Key facts
- New "sovereign tax status" regime proposed from January 1, 2029.
- Tax will apply to certain UK property income and gains, plus limited trading income.
- Qualifying interest and ordinary dividends will remain exempt.
- Foreign sovereigns may access Real Estate Investment Trusts (REITs) with a proposed 15% tax rate.
- Investment management activities by sovereign investment offices and gains for state-operated overseas pension funds will remain exempt.
- The reforms are expected to raise £690 million in 2029/30.
The U.K. is planning to end a long-standing tax exemption for foreign sovereign investors on income and gains derived from British real estate, with new rules set to take effect from January 1, 2029. HM Treasury has initiated a consultation on a new statutory "sovereign tax status" regime. This proposed change aims to modernize the taxation of foreign sovereign investments, bringing greater transparency and sustainability to the system. While certain income and gains from UK property will become taxable, the government is proposing special access to the Real Estate Investment Trust (REIT) regime, potentially applying a 15% tax rate to relevant income and gains from both controlled and uncontrolled UK real estate investments. Investment management activities by sovereign investment offices and gains arising to state-operated overseas pension funds are expected to remain exempt.