Governments around the world are raising taxes on high-end properties in a bid to help plug fiscal deficits according to research by UHY International, which cautions that this move threatens labour mobility.
The firm studied tax and compulsory property registration charges in 25 countries across its international network, including all members of the G7, as well as key emerging economies. UHY calculated the total taxes and compulsory fees payable to local, state and municipal government on property purchases at the top and bottom of the range.
The report calculates that the average cost of stamp duty (SDLT) and other compulsory property purchase fees for a property worth $3.5m (£2.29m) is now 3.4%, compared to the average 2.6% tax burden on properties with a purchase price of $150,000.
India heads up the table for the highest rate of tax and other charges on prime properties, at 8%. The UK and Spain jointly hold second place, at 7%, with the UK levy applied to property purchase over £2m. In contrast, North American property purchase taxes are far lower, typically below 1% in the US and no higher than 1.9% for the most expensive homes in Canada.
UHY says Spain's average masks a shift towards higher marginal rates for the most expensive properties, with the coastal provinces of Andalucia, Cantabria and Asturias, and the Balearic Islands, introducing rates varying from 8% to 10% for more substantial properties. It is also ranked second in the table for taxes on properties costing $150,000, which are also charged at 7%.
Bernard Fay, co-managing partner of UHY Fay & Co, the Spanish member firm of UHY, said: 'Since 2010, regional governments in Spain have made much greater use of their discretion to set their own stamp duty rates, with the result that rates have gradually shifted upwards, especially in areas popular with high net worth individuals (HNWI) and international buyers.'
Earlier this year Hong Kong doubled the rate of SDLT properties of over HK$2m (£169,000) to 8.5%. In mainland China, the most expensive properties attract stamp duties and other taxes of 5% of the property's value, compared to 3% for lower value properties. Ireland, despite moving to a flatter SDLT structure in the wake of the financial crisis, still charges double the rate on the proportion of a property sale exceeding €1m (£860,600).
Ladislav Hornan, chairman of UHY said: 'While some markets might be sufficiently robust to absorb this, governments do need to be careful not to kill off their property market altogether. Economies benefit from the added value that wealthy buyers and an active property market bring to the economy. Once high net worth individuals leave, it is hard to attract them back.'
Hornan warned that higher property purchase taxes discourage labour market mobility, saying: 'High levels of stamp duty are an easy fiscal option, but in a prolonged recession, they may be a short-sighted one.'
