Liz Palmer Blog...

Non-Dom and the prime residential property market

So, the non-dom tax regime is back under the spotlight. The motivations behind Ed Miliband's announcement last week have already been aired extensively. Is this headline grabbing electioneering or does the Labour Party really think that abolishing the tax advantages for non-doms would significantly increase the UK tax take

Of course there are arguments for and against it. From one perspective, it is an outdated, unfair regime which favours the already privileged few who quite frankly should pay their fair share of tax if they are going to enjoy residing in the UK.

Conversely, it is a regime which does not just benefit the super-rich. Some non-doms are foreign doctors, nurses and entrepreneurs who come to Britain bringing the benefit of their skills, expertise and the much sought-after inward investment that can make an economy thrive.

This is all well and good, but in reality it is almost impossible to assess the fiscal impact of this change. What is clear is that this is a bold move by the Labour Party.

What impact would the proposed changes have on the UK residential property market Will it finally cause the current prime London bubble to burst Will prices tail off at the high value end of the market

Probably not.

We are told that there are only 116,000 declared non-doms in the UK taking advantage of their preferential status. Not a significant number in the scheme of things. If they all decide to leave the UK will they sell their valuable homes Probably not, they would want to retain them in order to have a pied terre in London for when they visit as a non-resident.

The prime residential property market has already been affected by two specific tax changes in the last two years. These changes have not caused a downturn in the market.

In 2013 the Annual Tax on Enveloped Dwellings (ATED) regime was brought in to impose an annual charge on companies which own residential property worth over £2m. The threshold has since been lowered to £1m and will be £500K from 2016.

With effect from April 2015 the Capital Gains Tax regime has been extended to non-resident sellers of residential property.

For the super-wealthy these additional tax costs are inconvenient but they appear to be accepted. They are simply an additional cost associated with buying and owning the trophy London properties to which so many wealthy foreigners aspire.

So, despite a significant attack by all political parties, foreign capital inflow into the real estate market as an asset class does not seem to have abated.

It is more likely that the prime London residential market is being held up by non-resident/foreign investors who want to own a London property for either lifestyle or investment reasons. The non-dom changes are not going to have any impact on these foreign investors.

The UK can choose to tax the non-doms, but this is not going to deter the non-resident investors who are outside our mainstream tax regime.

*Liz Palmer is a Partner and Head of Private Client at law firm Howard Kennedy