Sellers in Prime Central London are being forced to offer discounts to attract buyers after changing non dom rules dampened the market, according to Knight Frank analysis.
Average prices have declined by 2.2% in Prime Central London in the year to May, the steepest annual drop since August 2024.
Meanwhile, the number of sales in prime London property markets in the six months to May fell by 7% against the previous year.
Changes to non dom rules are being blamed on the reduction, as Tom Bill, head of UK residential research at Knight Frank, explains.
He said: “Under the old rules, individuals could live in the UK without paying tax on overseas income and gains.
“The new regulations limit this to four years and mean their worldwide assets are subject to UK inheritance tax.
“As a result, countries like Italy, which operates an annual flat tax that ringfences overseas income, have become more attractive.”
Another factor is the higher stamp duty surcharge of 5%, which replaced the 3% surcharge in April.
Knight Frank has predicted property prices across Prime Central London staying flat in 2025.
In Prime Outer London, where more demand is driven by needs-based and domestic buyers, average prices rose by 1.1% in the 12 months to May.