Gulf sovereign funds could start paying tax on UK property from 2029

The UK will start taxing sovereign wealth funds on their British property from 1 January 2029, ending a long-standing exemption that Gulf investors have used to build large real estate portfolios in London, the Financial Times reports. Sovereign investors will pay tax on rental income from UK property they hold directly and on gains when they sell it, similar to other non-resident investors, according to the government’s consultation paper (pdf). London expects the change to raise about GBP 690 mn a year by FY 2029/30.

Most of what sovereigns earn in the UK beyond property stays taxfree, including interest on UK bonds and deposits, dividends from UK shares, and the earnings of the London offices many Gulf funds use to manage their global portfolios. State-run pension funds also get an extra break and won’t pay tax on gains when they sell UK property.

Why it matters for the Gulf: Sovereign funds such as the Qatar Investment Authority (QIA) have significant investments in London, and UAE sovereign money has poured into build-to-rent housing. The QIA owns Harrods and Chelsea Barracks, has stakes in the Savoy Hotel, the Shard, the Olympic Village, and the HSBC tower, and it took over Canary Wharf Group with Brookfield in a GBP 2.6 bn transaction in 2015. The Abu Dhabi Investment Authority has a GBP 2.2 bn partnership with Greystar to build rental housing in London and nearby commuter towns. And Saudi Arabia’s Public Investment Fund bought a stake in Selfridges, including its property portfolio. Not all of these holdings will be caught, though. The tax targets property sovereigns hold directly, and assets held through UK companies already pay corporation tax.

London is offering ways to soften the blow: Sovereigns will be able to move their buildings into real estate investment trusts (REITs), which pay no tax themselves and pass rental income to owners. A sovereign that owns a REIT through a dedicated UK company will pay a flat 15% on that income, less than the full corporation tax it would owe on property held directly. A stamp duty exemption running from 2028 until at least the end of 2030 will let sovereigns move property into the new structures without a tax bill. Property they already own will also be revalued as of 1 January 2029, so they’ll only pay tax on gains made after that date.

The timing is awkward: Officials are already worried that relations with the UAE could suffer over the penalty Manchester City may face for breaking Premier League financial rules. The previous Conservative government dropped a similar plan in 2023 for fear of putting off foreign investors. The UK’s independent budget watchdog has called the revenue forecast highly uncertain, partly because it’s unclear how sovereigns will restructure to reduce the bill.

What’s next: The consultation closes on 20 January 2027. Draft legislation will follow, with final rules due in the 2027/28 Finance Bill.

THE CLOSING BELL: TADAWUL-

The TASI fell 1% last Thursday on turnover of SAR 4 bn. The index is down 5.4% YTD.

In the green: Gulf General Cooperative Ins. (+10%), Saudi Industrial Investment (+5.2%), and Consolidated Grunenfelder Saady Holding (+4.6%).

In the red: Saudi Printing and Packaging (-7.6%), Mefic Reit Fund (-6.9%), and AFG International (-6.5%).

THE CLOSING BELL: NOMU-

The NomuC rose 0.9% last Thursday on turnover of SAR 25 mn. The index is down 7.8% YTD.

In the green: Multi Business Group (+21.3%), Lana Medical (+14.7%), and Arabian Plastic Industrial (+13.7%).

In the red: Arabica Star (-15.7%), Mulkia Investment (-8.5%), and Qomel (-6.7%).