London’s luxury home market tumbles as tax rules tightened  

London’s £2m-plus property market has been hit hard by tax changes announced earlier this year.

According to an industry survey, compiled by the Financial Times, the number of homes purchased by offshore companies has been all but “wiped out” since the March budget.

Estate agent Knight Frank estimate that sales of luxury London homes have fallen by 22% since the budget, compared to the same time last year.

Prior to the changes, Knight Frank sold around 14% of its £2m to £5m homes to companies,  which has now fallen to just over 2%. Savills recorded an even more drastic decline, selling less than 1.3% of its luxury London homes to these clients.

The sale of these kinds of residential homes has “been all but extinguished post budget,” said Savills director Lucian Cook.   

The drop has been the most severe in the £10m-plus bracket, which was previously considered relatively immune from the changes and had continued to do well post-recession.

The FT found that while 30% of these homes were purchased by offshore companies in 2011, this has fallen to just 3% since March.  

The targeted tax loophole has allowed foreign investors to pay virtually no tax on their property investments if purchased in the name of offshore companies. However, from next year when changes come into force, stamp duty on these properties valued over £2m will rise to 15%.

From today, the treasury is expected to announce further penalties, which will see these homes hit with an annual charge of around 1%. Property experts expect this to amount to an average £22,000 annual levy for every luxury home.

Chancellor George Osborne has forecast that the property tax will raise £150m annually, although some property experts are concerned that the resulting knock to property turnover might hit tax receipts.