Keep up to date with complimentary updates
Just subscribe to the Property sector myFT Digest — sent right to your inbox.
The recent changes to non-dom regulations caused a significant decline in transactions in London’s luxury housing market last month, as demand from wealthy foreign buyers waned.
According to property firm LonRes, there was a 35.8% drop in transactions for high-end homes in May compared to the same month last year, and a 33.5% decrease from the average activity seen during the pre-pandemic years of 2017-2019.
The number of luxury properties under offer—including the city’s priciest homes in areas like Kensington, Knightsbridge, and Belgravia—decreased by 22.3%, while available listings increased by 11.7% year-on-year in May.
“Agents are definitely noting a challenging market,” stated Nick Gregori, who leads research at LonRes and monitors the prime London sector. “Prices in most markets haven’t really risen much.”
“Recent economic indicators for the UK are unlikely to boost confidence. The GDP fell by 0.3% in April, a larger drop than expected, following relatively robust growth in the first quarter.”
Sales of properties priced at £5 million and above dropped nearly 15% last month compared to May 2024, while the availability of such properties reached a “record high” with a 22.4% increase over the last year.
This segment has been particularly affected by the departure of non-dom buyers, who have typically played a dominant role, according to estate agents.
They have withdrawn due to new non-dom tax regulations, as the Labour government eliminated a loophole that allowed the use of offshore trusts to evade inheritance tax.
Now, their global assets face inheritance tax at a rate of 40% due to new regulations that took effect in April. This has led many affluent individuals to relocate from the UK to more tax-favorable locations like the United Arab Emirates, Italy, and Switzerland.
In response to public outcry, Chancellor Rachel Reeves is considering reversing this decision.
A senior finance professional, who regularly interacts with Reeves, informed the Financial Times that the government is exploring ways to “backtrack without actually backtracking” on the non-dom regulation changes, particularly regarding the inheritance tax issue.
Another prominent City figure noted that adjustments to the inheritance tax are likely to be made to curb the non-dom exodus.
The rental market faced challenges in May as well, due in part to limited supply, though there have been signs of improvement in the number of properties that agents have been hired to let.
There was a 21.7% drop in lettings agreed year-on-year and a 5.2% decline in new instructions, with both figures remaining significantly lower than pre-pandemic levels.
Available rental properties also shrank year-on-year, with a 4.6% reduction in the number of homes on the market in prime London as of the end of May.
Nonetheless, the market experienced an annual rental increase of 3.3% in May across prime London, with average rents now 32.9% above their 2017-2019 average.
In a separate report, data from the Office for National Statistics released on Wednesday revealed that average UK monthly rent rose by 7% over the past year to £1,339, while average house prices climbed by 3.5% to £265,000.
