Housing boom 'fuelled by foreigners'

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Most of London's multi-million-pound houses are bought by incomers who pay far less stamp duty than British citizens.

Economists say the foreign money is fuelling the housing boom in the capital and creating a ripple-down effect on the market across the country.

Foreigners who live in this country but are registered abroad are taxed only on money they earn or bring into the UK.

This is avoided by creating an offshore account or trust.

Some wealthy Britons also take advantage of the rules by declaring themselves "non-domicile", on the grounds that their family origins and "cultural ties" lie overseas.

A typical foreign buyer will pay only around 0.5 per cent stamp duty while most people pay 4 per cent on properties over £500,000.

This means an ordinary British citizen will pay £40,000 stamp duty when buying a £1million-home, while those with offshore trusts will pay only £5,000.

Liam Bailey, head of residential research at Knight Frank, said that 50 to 60 per cent of properties that sold for £3million or more now went to foreign residents.

"The more expensive you go, the bigger the share of foreign buyers," he said.

The Liberal Democrats yesterday called on Gordon Brown to close the loophole.

They said the Chancellor has avoided the issue out of fear that an exodus of wealthy foreigners from the City would undermine the economy.