London's appeal to the world's wealthiest remains strong despite non-dom abolition

Perhaps unsurprisingly, London is home to 230,000 millionaires, cementing its position as Europe’s hotspot for high-end residential.

CBRE’s inaugural Luxury Real Estate report delves into the impact of the luxury development market on wider real estate, and points to a recent spur in demand across three residential categories: Luxury, Ultra-Luxury, and Exceptional.

Over the past three years, just over 60% of house sales were at the 'Luxury' price point (£1,440 per sq ft), a decrease from the longer-term average of 70% between 2014 and 2020. In contrast, there has been an increase in the share of sales for ‘Exceptional’ properties (£3,090 per sq ft), more than doubling from 8% between 2014 and 2020, to 17% between 2021 and 2023. This significant rise of transactions at the top end of the market highlights London’s status as a global hub for residential investment and a mainstay for true luxury living.

The UK has always been attractive for residential investment, particularly overseas buyers, due to its historically favourable “remittance basis” tax regime, which is one of the most appealing in the world. This has had a particular impact on high end pricing in London, where prices per sq ft are significantly higher (£2,320) when compared to cities like Paris and Amsterdam. Amsterdam is becoming more popular among high-net-worth individuals (HNWI) due to a tax advantage that allows expatriates to receive 30% of their gross salary tax-free for the first five years, contributing to a circa 40% increase in millionaires in the city between 2013 to 2023. Although it remains expensive by comparison to other cities. It does, however, have appealing tax advantages for individuals looking to establish companies in The Netherlands.

Our current Government has stated its intentions to ensure the UK is an attractive jurisdiction to allure (and retain) ultra-high net worth (UHNW) individuals. However, the Chancellor, Rachel Reeves, delivered her first Budget last month and the announcement of a rise in inheritance tax is sure to have implications on the HNWI market in London and the UK more broadly.

The taxation for non-UK domiciled (non-doms) individuals will undergo significant changes, with the remittance basis of taxation being abolished from April 2025. Abolishing the non dom tax might not be as detrimental as initially thought, as the remittance basis was complex and costly, but its impact will surely be felt.

The positives are that from April 2025, new UK residents who haven't been tax residents in the last ten years can bring their offshore income and gains to the UK tax-free for the first four tax years, a big plus for those seeking education in the UK.

Additionally, non doms already residing in the UK can use the 'Temporary Repatriation Facility' from 6 April 2025 to remit foreign income and gains at a special tax rate of up to 15%, as opposed to the current rate of up to 45%, with a three-year period to decide and no limit on the amount.

Exempting second homes from changes to Capital Gains Tax (CGT) should boost investor confidence, but higher stamp duty on second properties may act as a deterrent given its increase from 3% to 5%.

And when we look beyond the luxury market, the increases to Stamp Duty Land Tax (SDLT) on second homes is still material. A £300,000 second property now incurs an additional £6,000 in tax, and a non-UK resident purchasing a £5m second home faces an SDLT charge of £861,250, up from £761,250. This increased tax burden materially affects private landlords, who own most second homes, and could dissuade would-be landlords from entering the market, creating a likely affect on the supply of new homes.