The choice to scrap the the non dom tax regime has contributed considerably to the falling variety of high-value residential property transactions, which has put better stress on the federal government’s funds, Knight Frank estimates reveal.
New laws include a four-year time restrict and in response to Tom Invoice, head of UK residential analysis at Knight Frank, meaning international locations like Italy, which has an annual flat tax that ringfences abroad belongings, have develop into extra enticing.
He stated: “It’s precisely 9 years since 52% of the nation voted to depart the EU. The choice was pushed by a variety of things together with the influx of individuals into the nation from abroad. At this time, the federal government is anxious that rich international buyers are getting into the other way.
“It follows a choice to scrap the non dom tax regime. Beneath the previous guidelines, people might stay within the UK with out paying tax on abroad wealth. New laws include a four-year time restrict and imply international locations like Italy, which has an annual flat tax that ringfences abroad belongings, have develop into extra enticing.”
There have been studies in April that the federal government was dropping capital features tax income on account of the adjustments. There’s additionally proof that numerous UK firm administrators are shifting overseas.
Each would possibly clarify why the federal government may very well be planning a U-turn and exempt abroad belongings from UK inheritance tax (IHT), which has been a key stumbling block underneath the brand new system, in response to Invoice.
He continued: “The impact of the rule change on the prime property market has been predictable. The variety of £5m-plus gross sales in London within the 12 months to Might was 14% decrease than the earlier 12-month interval, information from Knight Frank and LonRes exhibits.
“One other statistic that can make notably uncomfortable studying for the federal government is the misplaced stamp responsibility income for the reason that non dom overhaul was introduced by Conservative chancellor Jeremy Hunt in March 2024.
“Primarily based on how far the variety of £5m-plus exchanges fell beneath what would ordinarily been anticipated between March 2024 and Might this 12 months, we calculated that £401m was misplaced in stamp responsibility income. The yardstick used was how the market had carried out over the earlier two years.”
The research, carried out by James Culley in Knight Frank’s analytics group, assumed all transactions have been topic to the extra charge of stamp responsibility, and half incurred the two% non-resident surcharge.
For context, a complete of £11.6bn in stamp responsibility was collected within the 2023/24 monetary 12 months.
“The actual fact the UK is dropping a whole lot of hundreds of thousands of kilos in stamp responsibility confirms our warnings,” stated Leslie MacLeod-Miller, chief government of International Traders for Britain. “Oxford Economics discovered 83% of buyers view inheritance tax as a dealbreaker, with 62% planning to exit inside two years until the UK introduces a regime like Italy’s world visa and flat tax.”
The misplaced income takes on additional significance provided that the federal government’s monetary headroom is so tight. A determine of £401m represents 4% of £9.9 billion, which is the newest OBR estimate of how a lot respiration room the Chancellor has.
The outlook is not going to have been helped by final week’s information that authorities borrowing in Might was on the second-highest stage since data started in 1993. Certainly, the OBR is prone to downgrade its financial outlook subsequent month.
The misplaced income calculation can be earlier than you rely the large knock-on spend from individuals shifting home. In 2020, Knight Frank estimated a internet contribution to GDP of £10,000 for each residence transfer.
Because the stress on the federal government funds intensifies, the relative measurement of such black holes will solely develop, knight Frank predicts.
