Taxing the wealthy is hard
Making sense of the latest trends in property and economics from around the globe
6 minutes to read
Wealth is more mobile than ever. The increasing ease of remote work is one key driver; global businesses, particularly those in the technology sectors, can be run effectively from chalets in Courchevel and penthouses in Dubai.
The rise of light-touch tax and regulatory regimes offer another driver. Whether it's Italy's flat-tax system or zero-income tax policies like that of the United Arab Emirates, nations are dangling carrots at the rich and the rich are listening. At the same time, deficits run by governments in the UK, Germany, France, the US and others are at eye-watering levels. Officials are under pressure to balance the books and taxing the wealthy is an attractive option. It's a relatively small group comprising few voters, after all.
This combination is a potent mix and is testing the stickiness of established global wealth hubs like London. Britain lost a net 10,800 millionaires to migration last year, a 157% increase on 2023, according to figures shared with the Times by New World Wealth, the global analytics firm, and investment migration advisors Henley & Partners. The outflow was mainly to other European countries including Italy and Switzerland, as well as the United Arab Emirates.
A first step
This is a balancing act. Rivals can't yet match the standard of homes, schools, economic opportunity and other amenities offered by London, which gives authorities some leeway to seek more in the way of taxes. However, the New World Wealth data suggests that the UK balancing act is not working.
It makes sense, then, that Rachel Reeves is planning to water down her overhaul of the centuries old 'non dom' tax regime. She told a fringe event at the World Economic Forum that an amendment to the Finance Bill will "increase the generosity of the temporary repatriation facility," the Times reports. She also said the overhaul will not impact double-taxation agreements.
This would be a good first step, but Reeves made no mention of the government's intention to make overseas trusts subject to inheritance tax. That was the "red line" for more than eight in ten investors surveyed by Oxford Economics on behalf of the lobby group Foreign Investors for Britain (FIFB). Tom Bill has a detailed piece on the Intelligence Lab this morning.
Sensible policy development relating to housebuilding and mortgage lending suggests this administration listens well to industry, but effective taxation of the wealthy has always been a tricky issue for the Labour Party. As Tom writes, the final draft of the Non Dom overhaul will depend as much on how politically palatable the plans are within the party as it will on the data.
A ramp-up is coming
For years, our research has charted the rise of the Living Sectors. Sector investment topped £10 billion in 2024, accounting for 25% of overall real estate acquisition activity.
Our new NextGen Living report includes the views of 56 institutional investors active in the sector who account for more than £60 billion in Living assets under management. A ramp-up is coming: by 2029, close to half of investors plan to increase their exposure to the sectors by at least 80%. In total, our survey respondents alone outlined ambitions to invest a further £45 billion over the next five years.
The big story in build to rent (BTR) over the last few years has been the rapid growth of newer subsectors - particularly single family housing (SFH). Investors have spent £3.7 billion funding or acquiring SFH since the start of 2023. As we explore on page 8, 71% of respondents plan to invest by 2029. Accordingly, while just 11% of current complete BTR stock is SFH, by 2030 we estimate that this will have jumped to more 20%.
Senior living is also a target. The BTR segment within senior living remains small as a proportion of the overall seniors market, but it is growing quickly. Within our survey, 39% of respondents said they plan to invest within five years, up from a fifth currently. We expect the number of seniors rental properties in the UK will increase by 150% over the next five years, albeit from a low base
Limiting growth
The figures are impressive but it won't all be plain sailing. Short-term volatility remains, particularly given the large tax and spend programme announced in the Budget, and there are challenges around planning and building regulations.
When asked what the key factors limiting the growth of the sector are, 81% of respondents highlighted construction cost inflation as the biggest concern, followed by issues around planning (60%). These apply to all sectors, but their impact on the living sectors is clear: starts fell to their lowest annual level since 2014 in the year to Q3 2024 with fewer than 2,500 homes starting on site. In the student market, fewer than 17,500 new beds were added to supply in time for the 2024/25 academic year, down from a long-term average of closer to 25,000.
Borrowing costs have also been a barrier, albeit one that is beginning to ease. Last year, over 60% of respondents to our survey cited high finance costs as a barrier to growth; this year, just 38% still feel this way. More positivity reflects the fact that debt market liquidity is robust, with lenders increasingly willing to deploy funds. Many lenders, previously conservative with loan- to-value (LTV) ratios, are now offering up to 60% LTV.
Competitive pricing has also returned, a trend most prominent for the Living Sectors. Over 55% of respondents agree that debt is now accretive to their investment strategy. Refinancing risks have also eased, as lenders extend existing loans rather than pressuring investors. Strong rental demand continues to support debt serviceability, with minimal loan defaults in the sector. As we look to 2025, 42% of those who responded to our survey expect their requirement for debt to increase next year. Of those planning to increase their financial leverage, 21% are planning to use debt to fund new development and 27% plan to use it for acquisitions. Some 31% are doing so to enhance returns. You can find the report at the bottom of this page.
More on taxes
US President Donald Trump does not hold a monopoly on announcing radical policies that will likely never be approved: on 13 January the Spanish Prime Minister Pedro Sanchez proposed a 100% property tax on non-EU buyers. Six days later, the proposal shifted up a gear to an outright ban.
Kate Everett-Allen has the details over on the Intelligence Lab. She finds three reasons the proposals are unlikely to be implemented. Firstly, Prime Minister Sanchez is leading a coalition government with only 179 of the 350-seat chamber, meaning his proposal is unlikely to get approval from the Spanish Congress.
Secondly, if the measures depend on the approval of Autonomous Communities, Spain’s regional governments, the proposal is likely to face stiff opposition, many are right leaning, most notably those in Andalucia, Valencia, Madrid and the Balearics which account for a large proportion of foreign demand.
Thirdly, Spain’s Constitution mandates that the tax system must not have a confiscatory nature, meaning it cannot exhaust the taxpayer's wealth. A 100% tax would likely be challenged in court on constitutional grounds. See the piece for more.
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