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Non-doms: are overseas investors abandoning London's most expensive properties?

Demand is slowing again in London’s most expensive neighbourhoods (Shutterstock / IR Stone)
Demand is slowing again in London’s most expensive neighbourhoods (Shutterstock / IR Stone)

Prime Central London (PCL) property prices are expected to fall one per cent this year, instead of the one per cent rise predicted in January.

Knight Frank has revised its forecast due to a deterioration in demand for the capital’s most expensive homes over the past few months.

This is due, at least in part, to the proposal to change the tax system for non-UK domiciled individuals — aka non-doms — introduced in the Spring Budget.

Non-doms are not fleeing London in droves, said Stuart Bailey, head of super prime sales, London at Knight Frank, but instead choosing either to wait out the uncertainty — or find a bargain.

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“Uncertainty is having some effect, but sales are hardly falling off a cliff as a consequence. Mostly, it’s a wait and see, as many tax advisors and lawyers are suggesting,” said Bailey.

“[Whilst] the market remains at a low ebb for now, so does the opportunity for striking a good deal.”

“It’s a wait and see, as many tax advisors and lawyers are suggesting.”

Stuart Bailey, London head of super prime sales, Knight Frank

Many mega-mansion owners in PCL and other prime London areas have slashed millions off their asking prices, while a couple of London’s most expensive homes have recently been sold.

UAE President Sheikh Mohammed bin Zayed Al Nahyan has bought a £65 million mansion in Chelsea, and Indian vaccine heir Adar Poonawalla paid a reported £138 million on a deal for a home in Mayfair.

Currently, non-doms can pay tax only on what they earn in the UK, while keeping the rest of their income and wealth offshote. The majority of the UK’s non-doms live in London or the south east.

“The reform of non dom rules had been causing a degree of hesitation in prime markets since they were proposed in March,” said Tom Bill, head of UK residential research at Knight Frank.

“Under the old rules, individuals could be resident in the UK without being taxed on their worldwide income. Chancellor Jeremy Hunt set out plans to limit this period to four years although there were indications he was prepared to loosen the proposals,” he explained.

“Not to be outflanked, Labour devised their own tougher rules, which are still to be fleshed out.”

Last week Poonawalla told the Financial Times that his wife, fashion influencer Natasha Poonawalla, would loose her tax benefits if the changes went ahead.

“Policy should be such that it encourages large groups and individuals to come and invest and stay in the UK,” said the billionaire. “Instead of doing that, you’re making rules which would make people stay away.”

“Reality will bite and it’s not in the UK’s interests to lose investors in our economy.”

Stuart Bailey, head of super prime sales, London at Knight Frank

The non-dom legislation was due to be bought in for April 2025, but Parliament has now been prorogued ahead of its dissolution on Tuesday for the general election.

Investors and agents are looking out for what the political parties will include in their campaign materials.

“The Labour manifesto will be interesting to see, in terms of following through (or not) with comments made regards non doms,” said Bailey.

“In any event, reality will bite and it’s not in the UK’s interests to lose investors in our economy.”

The number of non-doms in the UK almost halved between 2015 and 2022.

“Most buyers in the capital don’t base where they live and invest solely on their tax status.”

Stuart Bailey, London head of super prime sales, Knight Frank

In 2015, before former Chancellor George Osbourne tightened the rules, there were 123,000 registered non-dom taxpayers in the country, dropping to 68,300 in 2022, according to RIFT Tax Refunds.

But tax alone isn’t what drives London’s PCL market, Knight Frank stressed.

“International buyers currently have a few things on their mind with regards London; a desire for strong political leadership, high levels of service and hospitality, and a non-punitive tax regime,” said Bailey.

“London is London though, and most buyers in the capital don’t base where they live and invest solely on their tax status.”