Non-domiciled (non-dom) individuals have played a vital role in shaping the UK’s luxury property market and broader UK real estate tax ecosystem.

Their investments have fuelled urban regeneration, supported construction jobs, and stabilised high-end residential demand, especially in prime areas like London.

However, the UK’s new non-dom tax reforms could upend this dynamic, with significant implications for property markets and the economy at large.

The Role of Non-Doms in UK Real Estate

Non-doms are significant contributors to the UK’s property sector, often investing in high-value residential and commercial assets.

Their presence drives demand for luxury homes and provides liquidity for large-scale urban projects.

Beyond personal purchases, many non-doms finance developments in emerging sectors like build-to-rent and urban regeneration, creating economic opportunities and supporting communities.

In 2023 alone, non-dom investment in UK real estate tax contributed millions in stamp duty and transaction taxes while underpinning broader economic activity.

For instance, high-value property transactions in London have historically been dominated by international buyers, many of whom benefit from the non-dom regime.

Reform Effects: Buying vs. Renting Behaviour

The shift from domicile-based taxation to a residency-based system is expected to alter property demand.

Many UHNWIs now view London as a temporary base, prioritising rental arrangements over purchases due to shorter-term tax advantages.

This trend could weaken demand for luxury homes and exacerbate volatility in the real estate market.

Additionally, mid-to-long-term non-doms may downsize their property portfolios or relocate entirely, impacting high-street estate agents and developers.

Savills has already noted a rise in rental enquiries among wealthy foreigners following the Budget announcement, reflecting these early adjustments.

Broader Economic Implications

Declining non-dom purchases could ripple through the economy, affecting construction, interior design, and auxiliary services.

Luxury developers, who rely on high-margin projects in prime areas, may scale back investments, leading to fewer employment opportunities in construction and related sectors.

Urban regeneration efforts, a hallmark of non-dom-backed investments, may also slow.

For example, case studies show non-dom entrepreneurs investing millions in Birmingham’s build-to-rent initiatives, which revitalise communities.

Such contributions risk drying up as investors move their capital to more tax-friendly jurisdictions like Italy or Switzerland.

In summary

To mitigate these risks, policymakers must collaborate with the real estate industry and non-dom stakeholders.

Introducing phased implementation timelines, offering tax incentives for urban investments, or exploring flexible residency rules could help retain investor confidence.

For developers and estate agents, diversifying their client base and exploring partnerships with domestic funds may provide a buffer against market shifts.

Cover image by Tarik Haiga on Unsplash

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