US election: Americans keep their international options open
There have been some reports about ‘calls through the night’ from Americans looking to move to London, as the US election results unfolded. We saw similar claims when the dollar was very strong against the pound.
In reality, demand from Americans – looking to buy and rent – has been steady over the past 12 – 24 months. Due to their global taxation rules, they are less impacted by UK tax changes versus other nationalities.
Of those looking to rent, they are keeping their options open. For example, one of our American clients who we secured a London rental property for two years ago had decided not to renew their tenancy, as they had been spending less time in the UK. However, on the day of the US election results, they changed their minds and decided to renew after all, to maintain their London base and keep their options open. This response is not in isolation.
Interestingly, Americans are now committing to buying a property in London much more quickly.
Our team are experienced in relocating very senior executives for a number of global brands, as well as private families, and most nationalities will typically rent for the first 12 – 18 months and then seek to buy. Americans on the other hand, have historically rented for an average of five years before putting down long term roots.
However, over the past two years we have seen American expats in the UK committing to a purchase either straight away, so the property is ready for their arrival, or buying within the same timeframe as other nationalities. They are making proactive plans to come to London for a prolonged period, rather than a short term career post, and are very comfortable with the lifestyle that London has to offer and the tax implications.
Non Doms: Leave vs remain is not just a financial decision
The move for non-UK trusts to be subject to UK tax is a step too far for many UHNWs. Some have already left the UK and others will do so ahead of April 2025. Of our own clients leaving, the majority are highly mobile – either they have adult children who have flown the nest, or no children and therefore no school ties. Or they had links to another country or region, making it a natural move or return.
In our experience though, the decision is rarely just numbers driven – emotion is a major factor too.
One of our hedge fund clients, for instance, recently explored a move to Geneva but his wife wasn’t keen on the lifestyle change. They also considered Dubai but concluded they didn’t want to raise their children there. It’s now highly likely they will stay in London.
Another client, a private equity partner, considered Milan but found housing options extremely limited and costly versus London.
For others, freedom of lifestyle is a big factor. One of our young entrepreneur clients who is about to enjoy a significant exit said he wasn’t prepared to give up the financial freedom he has worked so hard for, to live in a country he doesn’t want to be in.
Another of our clients has ageing parents and is not prepared to be time limited in the UK if their health declines.
Four year FIG regime: Demand for prime and super prime rental homes will rise
As of 6 April 2025, new arrivals to the UK (subject to certain conditions) will for their first four years of UK residence, benefit from 100% relief from paying any UK tax on their foreign income and gains (FIG).
Known as the FIG regime, the 100% tax relief will apply whether or not the sums are brought into the UK, removing the disincentive to bring in cash held overseas, which is inherent in the current remittance basis regime.
We do expect to see an inflow of new residents seeking to take advantage of the FIG regime, but four years is not enough to warrant buying a property in most cases. It is therefore likely there will be a focus on renting during that period, rather than buying. Whilst this is good news for landlords renting out prime and super prime properties, it will pose challenges for newcomers as the supply of high quality rental properties in London is very limited as so many landlords have exited the market in recent years.
Stamp duty second home surcharge: Dual purpose considerations
The additional 2% second home Stamp Duty Land Tax (SDLT) surcharge will further focus minds for both UK and international buyers.
For UK resident buyers, higher additional SDLT rates do not apply where someone is replacing their main residence, but the “replacement” element means they need to be selling an existing residence.
This will impact grown up children or siblings who have been gifted a family property – perhaps a London flat or a holiday home. If they then go on to purchase their main home and the gifted property is not being sold, the higher rate will be payable. This is something for banks of mum and dad to consider, bearing in mind they account for approximately 20% of all London transactions below £8m.
Buyers replacing their primary residence can still apply for a refund on the surcharge portion if they do so within three years.
Buy to let investors will also be affected. New landlords entering the market to buy solely for investment have been almost unheard of over the past few years and the extra SDLT is likely to keep it that way.
Only those with dual ownership purposes are still buying for investment, as I discussed in my property column in The Telegraph earlier this month.
For international buyers, London sits broadly in the middle versus other global cities when comparing transaction, ownership and sale costs. However, the upfront nature of UK SDLT – compared to annual property taxes charged in other locations – has been a stumbling block for many.
Trophy buyers who have decided to add a London home to their global portfolio are likely to remain undeterred.
But for others, it will make them even more likely to debate ownership versus rental, short-lets or hotel accommodation. For example, we were contacted by a Canadian buyer last month who was considering purchasing a London base in Marylebone with a budget of £3.5m. We ran the numbers so he knew exactly what the total cost would be, and his SDLT was just over £500,000 – which was enough to make him think twice. Now, post budget, that has risen to nearly £580,000 and it is unlikely he will buy.
Capital Gains Tax: Entrepreneurs will be more active
This gives a short window for anyone who wants to take advantage of the lower 10% rate. A number of our entrepreneur clients accelerated their business sales to complete ahead of the budget announcement and this is set to continue in the run up to April. We therefore expect entrepreneurs to make up an even larger proportion of the clients we represent over the next 12 – 24 months.
When working with those who have recently sold their business, a large part of our role through the property search process is to help them carefully navigate their new and often vastly different wealth level.
Whilst some are keen to embrace their new financial position, others are very reluctant for significant change and making more modest home moves. We play an integral role in helping them understand what they want their next chapter to look like.
Interestingly, we have noticed many of the younger generation of entrepreneurs shying away from large service charges. One recent client had spent many years earning a low salary whilst he built up his business, and he couldn’t bring himself to mentally commit to annual service charges of double or more.
Inheritance Tax: Wealth is likely to trickle down earlier
With effect from 6 April 2027, unspent pensions pots (with a few exceptions) will be subject to inheritance tax (IHT) – currently they can be left entirely free of IHT.
This is a significant change to the tax treatment of pensions and will reduce them being used as a tax efficient way to pass on wealth to younger generations.
We believe this is likely to cause an increase in bank of mum and dad gifting wealth to younger generations earlier by cashing in buy-to-lets or occasional second homes. We regularly see these proceeds used to help pay for weddings, first homes or school fees.
Parents who are funding property purchases are often wary of gifting money too early. They are conscious that a grown up child might go off the rails, an undesirable spouse may come onto the scene, or too much wealth could be gifted and not enough held back for themselves as a provision for high care costs, should their health decline or they live longer than expected. We have worked with many parents making these decisions and understand the factors that go into them.
Private equity and carried interest: Less punitive than expected in the short term
Since Covid, more than 35% of the clients we have represented are from the private equity industry. The announcement that carried interest CGT will increase from 28% to 32% from April 2025 is much less punitive than expected.
Many believe the government has benchmarked against other global countries to remain globally competitive for the time being. We therefore don’t expect a significant change in the demand or budgets from private equity clients in the short term, although there may be future changes which could affect this.
What will happen to supply: £5m is the tipping point
Of those who are leaving, we are seeing properties worth less than £5m being sold, bringing additional supply of property to this already well-stocked price bracket. Supply is also being driven by landlords and pied a terre owners looking to consolidate their affairs, invest in higher yielding assets, or pass down wealth to younger generations.
Properties worth £5m+ however are typically being retained – either purposefully to maintain a London base, or unintentionally where the property was put up for sale but failed to achieve the desired price. Owners in this price bracket can often afford to hold the property and our Rental and Home Management teams are busy with new clients who are looking to rent out their London homes or have them turnkey ready for when they spend time in London.
Interest rates: A boost to buyer confidence
Although the recent Bank of England rate cut from 5% to 4.75% was widely anticipated, this will give potential buyers increased confidence in a downward trajectory of borrowing costs.
We expect more buyers will start to enter the market in 2025 and we already have a number of clients signed up to start their property search in Q1 next year.
Interestingly, many banks and mortgage brokers are reporting an increase in buyers opting for fixed rate mortgages, despite further potential cuts. Buyer risk appetite remains low and many are keen to fix their outgoings and the certainty of costs.
The appeal of London: For newcomers and young families
This year we have helped secure properties in London from £3.5m to £30m for numerous clients relocating here. London therefore hasn’t lost its appeal.
This is particularly the case with young families who are about to start their children’s education and deem London to be a safe place to live. Many are internationally relocating here for job promotions or business expansions, and we are also working with a number of families who are moving back to London from the UK countryside.
In these cases, schools are the primary driver in the property search process, and the home search is built around that. Many of the UK schools are now offering IB and SATs alongside A-levels, catering for international families who want their children to benefit from education in the UK but be able to return to home countries for university.