UK consults on taxing foreign sovereign investments from 2029

HMRC currently describes sovereign tax immunity as a common-law protection for qualifying income and gains in the sole direct beneficial ownership of a foreign government, head of state or spouse. Its manual distinguishes income beneficially owned by a separate legal entity, even where the government owns all its shares. State ownership alone therefore does not establish current immunity.^[3]

The proposed framework would generally tax UK property income, property gains and trading income on ordinary non-resident principles. It would retain exemptions for qualifying interest and investment-management offices managing sovereigns’ own portfolios, with a separate gains exemption for qualifying state-operated overseas pension funds. The consultation asks whether co-investment and third-party portfolio management require additional rules for the investment-office exemption.^[2]

Under the proposal, an optional UK-resident, wholly owned sovereign REIT holding company, restricted to REIT investment and notified to HMRC, would pay 15% corporation tax on gross property income distributions without deductions and qualify as an excluded holder. Other distributions and gains would remain subject to ordinary corporation-tax rules. This is not a general 15% rate for every sovereign investment.^[2]

Newly chargeable assets would be rebased at commencement. Temporary SDLT restructuring relief for England and Northern Ireland and formal HMRC status applications are proposed, including for existing investors. Further technical consultation and legislation are expected. Investors should map ownership, income and REIT structures against the consultation; no new tax rate, status entitlement or application deadline is yet operative.^[2]