London house prices begin their slide

Looking to buy a house in London but find that you are coming up a few million short? Things might be going your way at last. Recent news suggests that London house prices are already dropping at the top end of the market: data provider LonRes suggests that prices fell 0.9% to the year ending in June, says the FT. Other sources suggest rather faster falls in some areas.

Douglas & Gordon (D&G) notes that in the likes of Battersea and Battersea Park, "compounded by stamp duty issues and mortgage market concerns", prices were down as much as 10% over the year. It is, says D&G executive director Ed Mead, "hardly the definition of a bull market".

George Osborne's recent policy moves suggest he's keen to see that slide continue. Not only has he changed the rules on tax relief for buy-to-let investors (depending on who you ask, somewhere between 40% and 80% of new builds in London sell to investors), but he has now decided to strip foreign investors of their last remaining tax advantage over UK buyers.

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Holding your house through an offshore firm has long been the preferred way for foreign and non-dom investors to buy UK property, and the chancellor has been working on making this trick less attractive for some time. Since 2013, anyone owning a high-value house inside a company has to pay the annual tax on enveloped dwellings (ATED). This currently applies to houses worth more than £1m, but the threshold will fall to £500,000 next April.

ATED doesn't come cheap: it can be as much as £218,000 per year for houses worth more than £20m. Despite that, many people are clearly prepared to pay the tax: an FT investigation last year showed that at least £122bn of property in England and Wales is still held through companies offshore.

The reason appears to be that using an offshore company enables foreign investors to avoid inheritance tax (IHT) on the property and the savings from this can significantly outweigh the cost of ATED. So it's no surprise that the chancellor has just announced that residential property held in an offshore company will be liable for IHT from April 2017. It is "not fair" that foreign investors can buy property in the UK and avoid inheritance tax, said Osborne. "From now on they will pay the same tax as everyone else."

That should make a difference to London. It has long been seen as a tax haven, but ATED, IHT and the changes to the non-dom rules mean that is no longer the case. London remains a fabulous city, but it will be interesting to see if foreign investors think it is quite as fabulous when they have to pay the same taxes as the locals.