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There is no denying that foreign buyers have been among the main drivers of
the meteoric price rises seen at the top end of the London property market
in recent years. According to figures from the estate agency Knight Frank,
the price of homes sold for £6m and above – almost three-quarters of which
are bought by people from overseas – has risen by 79.4% in the past two
years.
Could all that be about to change? Plans by the government to clamp down in
April on the preferential tax treatment enjoyed by “nondoms” (people, mostly
foreigners, who are resident but not domiciled in Britain) are causing alarm
among the estate agents of Knightsbridge, Chelsea and Belgravia – despite a
watering-down of the proposals announced last week. All this comes amid
signs that the market in prime central London is slowing sharply, with
prices up by just 1.1% last month – less than half of the 3% registered in
January 2007.
“If the nondom market disappeared, central London prices would fall
significantly,” says Liam Bailey, head of research at Knight Frank. Nor
would the effect of a pull-out be confined purely to central London, he
adds. A study by the agency found that money invested in property by nondoms
has trickled down through the market – accounting for an estimated 5% of the
17% price rise in the southeast, and 6% of the 22% rise in Greater London in
the past two years, as buyers priced out of Belgravia and Chelsea moved
southwest to more affordable areas such as Wandsworth or Fulham.
A nondom pull-out would also have an impact on the rental market, says Charles
Oliver, head of private buying at Chesterton, a London-based estate agency.
“It’s a rolling effect,” he explains. “If they go, it will affect the top
end of the market and the top-end rentals.”
The crucial question, one nobody can answer for sure, is: how many nondoms
will actually move away? And, of those, how many will give up their foothold
in the London property market? Under the proposals, anyone claiming nondom
status must pay a £30,000 levy after they have lived in Britain for more
than seven years. Last week’s changes mean they will, after all, not be
required to make any “additional disclosures” about incomes and gains
falling outside the UK tax net.
Nevertheless, anecdotal evidence from estate agents and property finders
suggests that some of those who will be affected are already voting with
their feet.
Howard Elston, a negotiator in Aylesford’s Chelsea office, has four nondom
clients selling property. Simon Barnes, a top-end search agent, has had
several inquiries from clients looking to move, and has been asked to find a
discreet buyer for the £10m London property of a French banker who plans to
relocate to Geneva.
Rupert Des Forges, a partner in Knight Frank’s Sloane Avenue office, has dealt
with five Europeans who have already left London. “They’re transient,” he
says. “They’ve got no loyalty and they will all pack up and go as quickly as
they came.” Paddy Dring, head of international residential sales at Knight
Frank, says he has noted a marked increase in inquiries from nondoms heading
for the exit. “People are considering their options,” he says. “They’re
looking at a number of different locations, and a lot of people are saying
they’re definitely off.”
Dan Andersen, 65, is among them. He moved to London from his native Sweden 16
years ago to work for an international bank based in London. He now works
for himself, running a couple of companies in Britain, investing in small
start-ups, running several family trusts based abroad and managing money for
various high-profile clients. He and his wife, Marianne, 62, have benefited
from the tax breaks enjoyed by nondoms for assets held offshore, but are
selling their four-bedroom flat in Chelsea for £2.5m (through John D Wood;
020 7352 1484, www.johndwood.co.uk)
and returning to Sweden – a country not normally considered a tax haven.
“The income tax is fairly high there, but there’s no inheritance tax, no gift
tax and no property tax,” says Andersen. “I can arrange it so I have just
the income I need to live on in Sweden, so it will work out better
financially for me because of the offshore-assets aspect.” Tom Finch, 45, a
property developer, is also making plans to leave. “I don’t think people
object to paying tax,” says Finch, whose Barbadian wife is nondomiciled.
“It’s the requirement to release details to the Revenue of all worldwide
assets.” The Finches plan to keep their family house in Surrey, but are
buying a chalet in Switzerland, and may move either there or further afield,
to Mauritius or the Seychelles.
Switzerland, which allows foreign residents to negotiate a lump-sum annual tax
payment, typically about £46,000 a year, is one of the most popular
destinations for those planning to leave, according to a recent report by
the Society of Trust and Estate Practitioners. So, too, are Monaco, parts of
the Caribbean and the Isle of Man – although the climate there is something
of a turn-off.
Despite the gloom – fuelled by trust lawyers, accountants and others who earn
hefty fees from nondom clients – many agents think the gloom is exaggerated.
“Everyone’s talking about leaving, but I don’t think they actually are,”
says Jonathan Hewlett, head of London sales at Savills. “One client told me,
‘I don’t earn all this money to go and live somewhere I don’t want to live –
I'm happy in this country.’ There’s just a lot of talk.”
Bailey also warns against exaggerating the likely impact on the property
market. “It’s dozens rather than thousands,” he says. “Most of these wealthy
hedge-fund people don’t really have foreign income to remit anyway.”
What £1m buys in
Belgravia: A 333 sq ft studio Monaco:A 357 sq ft studio
Manhattan: A 588 sq ft one-bedroom flat
Geneva: A 1,538 sq ft three-bedroom flat
Jersey: A 2,000 sq ft four-bedroom family house
Grand Cayman: A 2,580 sq ft four-bedroom villa
Dubai: A 4,000 sq ft five-bedroom villa
Source: Knight Frank Residential Research
I'd love it if property values and rents fell in London, but what's £30,000 to those fat-cats? Peanuts.
Johnny Law, London,
Tip of the iceberg. Wait until they leave and we don't get their tax money at all. The handling of nodoms and higher rate tax payers by the Tories brought in far more money than it cost and now LAbour will unpick that money in favour of something tat may not even be legal under European law on freedom of movement and trade.
Mike, Newport,