How Non-Dom Tax Reforms Will Impact Prime Central Lon...

The UK government's long awaited Spring Budget announced some key changes for the property market in an effort to stimulate activity across the UK.

Changes in property-related taxation, such as capital gains tax (CGT) rates can influence investment and homebuyer decisions as well as market activity quite significantly.

Let’s delve deeper into the changing landscape and what this means for domestic and international homebuyers within the Prime Central London property market.

From 6th of April, higher-rate taxpayers selling residential property will pay 4% less capital gains tax, as the rate is reduced from 28% to 24%. This is designed to increase government revenue by incentivising property owners to sell, thereby providing more stock for buyers in the long run and stimulating property transactions at a time where buyer sentiment is climbing.

For those who own luxury property in Prime Central London, this will mean significant tax savings should they wish to sell. Likewise, property investors who frequently buy and sell within the market can benefit from significant tax savings while adjusting their property portfolio.

Non Domicile Tax

The government announced that it will abolish the so called “non-dom” scheme this year and this has proved to be one of the most controversial changes in legislation proposed in the Spring Budget.

At present, holding non-domicile status makes the almost 69,000 non-doms currently residing in the UK exempt from paying UK tax on income and capital gains earned overseas – including on company stocks or cash made from selling a second home.

Research shows that those holding non-domicile status in the UK make up a large proportion of high-paying finance and city jobs, accounting for more than one in five top earning bankers in the capital. For the prime Central London market, non-doms account for a significant portion of property transactions on a year-on-year basis.

Many within the property industry have pointed out that the existing non-domicile tax status made the UK an attractive place to live for wealthy individuals, which benefitted the economy and brought significant investment to the PCL property market. However, the Prime Central London property market is highly resilient and London itself has a wealth of attractive qualities which will continue to draw high net worth individuals to the market – particularly international buyers.

Barnaby Goss, Head of Private Clients at Aldersley London says: “Abolishing the non-dom tax benefits will likely deter some purchasers within Prime Central London market. However, over the longer term, the capital will remain one of the most resilient and attractive property markets globally.

“Whilst it is suggested that this is a "modern, simpler and fairer residency-based system", it is a significant tax-regime change for global HNW’s and the rules will produce a variety of scenarios with several layers of complexity.

“However the favourable change in Capital Gains Tax is welcome news, which may prove to mitigate some of the blow to non-doms, as we hope to see a stimulated sales market with increased supply as people are encouraged to transact.

“Central London property has always been considered a relatively safe investment and the capital’s dominance across the finance, legal and business sectors remains a huge incentive for international buyers to choose the Prime Central London market.”

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