Bonus tax 'to hit property recovery'

The £550million bank bonus tax is likely to have "severe repercussions" for the central London property market, estate agents warned today.

Increased uncertainty over the level of this year's payouts and a fresh surge in the number of bankers putting their homes on the market if they decide to leave London could snuff out the recent recovery in prices, they said.

It had been expected that about £1.2billion of this year's City bonuses would be invested in London property, but that is now likely to be lower.

Ray Boulger, of mortgage brokers John Charcol, said: "The prime London market has been particularly buoyant recently in anticipation of a return of big bonuses, and so this attack has the potential to hit that sector of the market hard, at least in the short term."

But Liam Bailey, head of residential research at Knight Frank, warned the bad feeling left by the levy could knock confidence for years.

He said: "This may be a one-off tax but its knee-jerk nature could make people uneasy about what's coming further down the line."

Other sectors of the capital's economy such as expensive restaurants and jewellers also said they feared a further downturn in business as a result of the 50 per cent levy.

Des Gunewardena, chairman and chief executive of D&D Restaurants, said anticipation of the tax was already starting to hit revenues. He said that while revenues generally were up last week by about 10 per cent, and by as much as 25 per cent in the West End, in the City and Canary Wharf restaurants such as Coq d'Argent and Plateau they were down by 5 to 10 per cent.

However, it also emerged today that many of the very highest earners in the City will be outside the scope of the tax because they are on "guaranteed" bonuses as part of their contracts.

The small print of the new tax specifically excludes any "contractual obligation" put in place before the levy was announced yesterday.

Bankers on huge guaranteed deals include star bond dealer Antonio Polverino, who was paid a £7million "golden hello" to join state-controlled Royal Bank of Scotland in August.

There was also uncertainty about employees of foreign-owned banks paid from bonus pools based overseas.