Non-doms’ retreat hits London’s prime housing market

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New non-dom rules led to a plunge in the number of deals in London’s prime housing market last month, as interest cooled from wealthy international buyers.

There were 35.8 per cent fewer transactions in May for high-end properties compared with a year earlier and 33.5 per cent fewer than the pre-pandemic 2017-2019 average, according to property firm LonRes.

The number of under offer high-end properties — including the capital’s most expensive homes in Kensington, Knightsbridge and Belgravia — fell by 22.3 per cent, while available stock rose by 11.7 per cent in May on an annual basis.

“Feedback from agents certainly points to a tricky market,” said Nick Gregori, head of research at LonRes, which tracks the prime London market. “Values in most markets haven’t seen much growth.

“The latest economic data for the UK will have done little to improve sentiment either. GDP contracted by 0.3 per cent in April — a larger-than- expected fall — after the relatively strong growth in Q1.”

Sales of stock costing £5mn and over fell by nearly 15 per cent last month compared with May 2024, while the amount of this stock available hit a “record high” after rising by 22.4 per cent over the past 12 months.

This market has been particularly hard hit by the withdrawal of non-dom buyers, who have traditionally dominated this space, estate agents say.

They retreated because of changes to the non-dom tax rules as the Labour government decided to close a loophole that allowed the use of offshore trusts to avoid inheritance tax.

Their worldwide assets are now exposed to IHT at 40 per cent under rules, which came into force in April. This has caused a wave of wealthy people to leave the UK for more tax-friendly regimes such as the United Arab Emirates, Italy and Switzerland.

A backlash has now prompted chancellor Rachel Reeves to consider reversing the decision.

One senior financier, who is in frequent contact with Reeves, told the Financial Times that the government was trying to find a way of “backtracking without backtracking” on the non-dom changes — with a particular focus on the inheritance tax issue.

A second senior City figure said there would “most likely be some tweaks to inheritance tax to stop the non-dom exodus”.

The rental market was also slow in May, not helped by a lack of availability, although the number of properties that estate agents have been appointed to let has shown signs of picking up.

There was an annual decrease of 21.7 per cent in lettings agreed and a 5.2 per cent fall in new instructions, with activity on both measures remaining well below pre-pandemic levels.

The stock of available rental properties decreased on an annual basis, with 4.6 per cent fewer homes on the market across prime London at the end of May than a year earlier.

However, the market recorded annual rental growth of 3.3 per cent in May across prime London, with average rents 32.9 per cent above their 2017-2019 average.

Separately, data from the Office for National Statistics released on Wednesday showed the average UK monthly rent had increased by 7 per cent in the past year to £1,339 a month, while average house prices increased by 3.5 per cent to £265,000.