London’s prime and super-prime property: Still attractive, but tax is key

London’s prime and super-prime residential property has long attracted international buyers, and that continues to be the case despite a much less favourable tax environment than existed a decade ago. Specialist tax advice now matters more than ever. For internationally mobile individuals and families, London continues to offer what few other places can: a reliable legal system, stability, security, global connectivity and a resilient luxury property market.

The landscape relating to the taxation of UK residential property has changed significantly over the years. Prior to 2012, an international buyer could purchase a high-value London home via a non-UK resident trust-company structure, paying a relatively modest stamp duty land tax (SDLT) charge. There were no ongoing tax charges for the individual or the property-holding structure, and the property could also be outside the scope of inheritance tax (IHT). If the property or the property-holding company), was then sold, there was no tax on the gain if the individual behind the structure was non-UK resident. The rules were significantly more favourable to international buyers than for UK domestic buyers.

The position began to change around 2012, as the UK government sought to make the tax system fairer and address the imbalance between the tax treatment of domestic and international owners of UK residential real estate.

Changes to taxation of residential property over the years

In March 2012, a flat SDLT rate of 15% was introduced for certain corporate purchasers (including structures where properties were bought as homes for beneficial owners). Since then, SDLT has become materially more expensive and more complex, with the move from a ‘slab’ to a ‘slice’ system, the introduction of a surcharge for non-UK residents and higher rates for additional dwellings, and repeated rate changes over time.

From April 2013, companies holding high-value homes for personal occupation by beneficial owners became subject to the Annual Tax on Enveloped Dwellings (ATED). ATED charges have now more than £300,000 per year for properties at the top end of the market and will continue to increase year on year. At the same time, such companies also became subject to ATED-related capital gains tax (CGT) at 28% on disposals of residential property, although this regime was later abolished and replaced with corporation tax.

From April 2015, residential property gains of non-resident individuals, trustees and small family-owned companies that were not previously caught by ATED-related CGT were brought within the scope of non-resident CGT. In April 2019, the scope of tax on UK property gains of non-residents expanded further to include commercial property and indirect disposals broadly, disposals of shares in ‘property-rich’ companies.

In April 2017, major changes to the IHT rules were introduced, meaning that non-domiciled individuals could no longer shield their UK residential property from IHT by using an offshore structure.

Finally, in August 2022, disclosure rules were introduced in the form of the Register of Overseas Entities, requiring offshore companies that own UK property to register with Companies House and disclose information about their beneficial owners. This disclosure regime, which has evolved and been tightened since its introduction, has significantly curtailed one of the remaining benefits of offshore structuring for UK residential property: confidentiality, which is often an important consideration for high-net-worth families.

These significant changes to the UK tax and disclosure rules, together with the abolition of the non-dom regime and removal of tax protections for offshore settlor-interested trust structures from 6 April 2025, have certainly affected the prime London property market. They have not, however, driven international buyers away.

While there are prime London residential property owners who have chosen to move their tax residence to other jurisdictions for tax reasons, many have held on to their London homes.

Internationally mobile individuals and families continue to view London as a global hub for stability, security, connectivity and culture, and continue to have strong ties to the city despite moving their tax residence elsewhere.

What prospective buyers and existing owners should do

Many prime London residential property owners adjusted or unwound their structures as tax changes were introduced. However, legacy structures remain that were tax-efficient when established but now serve little purpose, while creating unnecessary tax cost and compliance burden. Specialist tax advice should be sought in respect of such structures as soon as possible.

Steps to mitigate adverse tax exposure may include liquidating the offshore company that owns the property, distributing the property out of a trust to beneficiaries or, in some cases, making a disclosure to HMRC to regularise historic non-compliance. Any restructuring can itself trigger tax charges, including corporation tax, CGT, IHT and SDLT, and therefore require careful planning.

Although the upfront tax cost of restructuring may be significant, it may nevertheless be justified in the long term, particularly where it brings annual ATED charges to an end.

In some cases, a trust or a company may still be an appropriate structure for holding high-value residential property. A trust, for example, may be suitable in light of particular family circumstances, and a company may be appropriate where the property is held as an investment. However, the suitability of any structure should be assessed carefully on a case-by-case basis.

Property funding arrangements also need to be considered carefully. Unexpected IHT consequences can arise for an individual who helps a family member or friend to fund the purchase of UK residential property. Someone who is otherwise resident outside the UK, has no UK assets and would not ordinarily be exposed to UK IHT may nonetheless be brought within the UK IHT net by virtue of holding a loan receivable connected with UK residential property. In some cases, a gift of cash may be appropriate; in others, funding may need to be sought from alternative sources.

Given that international individuals can no longer structure their UK residential property to keep it outside the scope of IHT, it is important that they consider succession and IHT planning at an early stage. Possible mitigation strategies may include financing the acquisition of residential property with a bank loan, putting in place wills where married couples take advantage of the IHT spouse exemption and, where appropriate, lifetime gifting and co-ownership arrangements. Again, any such strategy needs to be considered carefully in light of all relevant circumstances to ensure it is both appropriate and effective.

The UK tax treatment of prime residential property is now significantly more complex than many internationally mobile individuals and families expect. For existing owners, it is important to review historic structures to ensure they remain fit for purpose and to identify opportunities to improve the tax position where appropriate. For prospective purchasers, ownership structuring, funding and succession planning should be addressed as early as possible in the acquisition process, ideally before exchange.

HCR Law’s London Private Wealth team advises UK and international clients on acquisition structuring, IHT and succession planning, de-enveloping, trust issues and wider cross-border planning in relation to high-value residential property.