A resilient outlook for the UK property market in some sectors
High-value London homes remain popular
Property experts from across the industry agree that while many areas of the UK residential property market are slowing in light of rapidly increasing costs of finance and concerns around the economy in general, high-value London real estate and property located in sought after locations, continues to be a popular choice for international buyers, both as a place to call home and for investment purposes.
Hugh Dixon of Knight Frank's Private Office shares this view, commenting that:
'The economic mood has darkened but the market is far from grinding to a halt. The number of new prospective buyers in London over June 2023 was 24% above the five-year average. The resilience is perhaps no surprise given that around half of sales inside Prime Central London are typically in cash. The market will also be supported by greater levels of affluence, the relatively weak pound (depending on your timing) and the fact overseas travel is returning to pre-Covid levels.'
An evolving tax landscape
Prime Central London property is expected to remain attractive to foreign purchasers, in spite of changes over the years to SDLT, which have included:
- The introduction of a surcharge of 2% for non-UK resident purchasers completing on purchases from 1 April 2021.
- A surcharge of 3% introduced in April 2016 for purchasers who already owned a residential property anywhere in the world (and were not replacing their main residence) at the time of completion.
This means that SDLT rates for individual purchasers can now be as high as 17%.
There have also been indications that an incoming Labour government may further penalise foreign buyers with:
- An additional increase in non-resident SDLT and/or
- A prohibition from overseas buyers purchasing certain new build apartments in the first six months of marketing.
It remains to be seen what effect this would have on market conditions.
Particular interest from the US
In terms of the international marketplace, Knight Frank report continued appetite from “across the pond” and Hugh observes that
'interest is coming from both the East and West Coast of the US, specifically the key wealth hubs including LA, NYC and Miami.'
Whilst many US buyers are relocating domestically to Miami to avoid the high New York and California property taxes, New York is having a resurgence in interest.
Jason Mansfield of Knight Frank comments:
'While we sell property across the whole of the US, the bulk of our clients are looking at New York City at present. Against a backdrop of economic uncertainty and volatility in several asset classes, New York’s steady price growth, rising rents and low purchase costs are supporting demand. Manhattan’s luxury market is on a firm footing. While the S&P 500 fell 19% in 2022, and estimates suggest crypto plummeted 50%, luxury homes in New York registered 2.7% average growth, despite the Federal Reserve embarking on its fastest pace of rate hikes since the 1980s.'
Comparatively, the UK still remains attractive due to its lower holding costs, the current low exchange rate, a great education system and other niche factors. We are, for example, seeing instructions from US clients with an interest in British history, acquiring diverse properties from listed country estates to apartments in very high-end Central London conversions where the historical importance of the property is a unique draw. These attractions are however increasingly set against concerns over high borrowing costs both for owner occupiers and those with investment properties, particularly as these rising costs cannot be offset against income tax.
UK-US cross border issues
Against this backdrop it is important to draw attention to the specific US-UK cross border issues that may arise from US connected persons owning UK property. It is essential to incorporate these UK assets into an individual or family’s wider tax, estate and wealth plans. We explain some of the key crossborder issues at play and reveal the planning options available to protect against these risks.
When acquiring UK property, US purchasers should seek advice on the broader tax and legal implications. In this report, Forsters’ partners along with specialists in the industry, share their insights on the current UK market for US buyers and how best to navigate the specific risks for US-connected clients.
The purchase or sale of a high value home requires expert legal advice to manage the complexities involved. Our lawyers are dedicated to sharing their knowledge to enable you to navigate the legal practicalities of buying and selling high value assets. We will support you through every stage of the process, and with the largest dedicated Residential Property team in London, we have the strength to do this. Visit our Hub to learn more.