Some wealthy London residents are leaving the city following tax changes – but the overall impact on the capital’s prime property market is slight, according to an analysis conducted by Knight Frank Residential Research.
A thousand leave
Up to a thousand homes in London have been sold since October 2007 by high net worth individuals – HNWIs – and non-domiciled residents in the UK, the research finds. Changes in the UK tax regime made the country a much less attractive home.
Yet the loss of some of its richest residents had had little impact on the central London prime property market. Most people who have moved out still retain properties in London. Only 17% of non-domiciled residents and 3% of the HNWIs who have moved out of the capital have sold all their properties.
Most leavers intend either to keep their main homes, or some of their property portfolio – and more of the wealthy expect to expand their portfolios than will sell-up.
It’s Switzerland’s and Monaco’s gain
Switzerland and Monaco are the main gainers from London relocaters. And the health of London’s property market remains closely tied to the financial wellbeing of its wealthiest residents, says Knight Frank.
In the period to 2007, London became the primary destination for the internationally wealthy, but footlose, person, leading to substantial increases in property values in central London. In the two years ending September 2007, prime central London property prices rose by a staggering 69%.
Subsequently, falls in wealth had an impact on prime central London properties – but not in proportion either to general falls in wealth values, nor in line with previous value increases. Prices of prime central London properties fell by 23% between March last year and May this year.
As well as the global process of wealth destruction, UK tax hikes in the 2008 and 2009 Budgets are widely perceived to have damaged prices of prime London properties. The 2008 Budget announced an annual tax charge of £30,000 for resident non-domiciles who had lived in the UK for more than seven out of the last ten tax years. In addition, the 2009 Budget levied a top rate 50% income tax on incomes over £150,000, plus a restriction of the income tax personal allowance for those earning more than £100,000.
Although the very wealthy are unhappy with the tax increases, their location decisions are more closely tied with broader perceptions of the strength of the UK economy, the Knight Franks’ survey found.
New buyers moving in
One of the main factors that has limited the impact on prime London property prices is increased demand from foreign buyers, who are more than willing to step into the shoes of those who are leaving.
Knight Frank reports that whereas about 55% of properties selling for over £3m would normally go to people from abroad, at present foreign buyers account for nearly 70% of sales of the most expensive properties.