The recent leak of documents from Panama showing how the wealthy were hiding their money in offshore companies could have an effect on the UK housing market.
For many years, offshore companies were allowed to buy property in London without revealing the actual person behind them, meaning that stamp duty could be avoided.
Furthermore, as a foreign buyer, no capital gains tax had to be paid until recently. London property worth at least 100bn was purchased through overseas companies between 2008 and 2015, with over 180m of this amount suspected to be the proceeds of corruption. Although the majority of these offshore buyers came from British islands with special tax status, such as Jersey, Guernsey, the Isle of Man and the British Virgin Islands, this demand has significantly driven up prices in recent years, not only in London but also in the whole of the UK.
The government recently decided to take steps to change regulations to protect domestic buyers against this trend. Stamp duty on expensive property has been increased, a stamp duty for second homes has been introduced, and even foreign buyers now have to pay capital gains tax.
The information leaked by the so-called Panama papers might also bring a slight positive impact on the UK housing market. It was revealed that some dictators own several properties in London, which might make some neighbourhoods less attractive and lead to lower house prices in the affected areas.
On the other hand, the figures reveal that a large ratio of UK – and especially London – property is owned by foreigners, some of whom use their ownership for money laundering purposes. This demand is not likely to slow down; therefore, the trend is likely to continue. This means that house prices are not expected to significantly decrease in the near future, as cash buyers are preferred, properties are hard to find and there are many potential buyers.
This is not only expected to affect London but will also influence house prices in the South East and later in the whole of the UK.