London property market faces hit as UK ends tax haven advantage for super-rich foreigners
[LONDON] With the UK set to abolish the “non-domicile” (non-dom) tax status of some 68,000 ultra-wealthy foreign residents, the move is set to beef up the government’s coffers by £9 billion (S$15.4 billion) and help pay for a two-pence cut in national insurance.
Since Chancellor of the Exchequer Jeremy Hunt made the announcement in his Spring Budget on Mar 6, real estate agents and entrepreneurs have warned that the end of the non-dom tax advantage could result in an exodus of overseas investors.
Wealthy foreign residents have been classified as “non-dom” for many years. Most live in the UK and have informed the authorities that they will eventually return to their home countries. As such, they are allowed to have tax-free earnings, income and capital gains outside the UK.
The non-dom status enabled the UK to be an international tax haven for the super-rich.
One of the most famous non-doms is British Prime Minister Rishi Sunak’s wife Akshata Murty.
HM Revenue and Customs – the UK’s tax, payments and customs authority – accepts that she lives in the UK but her domicile is India. Murty, however, wasn’t paying any tax on dividends from Infosys, her billionaire father’s software company. After a media outcry when this was made public, Murty now voluntarily pays tax on her global assets.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
“The new tax regime is already shaping up to be remarkably radical,” said Sophie Warren, a tax specialist at law firm Pinsent Masons. “It is going to surprise many non-doms who were hoping for a more gradual transition.”
According to a UK Treasury policy paper, the reforms are being introduced to “modernise and simplify” the tax system for individuals. But Warren believes that “aggressive” implementation could chase former non-doms out of the country.
Real estate agent Winkworth noted that the scrapping of the tax incentive would be “a negative for London’s international allure and property market”.
Winkworth said that many non-doms may choose to base themselves and their businesses abroad, with Dubai being an attractive destination. As such, the UK would lose the benefits of non-doms’ wealth and spending.
This would be another hit to London’s prime property market, which has been buffeted by Brexit, soaring interest rates, political uncertainty, money laundering crackdowns, and sanctions on wealthy Russians.
Property agents said that many rich London homeowners have been selling their mansions at large discounts in recent years.
Prices for properties in prime areas of London – including Belgravia, Mayfair and Kensington – were down 7.1 per cent in January 2024 compared with a year earlier, according to real estate researcher LonRes. That was the largest decline in almost five years.
Richard Godmon, a tax partner at accountants Menzies, warned that financial services workers could be lured to other countries.
“Firms, especially in the City of London, are already facing intense competition in the race for global top talent,” he said. “The non-dom tax status has been a powerful incentive to work in the UK.”
Real estate agents at Knight Frank are more optimistic, as they said the new ruling would take place in stages.
Non-doms will be able to take advantage of a low 12 per cent tax in 2025 and 2026 if they declare their global assets and income.
“This injection is expected to bring in an additional £15 billion of foreign income and gains and raise £1 billion in tax,” Knight Frank estimated. Their money would then help boost UK property prices.
The latest budget cuts capital gains tax by four percentage points to 24 per cent. Landlords who wish to sell their apartments and houses will benefit from the reduction, Knight Frank said.
Copyright SPH Media. All rights reserved.
