UK levies higher property purchase taxes on prime real estate than key competitors

Publications that covered this story include: City AM  and Estate Agent Today on 25 July 2016.
  • Risks discouraging labour market mobility of senior executives and high net worth investment from overseas
  • US, Canada and Ireland property taxes among the lowest

The UK levies higher purchase taxes on prime real estate than many key competitors, charging on average 3.5%, or USD 35,400, in tax on a property purchase of USD 1 million.

The UK ranks at number 11 out of 26 countries studied, and it charges significantly higher taxes than a number of western European neighbours, including Ireland (1% or USD 10,000).

Many other advanced economies have far lower property purchase tax rates on prime real estate in this price bracket. For instance, although the rate can vary across states, the US levies just 0.6% on average (USD 5,970) and Canada charges an average of 1.8% (USD 17,833).

Although high property taxes are an attractive source of revenue for governments, they could risk discouraging labour market mobility of senior executives and valuable overseas investment from high net worth individuals.

Our findings show that Belgium has the highest average property taxes for real estate worth USD 1 million of any country in the study at 11.3%* – a charge of USD 113,131.

Other western European economies at the top of the table include France and Germany, charging USD 50,901 and USD 50,000 respectively (see table below). Those below the UK include Denmark and the Netherlands at USD21,000 and USD20,000.

Our tax professionals studied tax data for individuals purchasing a house worth USD1 million in 26 countries across its international network, including all members of the G7, as well as key emerging economies.

Comments Mark Giddens, head of private client services, says: “Property purchase taxes continue to be seen as a rich seam to bolster public finances, but it’s important not to over-exploit them.”

“Higher property purchase taxes can put a strain on domestic buyers, who may not actually be particularly wealthy, given house price inflation in some locations over the last decade or two.”

“Levying significant taxes on the cost of a new property could also constrain labour market mobility. If businesses have to offer much greater incentives for senior executives to relocate, this could have a serious impact on job creation and business investment, and ultimately on the wider economy. The issue of labour mobility is particularly pressing due to the uncertainty created by the recent Brexit vote.”

“The United States has one of the lowest tax rates in our study. The low level of tax enables home owners to move more freely from city to city – the US is seen as having enviable labour market mobility.

“Excessively high taxes for purchasing a property could make the housing market less attractive to both domestic and overseas investors. Investment into the property market helps to improve the quality of the overall housing stock and benefits associated sectors, such as the construction industry.”

“These wealthy overseas investors contribute to the local economy in many other ways, through discretionary spending while they are staying in the property, as well as maintenance costs, for instance by refurbishing extensively, or employing staff.”

We cite the Netherlands as an example of how tax reductions can help to meet specific policy objectives. The government reduced the real estate transfer tax in 2011 from 6% to its current 2% to help stimulate the housing sector for buyers. The lower rate is only applicable to residential property, with the higher 6% remaining for non-residential property.

While the G7 economies charge on average 3% (USD 29,560) – broadly in line with the global average – tax charges in the BRIC economies are around a third lower at 2.3% on average (USD 22,720).

New Zealand and Russia have the lowest taxes in the table, effectively charging 0% on prime property purchases.

New Zealand has no central or local government transaction taxes on real estate and residential property deals between home owners, as they are exempt from the government’s Goods and Services tax. Similarly Russia imposes no transfer taxes on the buyer, who only pays a minor fixed amount of State Duty of around USD 30.

Residential property transfer taxes for the purchaser of a property worth USD$1,000,000

Rank Country Rate** USD Amount
1 Belgium* 11.3% $113,131.00
2 Spain 8.0% $80,000.00
3 Pakistan 6.0% $60,000.00
4 France 5.1% $50,900.60
5 India 5.0% $50,262.60
6= Croatia 5.0% $50,000.00
6= Germany 5.0% $50,000.00
6= Malta 5.0% $50,000.00
9 Australia**** 4.8% $48,155.50
10 Uruguay*** 4.0% $40,000.00
Europe Average 3.8% $38,355.94
11 UK 3.5% $35,382.68
World Average 3.3% $33,037.99
12 Japan 3.0% $30,135.00
G7 Average 3.0% $29,562.09
13 Israel 2.7% $27,368.30
BRIC Average 2.3% $22,719.71
14 Denmark 2.1% $21,000.00
15 China 2.1% $20,585.80
16 Poland 2.0% $20,019.40
17= Brazil 2.0% $20,000.00
17= Mexico 2.0% $20,000.00
17= Netherlands 2.0% $20,000.00
20 Canada**** 1.8% $17,833.33
21 Italy*** 1.7% $16,713.00
22 Rep of Ireland 1.0% $10,000.00
23 USA**** 0.6% $5,970.00
24 Romania 0.2% $1,500.00
25 Russia 0.0% $30.45
26 New Zealand 0.0% $0.00


* This figure represents an average of the rates in Brussels, Flanders, and Wallonia which can vary from 9.8% to as high as 12.5%
**Rates rounded to nearest tenth
***Rate paid on cadastral value of property, not market price; for Italy (based on 2015 data), it includes the law with the provision that the rate applies on the cadastral value of the property, which is largely lower than the market price
****Average of local variations