By now, very rich overseas investors would be visibly pulling out and with a very obvious impact on the prime London property market. They are self-evidently not doing so. On the contrary. Every fall in the value of sterling since the referendum on EU membership has made prime London property ever cheaper and ever more attractive. That is why the property developer Nick Candy can remortgage his personal Knightsbridge penthouse to give it a value of £160 million. He perhaps reasons that a certain kind of wealth is not put off by whatever currently dominates the political and media agenda, but takes a longer view driven by different calculations.
Whether London is a financial trading centre, or Northern Ireland has a hard or soft border, matters little to people whose wealth is often dispersed in many countries. They are not here to trade particularly in any case. What they are buying is a rather different asset class: safety, sophistication and stability.
London, they calculate, will remain what it has always been regardless of which international clubs the UK belongs to at any given moment: One of only a handful of cosmopolitan centres with a global appeal founded on an extraordinarily high quality of life and the rule of law. And that is enough.
The UK legal system really cannot be undervalued as a lure, particularly when it applies to property ownership, and that is not going to be threatened by Brexit. For many whose wealth may have its roots in countries where no home is safe from expropriation by the state, this is a vital and almost visceral issue.
The cloud on the horizon is not, in fact, Brexit at all, and one only dimly forming: It is the prospect of a left-wing Labour Government in the UK that may well see ‘squeezing the rich’ as a political imperative, bringing with it exchange controls. These were once routine before falling out of fashion as economies sought to become global.
But the political threat whilst real is not yet present. The UK is still some way off a general election thanks to fixed term Parliaments. But what these do is put a date in the calendar for everyone to work towards. A year or so before 2022, when an election is held, a great deal of wealth will probably be relocated offshore and many high-end properties sold. The advice to the ultra rich will by then be actually quite clear: to have as little wealth as possible domiciled in the UK.
Those who hope that they can offset the pain of a wealth tax by taking out loans against property and then setting these against tax may find that the UK quickly follows the French example, which makes that very difficult to pull off. There would also need to be a calculation about whether such a manoeuvre was even worth it. A wealth tax of half of one per cent or one per cent might still seem cheaper than repaying a loan at three per cent.
Meanwhile, whilst there are signs of wealth advisers encouraging people to shift their liquid assets offshore, the evidence of take-up is unclear. Prime London property, which is a more visible, and therefore perhaps reliable, benchmark of sentiment, remains highly priced. We might conclude that for non-domiciled residents having wealth in the UK is still to have won the lottery, not to be taking part in one. At least for now.
This article was first published by Private Banker International and is available to read on the Verdict/Private Banker International website.
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