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Real estate tax insurance

Real estate tax insurance is used to give protection against financial losses suffered in the event that the insured tax treatment is successfully challenged by the taxing authorities.

20/09/2023 · 3 minute read

What is real estate tax insurance?

Tax insurance policies in a real estate context are used to give protection against financial losses  suffered in the event that the insured tax treatment is successfully challenged by the taxing authorities.

Tax insurance policies can be employed to transfer a tax risk relating to a particular merger and acquisition (M&A) transaction. For example, the policy can be taken out by the seller to back an indemnity or by the buyer if the seller is unwilling to stand behind the liability. This would often avoid the need for an escrow mechanism or price chip. Tax insurance can also be obtained independently of transactions, and may be used to reduce or eliminate exposure associated with historic tax positions. It is also frequently used in the context of corporate restructurings or liquidations.

Examples of insurable tax risks

The types of tax treatments particular to real estate transactions that have been insured include:

  • Transfer Taxes.
  • Applicability of Stamp Duty Land Tax (SDLT).
  • Trading vs. investment risks.
  •  Tax residency.
  • De-grouping relief following restructurings.
  • Substantial shareholder exemptions/participation exemptions.
  • Protection of tax losses.
  • Other matters which are regarded as low or low/medium risk.

Key inclusions and conditions

  • The tax liability.
  • Defence costs.
  • Interest.
  • Penalties.
  • Gross-up where applicable.
  • Advance tax payments.

The policy is designed to cover interpretation risks rather than factual risks.

The process

To enable Marsh Specialty M&A to approach insurers and provide a better sense of price and coverage, we would need:

  • A brief overview of the tax matter under discussion. 
  • Third-party analysis.
  • A calculation of the likely tax liability and associated costs (defence costs, applicable interest, and late payment penalties, for example).
  • A brief summary of the underlying transaction (if this matter has come out of an M&A scenario).

To find out more information on the pricing and key exclusions please download the real estate tax flyer for more info.

Brochure

What is real estate tax insurance?

Download PDF

Meet the authors

Placeholder Image

Leon Steenkamp

Head of Tax Insurance, UK

  • United Kingdom

Jamie Crystal

Jamie Crystal

Head of Real Estate Transactional Risk, UK

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