 per cent UK Death Tax to the HMRC. This would then allow the family to obtain probate to take control of the estate.
The VUL policy is a life insurance product that could help many UAE, GCC and other foreign investors in UK properties mitigate this particular risk with a very minimum premium that they could perhaps generate from the rental income.
Most investors or their families do not realise the potential risk, while everything is running smoothly. For a 10 million pound property, the family will have to raise and pay 4 million pound in tax to be able to access the property. I don’t think anyone is prepared for this.
London’s never ending attraction
In a recent report, Bank of London and The Middle East (BLME) said pandemic restrictions had little impact on real estate investment from the GCC countries into the UK. Based on feedback from real estate services companies holding more than £60 billion AUM, BLME predicts that real estate investment from Gulf nationals will continue to grow. “In a global economy currently defined by inflationary pressures, supply-chain disruption and interest rate rises, GCC investors continue to view UK property as a safe haven, with the London market’s stability presenting an opportunity for wealth preservation,” BLME said in the report.
UAE’s Oryx Real Estate Partners recently spent 100 million pounds acquiring 3 Bunhill Row, an office property in the City. Saudi Arabian asset manager Sidra Capital acquired Coca Cola’s UK head office in Uxbridge, in December, for 43.65 million pounds.
Another report, by Knight Frank, said Gulf-based investors have been returning to property investments in the UK as the real estate market recovered from the worst of the pandemic.
Through VUL policy – which cost a negligible fraction of the sum assured – insurers can protect these valuable assets and free them up from the UK Death Tax and help families gain control over them. The cost of the VUL policy could easily be recovered from the rental income.