There has been much speculation around what the UK Government’s proposed changes to the tax system will actually mean for property in the UK.

With last week marking the closure of the public consultation into the ‘second homes tax’, which would result in any properties in the UK classified as a second home to incur an extra 3 per cent surcharge in addition to the currently existing tax rates, domestic and international buyers alike are predicting what changes it may bring to the capital.

London is undeniably one of the most lucrative and safe environments for holding property assets. While there is some apprehension about the future, we should remain optimistic on the outlook, as reforms will create a more diverse market with the potential for longer term gains. What will change alongside the reforms is the enhanced attention and increased emphasis on taking professional counsel for existing portfolios and future transactions in order to mitigate risk.

Pressure will be felt most in prime areas of central London, namely Zones 1 and 2 — and this fact cannot be avoided. But Zones 3 to 6 will continue to boom in a reconfigured market with the ability to offer greater variety in location and price.

Demand in new “hot spot” regions is already rife, with the majority of capital growth in London from these areas; a combination of domestic demand and international buyers attuned to next steps in the market. Specialist London agency and advisory services are seeing demand from overseas buyers escalating, especially from the Middle East.

The city is going through a huge period of regeneration, which is being felt from the centre to the suburbs. Areas that may have been considered undesirable less than 10 years ago such as Blackheath and Harrow have seen price growth in the last three years at 27 per cent and 32 per cent respectively.

Additionally, improvements to infrastructure including the Overground and Crossrail are boosting the desirability of all areas they touch. This includes the likes of Farringdon, Shoreditch, Clapham and Stratford, to name a few, and over the coming years we will certainly see further emerging hot spots, which will be fuelled by the Treasury’s tax agenda.

Indicators for the future also look strong. While property values could nearly double in the next decade, the NAEA [National Association of Estate Agents] Housing Report 2025 released in December predicts that the average house price could rise from £515,000 to £931,000 (Dh2.7 million to Dh4.9 million). This reinforces the capital’s standing as a stable and lucrative investment opportunity for owner-occupiers and buy-to-let investors.

For the rental market, the report also predicts tenants in private rented accommodation will be paying landlords in London an additional 34 per cent in rent every week, demonstrating the capital’s long-term demand for homes and reinforcing its appeal to buy-to-let purchasers who want to invest in a market that can offer the potential of high yields now and in years to come.

What is promising is that the prospect of April is leading people, both in the UK and internationally, to consider far more carefully the structure of current property assets and where they could be making stronger capital growth on portfolios — something that is long overdue for many. Far from deterring buyers from the London market, buyers are looking outside of the traditional safe hold norms and diversifying into different areas, becoming more adept at dealing with an evolving marketplace.

April will also see the new rules for Annual Tax on Enveloped Dwellings (ATED), where the tax threshold will be lowered. Companies that own residential property valued at between £500,000 and £1 million will now pay an annual charge of £3,500. Previously, the band had started at £1 million but, from April 1, any property that a company purchased for £500,000 or more from April 1, 2012, will be liable to ATED.

Change is definitely in the air — but it’s not always a bad thing. More often than not it paves the way for new opportunities for new people. It’s more the thought than the actual reality that gets people thinking.

— David Hannah is Principal Consultant, Cornerstone Tax. Alan Wheatley is Head of Middle East Operations, Fraser & Co.