An international elite is pricing British citizens out of the housing market
with the help of government tax breaks for foreigners living in the country,
figures reveal.
More than half of London’s multimillion-pound houses are now bought by
“nondoms” (nondomiciles) who, unlike most British citizens, are able to use
offshore trusts to pay far less stamp duty.
Economists say that the new boom in house prices in the capital fuelled by
foreign money is rippling down the market, making it harder for first-time
buyers to get on the property ladder.
Gordon Brown will come under pressure today to justify the rules, which
critics claim create a double standard. The Government exempts nondoms from
tax on their international earnings, even though in most cases their home
countries do not tax them either.
While it tends to be wealthy foreign citizens who take advantage of the rules,
many British-born people can also declare themselves nondom, on the ground
that their family origins and “cultural ties” lie overseas.
A study published by the International Monetary Fund in April ranked Britain
alongside Switzerland, Bermuda and the Cayman Islands as an “offshore
financial centre”, provoking accusations that the City of London has
effectively become a major tax haven.
Liam Bailey, head of residential research at Knight Frank, the estate agent,
said that 50 to 60 per cent of properties that sold for £3 million or more
now went to foreign residents. He said: “The more expensive you go, the
bigger the share of foreign buyers.”
Figures from Savills, the estate agent which specialises in properties at the
top end of the market, show that some 68 per cent of properties selling for
more than £5 million last year went to foreign buyers.
The Liberal Democrats have described the situation as grossly unfair, saying
that the Chancellor has avoided the issue out of fear that tackling it would
spark an exodus of wealthy foreigners from the City, undermining the booming
financial services sector.
Vince Cable, the Liberal Democrat Treasury spokesman, promised to close the
loophole that exempted nondomiciles from tax on their British homes. Under
his proposals, which will be expanded upon in a report by the Lib Dem tax
commission today, nondoms would also lose their status if they stayed in
Britain for more than 17 years.
Government figures show that there were 112,000 nondoms in 2005, an increase
of 74 per cent from three years before, and accountants believe that the
figures are continuing to rise rapidly. The Treasury says that it does not
know how much tax they are able to save on their overseas earnings each year.
Fionnuala Earley, chief economist at Nationwide, said: “Neighbouring regions’
property prices have been picking up alongside London, which suggests that
the ripple effect is alive and well.”
As a case study, The Times examined the Land Registry records for properties
on the west side of Cadogan Square. Flats on this street regularly sell for
more than £1 million.
Of the 13 properties looked at, five were held by offshore companies, ranging
from firms based in the British Virgin Islands to Jersey, suggesting that
their owners could be taking advantage of the tax breaks for nondomiciles. A
further three were registered to companies not listed at Companies House.
Supporters of the rules say that they have encouraged talented people to move
to London. Patrick Stevens, tax partner at Ernst & Young, the
accountants, said: “If you are trying to boost the City then changing the
nondom rules would be insane.”
The Treasury said that the policy towards nondomiciles had been under review
since 2002, but senior accountants believe that the issue has been kicked
into the long grass. One said: “A minister told me that the review was
likely to continue for several years yet. He smiled broadly as he said it.”
Nondom rules
— In most countries, citizens living abroad are not taxed; noncitizens are
taxed on their worldwide earnings for as long as they are resident
— In Britain, noncitizens who claim nondomiciliary status are taxed only
on the money they earn or bring into the UK. Property taxes can often then
be avoided using offshore trusts
— The main exception is the United States, which continues to tax its
citizens when they live abroad on their worldwide earnings. US citizens
claiming nondom status in London do not enjoy an equivalent tax break to
those from other countries
— British citizens living abroad generally pay tax on their worldwide
earnings to the country in which they are resident
A small minority of those in the city make almost 20% of the UK's GDP. This provides employment for many in London and the rest of the UK including those who work in the restaurants, shops et al as well as those in the building trade, manufacturing, transport, airlines et al. The money trickles down as it is spent. In addition, the money earnt in the city finances much of the UK's very generous benefit system!
I live and work in Gloucester and earn an average wage, but even I can see that the UK requires these people to produce GDP for the UK economy. If the UK increases taxes for these high earners, the business' will merely move abroad to places such as Gibraltar, Dubai et al; how will this benefit the UK economy?
I feel many people comment without thinking it through. Is the objective to maximise the GDP and the UK economy or to drive those who earn more away through jealousy? Yes, I would like to earn more, but driving high producers away will not aid this!
Karran Oconnor, Gloucester, UK
Housing is a fundamental element of the living any sort of "quality of life". This labour government excluding too many people from the housing market. This labour government must ne considered to be an enemy of the younger generation!!
GH, London,
Nondoms (including companies and trusts etc connected with them) should be prevented from buying or owning British property.
Ian , London,
I was always led to believe that a labour government was meant to look out for the interests of indigenous working class people!
What happened to that idea?
I hear that Buckingham Palace are hosting a get together in celebration of caravaning.
Just as well since it is likely to become the only affordable 'housing' option for the young people of this country in future years!
Nice one Tony and Gordon! But, no worries. No doubt your offspring will be well catered for!
June Abbott, Halesowen, West Mids., UK
In fact, the agencies are those who are booming the prices of the properties up to the sky because no one regulates them properly, i.e. a deal takes between 2 to 4 mounths to compete, except if one does not buy for cash, which is redicilious. In every EU country a deal to buy a property takes between 1 to 2 weeks.
I have been trying to buy a property for 5 months and I can assure you that all the agents are fraudulent. I do not think the system and all the schemes of buying a property are worthless.
According to this, I can suggest that the agencies must charge a fee of 1 per cent not only the seller but the buyer as well. If that rule applied these tricky and perhaps intelligent people will be encouraged to satisfy the demants of the both buyers and sellers.
D, London, UK
For Stuart, Royston.
A non-dom (aka not born in the UK) is not subject to Capital Gains Tax. Thus the exemption from CGT allowed on "your own home" has no value. Thus their "own home" can be owned by any legal entity. You can sell a foreign based legal entity to another person and no stamp duty applies. Because the property hasn't changed hands. The overseas company changed hands.
It is almost incredible that the UK tax authorities can legally discriminate against the indigenous population. Of course, with almost everybody paying 40% tax (51% with Employers & Employees NI) on the top slice of their pay. The need to buy homes at 5 to 10 times earnings makes stamp duty a huge burden. To pay £40,000 stamp duty on a £1M property means a UK taxpayer must contribute a further 41,600 in Tax and NI to the greedy state sector.
In effect a foreigner can buy as many houses as they like in the UK and never pay CGT. A British person can buy as many houses as they like too, but they pay CGT.
Paul, Parker, CO USA
Why should foreigners buy our homes anyway? Investors from around the globe are buying houses as an 'investment' often not even renting it out. Just to make money and fuel house price inflation. It is absolutely ridiculous.
Jane, London,
Tax everybody the same way but multiply non double taxation treaties, they are the norm among most countries in the world, and don´t worry about any potential negative effect, withdrawal symptoms don´t last long, the benefits will.
Jean-Pierre, London, UK
The 2nd paragraph of this article suggests that nondomiciles can avoid paying stamp duty on UK property purchases. Can the authors please further comment?
Stuart, Royston,
To Steven of Berkshire, do you believe that having a British passport affords protection in the Middle East? or Russia for that matter. Due to our governments foreign policies, it more likely marks you as a potential target.
I am proud of being British, but think the idea of taxing my worldwide income just because I hold a passport is ridiculous.
I think taxation on worldwide income would reduce competiveness of British industry abroad since less British people would want to work overseas (one main advantage being lower taxation), and it may in the end prove more expensive to companies to send people overseas. As such British industry would suffer since it would be more difficult to run overseas branches etc. training of overseas staff would suffer. and in the end the government may lose tax revenue due as a result
John Allen, Moscow, Russian Federation
"Economists say that the new boom in house prices in the capital fuelled by foreign money is rippling down the market, making it harder for first-time buyers to get on the property ladder. "
What about green belts, regulation of high rise residential buildings and protectionism in favour of UK construction companies?
And, of course, what about the absurdly low interest rates?
C., Edinburgh,
I wasn't aware that it was news that Gordon Brown likes multi-millionaire foreigners whilst taxing the English to pay for Scottish benefits and foreigner's tax breaks.
eddie reader, birmingham, uk
It seems to me that the Lib Dems are the only party that actually cares about the people of this country enough to put them before business and money ... I despair at the country that I live in and even more at this apathetic population .
Benzo, Nr Chelmsford,
It's easy to blame the international elite when in reality it's the government that is to blame: 1. the taxation system is flawed and encourages non-dom money to flow into London assets 2. the taxation system encourages buy-to-let investment for pensions instead of equity investment and 3. they haven't planned ahead and built enough homes in London and the South-East.
Money flows where it is encouraged to flow and at the moment that happens to be property, for a lot of very wrong reasons. It's up to the government to influence capital flows through taxation and regulation if they really want to combat social inequality, as they claim.
MB, Edinburgh,
To make things worse, there is this cessation of source rule which allows the non dom to bring their previous year income and enjoy them in UK, completely tax free (except VAT of course).
The mirror of non Dom is the outrageously generous non residency rule (which allow people to be in UK for >200 days a year in effect). Both should be closed, not one or the other.
The US Style taxation is the way forward as British Passport holder enjoys the protection of the HM Government wherever they go (it is not like if they get into trouble in Middle East, then they are not rescued if they are non residence or non domicile).
And of couse, The Treasury should used this extra money to reduce overall taxation rather than spend spend spend.
steven, berkshire,
Domestic council tax is another area where there is abuse of the system.
A fairer system would be for the owner of the property to be liable for council tax, in full, on all properties owned, even if rented out or as second homes.
Renters would be efectively paying a contribution through their rent.
There would be less incentive for developers and investors to hold on to vacant property.
Residents of rural areas would not be subsidising holiday- home owners.
Non payers could then have their properties seized by the local authorities.
This kind of system appears to work well in the USA
Richard Ward, Greensboro, NC, USA
That's not new in Spain. We have Majorca of an example of natives not being able to buy a house in their own land, because of rich tourists. And it seems that when we buy a house abroad, there's no problem, but when a foreigner buy a house in our country, then it becomes a problem...
Mireia, Barcelona,
Property price have increased dramatically everywhere across the world. Blindly stating the cause in London as being from foreigners with non UK dom maybe misleading.
The real reason for the price increase has been a combination of historically low real rates of interest across the UK and the world making asset purchasing and credit easier. Also London has limited land space and an ever increasing demand for land/housing as the population grows.
As interest rates and the real rate of interest increase, the housing bubble should cool especially given the new levels of housing coming in the market and investors sell their investments in property for traditional alternatives like stocks and shares.
RV, London, UK
"Supporters of the rules say that they have encouraged talented people to move to London".
This probably comes from someone who believes that the most important talent an individual can have is to make money!
What about the young, talended - and probably low paid - artists for whom London has always been a powerful magnet and who have always contributed to its unique creative and vibrant atmosphere?
What about nurses, policemen, firemen, and all those workers who are not under the "key worker" umbrella, like shop assistants, admin staff, cleaners, barmen, etc. but who are absolutely essential to the life of every city or town?
A, Leeds,
I have had a petition open for months on the Downing St website, and it's open until August. If you object to these non-dom loopholes why not sign it?
Edward, Guildford,
This is rather simplistic in its approach to tax. First, you cannot avoid stamp duty by buying through an offshore trust. Second, many countries do not tax Brits resident there on other than their local income - for example, Hong Kong, Malaysia, South Africa.
Andrew, Hong Kong,
Any estate agent will tell you that the property market for the super rich covers less than a square mile around Knightsbridge and is totally disconnected from the market for first time buyers in this enormous city.
Michael, London,