Capital appreciation

Are events conspiring to bring finally to an end the incredible resilience of prime central London property prices? One event in particular threatens to do just that.

This week, demands from Her Majesty’s Revenue & Customs will land on the plush doormats of some 5,000 owners of properties worth more than £2 million (based on valuations as at April 2012). The taxman’s targets include foreign oligarchs, Middle-eastern sheikhs and celebrities from our world of popular culture. Many have purchased their sumptuous residences through offshore companies, thus avoiding hefty stamp duty and capital gains tax bills. Until now, that is.

The new tax will be levied in bands from £15,000 to £140,000. Properties valued at between £2 million and £5 million will pay the lower amount, and those worth in excess of £20 million the maximum. It follows an announcement in last year’s (botched) Budget that the tax authorities would crack down on hitherto perfectly legal property-related tax mitigation schemes.

The new tax comes at a time that has also seen stamp duty rise to 15 per cent for properties valued at more than £2 million. And from the beginning of the new tax year – April 6th – offshore companies owning UK residential property will become fully liable for capital gains tax.

While many will think these changes are long overdue – particularly when we’re all supposed to ‘be in it together’ – many experts believe the changes will damage the attractiveness of the London property market. Some also predict it will bring to an end the proclivity of the ultra wealthy to use offshore vehicles for purchasing property in the UK.

While the impact of the changes shouldn’t be underestimated, I tend to think the rich will shrug them off. The sums involved may appear considerable to us mere mortals, but they could amount to little more than loose change for the well-heeled residents of Belgravia, Chelsea and Kensington. But if the measures bring in the hoped-for £230 million they’re supposed to, we might all be a little better off.

On the flip side, London property looks set to enjoy a boost from the continuing fall in the value of sterling. I predicted as much in last week’s column (‘The Moody Blues’) and it appears to have come to pass.

One leading estate agency firm reports a near-50 per cent year-on-year increase in internet searches for London property from overseas enquirers in January. Viewings by potential purchasers from the EU are said to be up 67 per cent, while searches from French, Spanish and Italian buyers are up by an average of 112 per cent.

Another equally well-known agency has reported a similar surge in interest from overseas buyers across all prime areas including Notting Hill, Knightsbridge and St John’s Wood. It confirms the increase in stamp duty had a temporary dampening effect but that it has since been mitigated by the recent fall in sterling – more than 11 per cent against the euro since its last peak in June 2012.

It isn’t just confined to European buyers either. The dollar has strengthened considerably against the pound, driving a 49 per cent increase in internet enquiries from US home-seekers. With London remaining a compelling destination for many wealthy buyers, the good times don’t appear to be over just yet.