In the wake of Labour’s recent decisive victory in the general election, the UK real estate market is witnessing a notable resurgence in interest and investment, particularly from overseas investors. This is not just a coincidence and can be traced back to two pivotal factors:
- Evolving Economic and Political Landscape: Investors increasingly seek environments characterised by economic stability and sound governance. The political turbulence experienced during the transition between the Truss and Sunak administrations eroded confidence among potential investors. However, the clarity provided by a robust Labour majority, combined with a decline in interest rates, has bolstered market sentiment, at least in the near term.
- Tax Benefits of REITs for Overseas Investors: For many overseas investors, the compelling nature of Real Estate Investment Trusts (REITs) lies largely in the favourable tax implications they offer. While corporate tax rates currently stand at 25%, utilising REITs can effectively lower this to approximately 15% for most investors, presenting a substantial incentive. Under the previous government, proposed tax cuts—especially the attempt to reduce the corporate tax rate to 19%—raised concerns that this benefit was at risk of being eroded. However, the Labour administration appears disinclined to pursue further tax reductions and may even move towards increasing them. Consequently, the prospect of higher corporate tax rates enhances the appeal of REIT structures as a strategic investment vehicle.
While it is essential to acknowledge that sustained activity levels are not guaranteed—especially given the ongoing uncertainties surrounding the UK economy—current indicators suggest a strong likelihood of renewed market vigour. This optimism is expected to facilitate the establishment of new REITs and invigorate investment activity in the months ahead.
Richard White, AORA Tax Director
