Asian investors in London property risking hefty death tax bills

Overseas investment into the London residential new-build property market is dominated by Asian investors who may be overlooking UK inheritance tax in their financial planning.

using data from the UK’s Office for National Statistics (ONS) and Centre for Housing Policy, shows that an estimated £1bn ($1.4bn, €1.1bn) was invested in the London new-build property market alone in 2017 from Asian investors, predominantly based in Hong Kong and Singapore.

Asia accounted for 61.4% of total overseas sales; with the Centre for Housing Policy’s research showing that 31.5% came from Hong Kong, 20.8% came from Singapore, 5.4% came from China and 3.7% came from Malaysia.

The research also shows that it’s not just those with surplus cash who are investing in the UK property market, but serious investors are prepared to take a leveraged position; in Singapore 67.5% of property sales are from a mortgage, well above the average of 53.5%, and in Hong Kong 54.6% 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.

Inheritance tax exposure

With so much money flowing into the UK new-build property market, investors need to be aware of their potential exposure to UK inheritance tax (IHT). 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.

UK IHT is set at an eye-watering 40%, so needs to be properly planned for.a high number of investors in the region, both individuals and company investors, could be left exposed if they are unaware of the potential IHT liability.

Over 30% 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% claim to fully understand UK IHT.

If an investor’s estate is hit with a UK IHT bill that they haven’t planned for, this could potentially create a real headache for their beneficiaries, who may not have the cash to pay the IHT bill and may not be able to sell the assets quickly enough to access what they need.

To help ease this headache, if investors know there is a future liability on their estate, they can put plans in place to provide their executors with the required funds.

For example, by writing a life policy in trust, or using appropriate IHT. trust planning alongside their investments during their lifetime.