UK has one of highest purchase taxes for prime properties of any major country

Publications that covered this story include Barrons, 21 September.
  • Few other countries hit High Net Worth buyers of property so hard
  • Higher property taxes even on less expensive homes, discouraging labour mobility

The UK has some of the highest property purchase taxes targeted at prime properties of any major country, as the government targets wealthy property buyers with higher property purchase fees in an attempt to help plug its fiscal deficit, shows research by UHY.

The UK levies 7% stamp duty on property purchases over £2 million (USD3.1 million) – the second highest rate of a major economy and more than double the average tax rate levied internationally for properties of that value. Prime properties are seen as attracting a large proportion of overseas buyers.

UHY’s research shows that internationally, the average cost of stamp duty and other compulsory property purchase fees for a property worth USD3.5 million is now 3.4% (see table below).

Ladislav Hornan, Chairman of UHY, explains: “The government has been desperate to plug its deficit. One populist way to do this has been by levying a new top rate of stamp duty on the purchase of the most expensive properties, which often attract foreign buyers.  When the new top rate was announced in the UK, it was in part a response to left-of-centre politicians’ demands for a so-called mansion tax.”

“However, it is starting to make Britain look unwelcoming towards wealthy international families, who are exactly the sort of people who have helped sustain the economy in recent years.”

“Whether or not the UK market is sufficiently robust to absorb this, the government does need to be careful not to kill off its property market altogether along with the added benefits that wealthy buyers and an active property market bring to the economy, from spending on refurbishments, to legal fees and employing domestic staff.  Once High Net Worth individuals leave, it is hard to attract them back.”

Higher property taxes even on less expensive homes, discouraging labour mobility

UHY points out that UK property purchase taxes for upper to mid-market properties are also higher than in many other countries. Whilst a property costing USD1 million (£670,000) would be taxed at 4% in the UK, the international average tax is still just 3.4%.

UHY says that high property purchase taxes discourage labour market mobility. By contrast in North America, which is renowned for its flexible and mobile labour market, property purchase taxes are far lower, typically below 1% in the USA and no higher than 1.9% for the most expensive homes in Canada.*

Ladislav adds: “By imposing often very significant additional costs on the purchase of a property, the government may be discouraging people from moving for a new job, especially those with families who might reasonably expect to own their own property.”

“That means that employers have to offer significant pay rises to lure talented staff to a new location, workers opt to do jobs that are below their skills and experience rather than move.  High levels of stamp duty are an easy fiscal option, but in a prolonged recession, they may be a short-sighted one.”

UHY tax professionals 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 of up to USD3.5million.

For a property of US$3,500,000

Amount of tax and charges paid

% of property price

India

 $   280,830.00

8.0%

UK

$   245,000.00

7.0%

Spain

$   245,000.00

7.0%

Australia

$   185,830.00

5.3%

Argentina

$   178,500.00

5.1%

France

$   178,150.00

5.0%

Germany

$   175,000.00

5.0%

China

$   165,030.00

5.0%

Austria

$   161,000.00

4.6%

Israel

$   153,340.00

4.4%

Czech Republic

$   140,050.00

4.0%

Japan

$   113,930.00

3.3%

Italy

$   105,440.00

3.0%

Malaysia

$   105,000.00

3.0%

Mexico

$     83,220.00

2.4%

Netherlands

$     70,000.00

2.0%

UAE

$     70,000.00

2.0%

Uruguay

$     70,000.00

2.0%

Canada

$     66,160.00

1.9%

Ireland

 $     57,020.00

1.6%

Romania

$     55,680.00

1.6%

USA

$     28,000.00

0.8%

Estonia

$       3,320.00

1.0%

Russia

$                    –

0.0%

Slovakia**

$                    –

0.0%

Notes to table

The calculations assume that both buyers and sellers are private individuals from the country concerned. Special exemptions, e.g. for new properties, are not taken into account.

*Figures for Australia, Canada, Germany, India, Mexico, Spain and USA are national averages.  State and municipal taxes and charges vary.

Russia charges a nominal fee for the registration of new property purchases.  The UAE charges a compulsory 2% of the property price to register a property transaction at the local land department.  The total taxes and fees for Austria include a 1.1% land register fee.

**Slovakia abolished real estate transfer taxes in 2005.