The study also highlighted the need for non-domestic investors to note how they are now under the inheritance tax net.

Asian investors dominated ranks of those foreigners pumping money into London’s newly-built property market, with an estimated £1.0 billion ($1.4 billion) put into the sector last year, according to figures that may allay some fears of high net worth persons quitting the UK. 

The report’s authors, Old Mutual International, warned that investors face new inheritance tax risks.

Old Mutual International crunched figures provided by the Office of National Statistics, a public agency, and Centre for Housing Policy. It found that Asian investors took the lion’s share of money going into the UK capital’s real estate sector, with most of them from Singapore and Hong Kong.

While not a directly comparable type of factor, the figures may give some comfort to financial sector professionals concerned that the number of HNW individuals leaving the UK has risen, possibly encouraged by worries about what sort of Brexit deal the UK obtains and the risk, based on opinion polls, of a future socialist government led by Labour Party chief Jeremy Corbyn, bringing with it likely tax hikes.  

Asia accounted for 61.4 per cent of total overseas sales of residential real estate, with Hong Kong and Singapore the top two regions by far. The Centre for Housing Policy research shows 31.5 per cent came from Hong Kong, 20.8 per cent came from Singapore, 5.4 per cent came from China and 3.7 per cent came from Malaysia.

In Singapore 67.5 per cent of property sales are from a mortgage, well above the average of 53.5 per cent, and in Hong Kong 54.6 per cent of sales are mortgaged. “This shows investors in Singapore and Hong Kong are more likely to borrow in order to invest in UK property compared to investors from other regions,” Old Mutual International said.

ONS figures show new-build property sales in London reached £9.25 bilion in year ending June 2017. This was broadly similar to 2016 figures at £9.45 billion, but much higher than 2015 figures at £6.62 billion. The Centre for Housing Policy research shows the percentage of sales coming from overseas investors has risen over the years rising, reaching 17.9 per cent in 2016. The assumption used by Old Mutual International is the percentage of overseas sales in 2017, and the country they came from, stayed consistent with the 2016 figures.

Inheritance tax
Old Mutual International said that foreign investors who don’t plan ahead face a shock: IHT is payable on death on any property or assets owned in the UK by the deceased. This is irrespective of domicile status or whether the deceased lived in the UK or overseas. IHT kicks in at 40 per cent above a threshold. 

Such warnings from financial firms are expected in the weeks leading up to the start of a new tax year in early April. Recently enacted rule changes means that non-UK domiciled who invested in property via overseas corporate structures, or “envelopes” can no longer avoid IHT on death.

The firm’s research said more than 30 per cent of those surveyed overseas either didn’t know or didn’t realise there would be a UK IHT liability on UK property, and just 7 per cent claim to fully understand UK IHT. (These new rules became law last November and were backdated to apply from 6 April 2017.)

As part of its report, the firm’s survey included UK expats living overseas. There were 147 responses, including 32 living in Asia. The survey included a large sample who own property in the UK.

“It is well known that Asian investors are drawn to the London property market, and have been for a number of years. Property prices in London, whilst expensive, have been viewed as a reliable asset class for many Asian investors looking to diversify their investment portfolios. This trend could possibly rise as the investment opportunity becomes even greater following the fall in the value of the British Pound,” Ian Kloss, CEO Singapore, Old Mutual International, said. 

OMI is the offshore arm of Old Mutual Wealth.