Our Opinion: 2015

London property prices on the slide?

There are a lot of contradictory reports on what has happened to London property prices recently. The surge in recent years is in no doubt. However, many expected prices to rise following the Conservative win at the general election, when threats of a new Mansion Tax were ruled out.

LonRes provide data and property research to London estate agents and property funders. Their latest analysis suggest that prices actually fell 0.9% to the year ending in June 2015.

Other sources suggest rather faster falls in some areas. For instance, the estate agent Douglas & Gordon said that prices were down by as much as 10% over the year in the likes of Battersea and Battersea Park, “compounded by stamp duty issues and mortgage market concerns.”

The Chancellor, George Osborne’s, recent policy moves suggest he’s keen to see that slide continue. Not only has he changed the rules on tax relief for buy-to-let investors (depending on who you ask, somewhere between 40% and 80% of new builds in London sell to investors), but he has now decided to strip foreign investors of their last remaining tax advantage over UK buyers.

Holding your house through an offshore firm has long been the preferred way for foreign and non-domicile investors to buy UK property. Since 2013, anyone owning a property worth more than £1m inside a company, had to pay the annual tax on enveloped dwellings (ATED). The threshold will fall to £500,000 next April.

ATED doesn’t come cheap: it can be as much as £218,000 per year for houses worth more than £20m. Despite that, many people are clearly prepared to pay the tax. A Financial Times investigation last year showed that at least £122bn of property in England and Wales is still held through companies offshore.

The reason appears to be that using an offshore company enables foreign investors to avoid inheritance tax (IHT) on the property – and the savings from this can significantly outweigh the cost of ATED. So it’s no surprise that the chancellor has just announced that residential property held in an offshore company will be liable for IHT from April 2017.

Osborne said it is “not fair” that foreign investors can buy property in the UK and avoid inheritance tax. “From now on they will pay the same tax as everyone else.”

London and the UK remain attractive places to invest in, and will remain a safe-haven for international clients. However, the constantly changing rules around non-domicile status and property taxation, underlines the importance of high quality advice. This is particularly important in relation to property purchases where input from an international accountant and a financial planning specialist ise vital, alongside your lawyer and the friendly estate agent.