Lower taxes lure foreign buyers to spend £4bn on London properties

UK's lax property tax laws allow super-rich to buy luxury homes through offshore companies, costing the Treasury £750m a year

Britain's "benign, tax efficient" property laws have encouraged super-rich foreigners to buy up more than £4bn of luxury property in London this year.

A string of property experts said the world's super-wealthy were flooding to London to buy £40m homes "without giving it a second thought".

In total foreign buyers bought up £4.3bn of prime central London property this year, compared with £2.1bn in 2010, according to research by Savills, the estate agent.

London holds the title for the world's most expensive flat, after the £136m sale of the penthouse apartment in the Candy brothers' flagship One Hyde Park development in Knightsbridge, central London.

Just down the road a flat in a block being constructed by Bulgari, the luxury jeweller, is understood to have been sold for between £80 and £100m. Christie's International, the agent for the development, refused to comment.

Yolande Barnes, Savills director of research, said the boom had been "almost entirely fuelled in the second half of the year by a huge injection of overseas cash by foreign buyers".

Barnes said foreign buyers had squeezed out locals from the top end of the market, with more than three-quarters of properties sold for more than £5m being bought by international buyers. Virtually all of the new-build properties over £30m were bought by foreign buyers.

She said the world's super-wealthy are attracted to London by its status as a "true global cosmopolitan city" as well as Britain's lenient property tax laws, which are a lot less onerous than in other countries.

Dominic Grace, Savills's director of London residential development, said it was "a lot cheaper" for the super-rich to buy in London than America and most of Europe because of Britain's "benign, tax efficient" property laws.

"It is particularly [beneficial to buy into the UK] because we allow people to buy through offshore companies," he added. "[It has made] London the most sought-after city for the super-rich."

Buying via an offshore company allows purchasers to avoid stamp duty and makes it easier to keep purchases private. Critics of tax avoidance claim such practice costs the Treasury £750m a year.

Mike Warburton, director of tax at accountants Grant Thornton, explained that overseas people buying shares in a company that owned a luxury property paid 0.5% stamp duty, compared with 5% stamp duty payable on £1m-plus properties bought directly.

London property was also viewed as a "safe haven" in times of strife in the Middle East and former Soviet Union countries, according to Barnes.

Buyers also favour London because of the excessive paperwork and legal technicalities of buying expensive properties in New York and much of Europe.

"In Manhattan two-thirds of the stock is held under cooperative ownership, which means the occupants of all the apartments collectively own the whole building," she said. "They all have a vote, and you [prospective buyers] have to be vetted by all the other residents to be accepted [as a buyer]. It's quite well known that overseas buyers just don't buy there for that reason."

In London the super-rich have been known to make £40m purchases on impulse. " [The super-rich] wake up in the morning and say 'I want a new flat, I want a new plane' and they go out and get one," said Gary Hersham, managing director of luxury estate agent Beauchamp Estates. "You have to understand that these purchases are not about value.

"With a lot of instability in the world, people are coming to London to maintain their standards. Money is of no importance to these people – it makes no difference if it's £20m, £30m, £40m."

He said some of his clients "haven't even done their price per square foot calculation. They buy without giving it a second thought."

Hersham said foreigners were increasingly attracted to a new breed of luxury development built in conjunction with five-star hotels. One Hyde Park, which allows residents access to the facilities and concierge facilities of the Mandarin Oriental hotel next door, is to be followed by an array of similar developments, including the Bulgari Residences, Four Seasons apartments in Heron Plaza in the City and in the Shangri-La Hotel in the Shard.

A further 9,000 new luxury units, worth more than £21bn, are planned for the capital within the next nine years, according to analysis by building consultants EC Harris.

Grace said the rich wanted the ease and luxury of hotel brands they trusted, where there was a concierge who could secure a table at the most popular restaurants and a box at the latest West End shows.

"They want all the toys – air conditioning, valet parking, etc," he said. "These people live such spoilt lives they want to be able to ring down an order for a hamburger at 3am."


Rupert Neate

The GuardianTramp

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