Super prime properties represent a small but significant part of the property market - we examine what’s at the top end of the market and the financial planning aspects to consider.
When it went on the market for GBP140 million in August 2010, a penthouse in London’s Knightsbridge became the most expensive residential property in the UK – and possibly the world at that point1. And in 2021, a two-storey apartment in the same development, One Hyde Park, was listed for GBP175 million, setting yet another record.2
“One Hyde Park was the first of the Ultra High Net Worth apartment buildings and London’s first ever super prime development,” says Gary Edwards, Managing Director, Head of Credit Advisory at HSBC Global Private Banking.
“As new developments come along, they have to offer something that the others don’t. This one was famed for offering a dedicated house car, to drive you around the city.”
The exclusive development set a new standard for investors, buyers and developers by offering features including a state-of-the-art gym, private spa, ‘ozone’ swimming pool, a library with its own bar, a private cinema, a golf simulator and squash courts.
“Buyers of super prime properties are paying for the absolute best quality in everything – the best interiors, appliances, sound systems, security, and climate control,” says Edwards.
“But, at the same time – people don't want glorified hotel rooms – they want homes. Yes, they want convenience, cleanliness and speed – but some of the appeal is a modern home nestled in amongst the history London has to offer.
“Super prime isn’t just apartments in exclusive developments. Central London has some of the world’s grandest and most exclusive houses among streets created during the Georgian and Victorian eras. Combining historic architecture with the very best modern London has to offer is often an irresistible combination.”
Combining historic architecture with the very best modern London has to offer is often an irresistible combination.
With the political and economic uncertainties experienced in the UK in recent years, has the market been somewhat spooked?
“People have, to some extent, sat on their hands and waited for the markets to calm down,” says Edwards. “But now they are ready to go again. This is what we commonly see with London – the market pauses during periods of uncertainty and then it starts up again.
“We saw this when interest rates spiked. We saw it with Brexit, with Covid and with the financial crisis. When you look at a graph for London property, prices just carry on going up. They stop, they go stagnant and then they carry on going up again. We might be in for another pause as next year’s election approaches, too.”
More than 160 properties worth GBP10 million or more were sold in London in the last financial year – the most since 2016 – the year of the Brexit referendum.3
“Central London sits in the middle of the time zones, and it remains the go-to hub for all business globally,” says Edwards. “International buyers are also attracted to the clean governance the historic UK legal system offers property owners.”
Prime country living
Those who want super prime property far from the hubbub of central London are still seeing strong competition, as part of the post-pandemic ‘escape to the country’ trend. There were 52 sales at GBP8 million plus outside of London between April 2022 to March 2023 – the highest in 15 years.
What are the options for potential buyers looking outside of the capital?
“You’ve got your big grand estates,” says Edwards. “They are beautiful, but they have lots and lots of land that needs to be looked after and they need financial input. But that will still appeal to some people – especially if they are looking for privacy and space.
“Others, however, are looking for modern convenience. They tend to opt for big, new properties – the kind you’d find in Wentworth Estate or St George’s Hill in Surrey.
“These sorts of places tend to be close to London, but they have, say, a golf course very nearby. They will have all of the best amenities, too.”
People have, to some extent, sat on their hands and waited for the markets to calm down. But now they are ready to go again. This is what we commonly see with London – the market pauses during periods of uncertainty and then it starts up again.
Tax and life insurance considerations
Once a client has identified an asset they want to buy, the next consideration will be how to purchase. “With a UK-situated property, if they buy with cash then they will be exposed to UK inheritance tax,” says Paul Bradshaw, Managing Director, UK Wealth Planning at HSBC Global Private Banking.
“The alternative is that they look at introducing debt at the time that the property is purchased. If this happens, and in the right way, then that debt will be used to effectively compress the value of the property for the purposes of determining an individual's exposure to UK inheritance tax.
“For a client who would be considered to be non-domiciled and therefore only exposed to inheritance tax on their UK situated property this is often a consideration.
“A simple example is that if someone buys a property worth GBP20 million with cash, then generally speaking they’d need to think about inheritance tax on an asset valued at approximately GBP20 million, allowing for some small exemptions,” Bradshaw continues.
“It could be left to a spouse of course, without a charge to inheritance tax (subject to them sharing the same domicile status), but then the surviving spouse is left with a consideration with regards to how they manage that exposure.
“But if the same client wants to buy a property for GBP20 million, but borrows GBP10 million from us, then they effectively have reduced their exposure to inheritance tax by 40 per cent of the debt.”
Edwards says that what is also important is not to look at inheritance tax in isolation.
“Like all high-net-worth-individuals, people looking to purchase super prime properties should be thinking about holistic wealth planning. Some people might benefit from a mortgage, but others might be better opting for life insurance.
“This is because inheritance tax only comes into play if the owner of the property passes away. Someone could take out a mortgage that has a 7 per cent interest rate, but then live for 10 years. This would mean that they’d have spent more on their mortgage than they would have paid in inheritance tax.
“In this case, they’d have been better off taking out life insurance and then using it to pay the inheritance tax bill as and when it comes in.
“It’s important that people don't home in on one specific aspect of wealth planning when purchasing super prime properties. Instead, they should talk to advisors who can help them take an overall view of their global affairs. It’s almost certainly one of the largest and most important purchases that they’ll ever make.
“They’ll probably have dreamt about a property like this for years, if not decades, so it’s vital that they get every part of it right, and that might mean asking for support at times.”
If you want to discuss your future property decisions, please speak with your Relationship Manager or connect with us.
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