Many investors, particularly those born outside the UK are not making full use of the opportunities available to them to structure their real estate investment at a tax efficient way. We have a range of strategies for different situations, which will considerably reduce the amount of tax due. Aside from tax on rental income and capital gains, Inheritance Tax is potentially a major problem. If an investor based outside the UK decides to buy investment property in the UK, then not only is he subject to income tax on rental income but also potentially to Inheritance Tax. The potential scale of this tax charge is often not appreciated.

A simple example

Suppose an overseas investor decides to invest £1m into a UK property portfolio, and borrows £2m on an interest-only basis to gear up to a total £3m investment. At the outset, he has an investment of £1m on which after a £300k zero rate band there is a potential Inheritance Tax liability of £280,000. If over the next few years, the property doubles in value, then the Inheritance Tax liability increases from £280,000 to close to £1.5million. There are also similar problems for overseas investors, particularly those from the Middle East buying summer homes in the UK.

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