Prime Central London Property Market Declines 25 Percent Amid Tax Policy Overhaul

The prime central London property market has experienced a substantial correction, with values in the capital’s most exclusive postcodes declining by 24.5 percent since reaching their zenith at the end of 2014. Analysis from Savills reveals that properties valued at £4.5 million and above recorded a 4.8 percent decline throughout 2025, culminating in a 0.9 percent contraction during the final quarter.

The deterioration in luxury residential values stems primarily from cumulative tax policy changes implemented by successive chancellors since 2016. Stamp duty modifications have imposed particularly onerous burdens on international purchasers, who now face aggregate tax rates reaching 19 percent on additional property acquisitions. For a £5 million transaction, this translates to a stamp duty liability of £863,750, representing a significant deterrent to foreign capital inflows.

The abolition of non-domicile tax status by Chancellor Rachel Reeves in April 2025 has precipitated a notable exodus of high net worth individuals from the United Kingdom. The regime previously permitted wealthy residents to structure their affairs to avoid taxation on overseas income, creating a favourable environment for international wealth accumulation within British borders. Approximately 1,800 non-domiciled individuals departed the country during 2025, relocating to jurisdictions including Dubai, Abu Dhabi, Milan, Monaco and Geneva.

Frances McDonald, director of research at Savills, observed that demand within the most rarefied prime central London postcodes remains constrained. The buyer pool has contracted markedly following the termination of non-dom provisions. She noted that whilst market pricing had largely absorbed anticipated budget measures following late summer speculation, full adjustment to the policy framework will require additional time, with modest price declines expected to persist into the new year.

The forthcoming mansion tax, announced in the October budget, will impose council tax increases of up to £7,500 annually on properties valued at £2 million or above from 2028. Combined with a two percentage point rise in income tax on property earnings, the measure is anticipated to further suppress demand within premium segments. The layered tax burden represents a fundamental shift in the fiscal treatment of high value residential assets.

Research conducted by Beauchamp Estates focusing on the ultra-prime segment valued at £15 million and above identified that 65 percent of the 41 mansions and luxury flats transacted in London during 2025 involved non-domiciled sellers exiting the market to mitigate substantial tax liabilities. Foreign purchasers acquiring holiday residences with limited annual occupancy predominantly replaced these vendors, suggesting a shift in ownership patterns rather than sustained domestic demand.

Beyond the capital, Savills data indicates that prime regional markets, classified as transactions exceeding £1.85 million, registered declines across all areas with the exception of Scotland, where values remained stable. The UK country house market sustained the most severe depreciation, falling 8.2 percent year on year. This deterioration reflects the impact of council tax increases of 100 percent implemented in April for second homes, alongside elevated taxation for holiday let operators.

McDonald suggested that transaction activity within the country market is demonstrating early indications of recovery following a subdued twelve month period. The market’s capacity to absorb the tax policy modifications will determine the trajectory of values across prime segments in the near term, with liquidity conditions and buyer appetite remaining critical variables for market stability.