Britain’s Tax Trap Tightens: Why Investors Are Rethinking the UK

With over three decades spent working in the UK and global property markets, I’ve seen firsthand how quickly policy shifts can undermine confidence, stall transactions, and prompt investors to look elsewhere. That’s why last month’s announcement – of increasing the inheritance tax (IHT) liability period to a maximum of ten years for long-term residents leaving the UK – is so controversial.

Once marketed as a hub for international wealth, Britain has long attracted investors seeking stability, transparency, and opportunity, especially in real estate. London and other major cities have established themselves as global capitals, where international buyers and developers have been instrumental in revitalising urban areas, funding large-scale infrastructure projects, and generating thousands of jobs across construction, finance, and property services.

However, this change in legislation is reflective of an increasingly inhospitable environment for property investors. It’s a misguided move by the government, with real and immediate consequences for wealth creators and their long-term commitment to this country.

Inheritance tax, in its current form, is already seen by many as outdated and disproportionate. It adds up to about 0.7% of all tax receipts and, in its simplest definition, is a death tax applied to your tax-paid ‘living estate’. The UK has one of the highest IHT rates and lowest thresholds in the developed world, with a top rate of 40% applied to estates over £325,000. In London – where the average house price is more than double that – people with modest incomes can face significant tax burdens.

Separately, long-term residents – those who have been in the UK for a total of ten out of the previous 20 years – could now have to wait up to a full decade after relocating abroad before their estate becomes fully exempt from UK inheritance tax. This is due to a new “tail provision” designed to prevent tax avoidance by moving abroad shortly before death. The tail lasts at least three years, increasing by one year for each additional year of UK residence, up to a maximum of ten years.

It could be argued the new residence-based system contradicts the principle of tax neutrality for those no longer using UK public services or contributing to the UK economy day-to-day. For high-net-worth individuals and foreign investors, it raises serious questions about the long-term benefits of basing themselves – or their assets – in Britain.

Instead, more tax-friendly jurisdictions such as Italy, Portugal, Monaco, Dubai, or Singapore offer greater certainty, favourable property tax regimes, and a more stable environment for investment. Many of these markets actively encourage inward property investment through incentives such

as reduced capital gains taxes, no inheritance tax, or residency schemes tied to real estate purchases. Closer to home, The Channel Islands offer similar advantages.

This policy shift also feeds into a broader narrative about the UK’s position in the global investment landscape. At a time when competition for capital, talent, and innovation is fierce, penalising those who have contributed significantly to the economy – and may continue to do so from abroad – is a bold move, and one that could be viewed as counterproductive.

From a property market perspective, the timing of this change is notable. The UK is still emerging from a period of economic turbulence, shaped by Brexit, the pandemic, and interest rate increases, all of which have contributed to a prolonged sense of uncertainty. While confidence in both residential and commercial markets has begun to return, this policy shift may discourage investment – particularly at the top end of the market, where international buyers have historically played a pivotal role.

I speak regularly with wealth managers, legal advisors, and investors who are busier than ever advising clients (and importantly, the next generation) to review their affairs. Some are accelerating timelines to relocate; others are drawing up exit strategies entirely. It’s not just about tax – it’s about how welcome they feel, and how confident they are in the long-term direction of the UK.

There remains, however, an opportunity for constructive dialogue around reform. Reviewing the structure of IHT – and its impact on economic behaviour – could form part of a wider discussion on ensuring that the UK remains competitive and attractive to both domestic and international investors. Equally important is the need for consistency in policymaking, giving individuals and institutions the confidence to plan for the future.

For the economy to continue growing and thriving, the benefits of remaining here need to outweigh those of relocating. Without a consistent and supportive framework for investors, the UK property market may experience reduced investment, slower growth, and a potential decline in global market appeal. The true impact of recent decisions will become clearer over the next 12-18 months, but it’s hard to ignore the shift in attitude towards prosperity in a country traditionally regarded as one of the most exciting and attractive destinations for property investment in the world.