Under the heading Non-doms’ retreat hits London’s prime housing market the Financial Times is reporting on a cooling of interest from wealthy international buyers.

The original article can be seen here, and says that London’s luxury housing market is feeling the chill. The latest figures from LonRes show a sharp drop in prime property transactions across the capital in May, as new tax rules targeting non-domiciled residents deter wealthy overseas buyers and unsettle investor confidence.

According to LonRes data, high-end property sales fell 35.8% year-on-year and sit a third below pre-pandemic norms (2017–2019 average). Sales of homes priced over £5 million dropped by nearly 15% last month alone, even as supply at that level reached a record high, up 22.4% annually.

“Feedback from agents certainly points to a tricky market,” said Nick Gregori, Head of Research at LonRes. “Values in most markets haven’t seen much growth.”

Non-Dom Reform Freezes Top-End Demand

Much of the cooling is directly linked to sweeping changes to the UK’s non-dom tax regime, which came into force in April. The new rules end the use of offshore trusts to shelter worldwide assets from UK inheritance tax (IHT). As a result, non-doms are now liable to 40% IHT on global wealth – a seismic shift that has prompted a flight of high-net-worth individuals to more tax-friendly jurisdictions such as the UAE, Italy and Switzerland.

This demographic has long been a key driver of London’s most exclusive markets — including Kensington, Knightsbridge and Belgravia. Their withdrawal has left a significant vacuum.

Government Under Pressure to Reconsider

Faced with growing concern from City figures and estate agents alike, Chancellor Rachel Reeves is reportedly exploring ways to “backtrack without backtracking” on the non-dom reforms, with particular attention on IHT exposure. Sources indicate that tweaks or exemptions may be introduced to stem the exodus and reassure international investors.

Whether changes will come in time to restore confidence before the traditionally busy autumn selling season remains uncertain.

Rental Market: A Mixed Picture

While the prime sales market struggles, the rental market has also slowed — though less dramatically. Lettings agreed in May were down 21.7% on last year, while new instructions fell 5.2%. Stock remains tight, with 4.6% fewer properties on the market compared to May 2024.

Nonetheless, rents continue to climb, with annual rental growth of 3.3% across prime London and average rents sitting 32.9% above pre-pandemic levels. For landlords, the constrained supply and resilient demand in the rental sector provide a more stable outlook than the cooling for-sale market.

Nationally, ONS figures released in June show UK average monthly rents up 7% year-on-year to £1,339, while average house prices have increased by 3.5% to £265,000.

Outlook: Policy Risk Now Front and Centre

The turbulence in the capital’s prime sector highlights a broader truth: tax policy now wields as much influence over market activity as interest rates or supply shortages. With non-dom buyers retreating and the government considering tweaks to stem further damage, agents and landlords operating in the luxury segment should remain alert to further changes.

Until clarity returns, buyers may stay on the sidelines — and prime London may find itself increasingly reliant on domestic capital and institutional renters to drive demand.