Gulf sovereign wealth funds face a tax raid on their UK property investments for the first time under plans unveiled by the Chancellor.
John Healey said the Government would begin taxing income and gains from UK property held by sovereign wealth funds from 2029. The move is estimated to raise £700m for the Treasury.
The new rules will hit Gulf states particularly hard. The Qatar Investment Authority, for example, owns a large part of the Shard Quarter in London Bridge, Harrods department store in Knightsbridge and HSBC’s former headquarters at 8 Canada Square in Canary Wharf.
The tax raid also risks inflaming tensions with the United Arab Emirates (UAE), which has invested hundreds of millions of pounds in property in Manchester.
Relations between the UAE and the UK Government are already tense over the Premier League’s treatment of Manchester City, which is owned by Sheikh Mansour bin Zayed Al Nahyan, an Emirati royal from Abu Dhabi’s ruling family. The UAE has threatened to pull investment from Britain after the football club was found guilty of 114 breaches of the league’s financial rules.
The row has also embroiled Andy Burnham after he was revealed to have accepted hospitality from the club’s owners and had dinner with Khaldoon Al Mubarak, the Manchester City chairman.
Wealth funds from Norway and South Korea are expected to be hit particularly hard by the change as they both have large property investments in the UK.
Norges Bank Investment Management, the state-owned fund that manages Norway’s oil wealth, spent £570m last year to buy a quarter of London’s Covent Garden as well as purchasing a £306m stake in Mayfair.
Under the current rules, income earned by sovereign wealth funds has been broadly exempt from UK direct taxes.
