The decision to abolish the non-domicile tax regime in April 2025 posed a significant challenge for many high-net-worth individuals living in the UK and prime central London areas.
The prime central London (PCL) market has long relied on international HNWI buyers: people who are globally mobile and, as a result, invest in properties or pied-à-terre in major cities around the world. In fact, in 2018 more than one in 10 adults in Kensington, the City of London, and Westminster were or had been non-domiciled.
Removing the non-domicile tax status, therefore, inevitably introduced a degree of uncertainty, compounding the turbulence already caused by the Bank of England’s rate-hiking cycle. Initially, the impact was largely speculative, as no one knew how the market would react.
Since then, a new residence-based scheme (the foreign income and gains regime, or Fig) has been introduced.
Subject to government rules, the regime is available to all individuals who have been non-UK residents for at least 10 tax years and, if qualified, means that for a period of four years from April 6 (or the first tax year after becoming UK resident), the individual will not be subject to UK tax on foreign income and gains.
While this may have temporarily dispelled some of the initial concerns many stakeholders in the PCL market had when the plans were first announced, the short-term nature of the Fig regime rules may offer little comfort for some HNWIs making longer-term investment or residency decisions.
In addition, speculation as to further changes to the UK’s tax landscape in the upcoming autumn Budget has possibly brought with it a fresh wave of uncertainty.
Knock-on effects of the changes to wealth taxes
The past two years have been challenging. With what feels like an ever-changing regulatory and tax environment, it has been difficult for brokers, investors and lenders alike to stay abreast of the ongoing changes.
The market has therefore entered a period of adjustment, marked by PCL buyers becoming even more selective and cautious in their decision-making. Compounding this, talk of changes to capital gains tax, inheritance tax and even stamp duty in the autumn Budget has led to more hesitancy.
In short, it may mean that many investors are taking a wait-and-see approach.
Others have taken more decisive action. High numbers of non-domicile investors are reassessing their investments and residency status, particularly as the economic outlook remains uncertain.
Some property investors are restructuring their holdings through corporate vehicles or trusts to better manage their exposure, while others are diversifying into alternative jurisdictions or asset classes as they evaluate the long-term implications of the new regime.
Indeed, according to consultancy firm Chamberlain Walker, around 1,800 non-domiciles have left the UK since the changes were announced — 50 per cent more than was officially forecast.
In fact, estimates show that 9,500 millionaires may have left the country in 2024. Whilst not all these individuals would have been based in London, the figure highlights how the tax shift has impacted the UK’s appeal among wealthy international residents.
An honest appraisal of the PCL sector
There has been a clear ripple effect on supply and pricing; the former has risen, while the latter has softened.
New sales instructions in the first six months of 2025 were 32 per cent higher than the five-year average, Knight Frank data shows.
Yet with buyer demand dampened by the aforementioned challenges, the increase in PCL properties coming onto the market has not translated into more sales.
Knight Frank data indicates that the number of exchanges in PCL during H1 2025 was 9 per cent lower than the five-year average.
Meanwhile, premiums for the most desirable postcodes are narrowing. Knight Frank figures show that buyers paid a 21 per cent premium to live in Chelsea over Fulham this year, down from 47 per cent a decade ago.
A similar trend has played out in Belgravia, where the premium over Richmond has fallen from 75 per cent to 29 per cent over the same period.
Still, there are some silver linings; or rather, signs that the market is adapting to its new landscape.
Falling values have eased affordability pressures to some extent, suggesting that buyer interest in the PCL market appears to be rising again. In the three months to August 2025, the number of buyer offers was 9 per cent higher than the five-year average.
Supporting this, analysis from Lubbock Fine shows that the total value of residential mortgages above £5mn taken out in the year to August was 22 per cent higher than in 2024.
According to the firm’s analysis, UK residents are picking up the prime and super-prime properties left by non-domicile sellers.
It is also a sign that the appeal of the UK property market remains, even if transaction volumes and values sit far below the record highs they reached in 2014.
Navigating the complexity of HNW borrowers
For brokers, opportunities remain to help their current and prospective clients navigate today’s property market environment.
Increasingly, success depends on specialised knowledge and the ability to interpret a shifting landscape with confidence.
As borrowers, HNWIs rarely fit neatly into standard lending models; their income, assets, and tax arrangements often span multiple jurisdictions, so traditional financing approaches can often be less effective.
Experienced brokers can truly make a difference. Those who understand complex, cross-border client needs are best placed to support clients, particularly if they can partner with specialist lenders capable of providing flexible, bespoke financial products.
As the market prepares for possibly more upheaval in the autumn Budget, the focus must remain on relationship-led lending and understanding individuals’ unique needs to ensure that every recommendation accounts for a borrower’s broader financial goals and needs.
Alpa Bhakta is the chief executive of Butterfield Mortgages
