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Spain with the highest property purchase taxes

Spain levies one of the highest property purchase taxes in the world on prime real estate, charging on average 8%, or USD 80,000, in tax on a property purchase of USD 1 million, reveals a new study by UHY, a leading international accounting and consultancy network.

 This is far lower than the global average of 3.3% (USD 33,038) for properties worth USD 1 million.

UHY says that although high 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.

UHY notes that the amount of property purchase taxes can vary across Spain, with 8% the amount charged in Madrid, which is typical for Spain. Furthermore, if an individual purchases a newly-built house, the only tax to be paid is VAT.

By contrast, 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).

Ireland also charges significantly lower taxes than its Western European neighbours at just 1% (USD 10,000).

UHY’s 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).

UHY 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 Bernard Fay of UHY Fay & Co and Chairman of UHY: “Property purchase taxes continue to be seen as a rich seam to bolster public finances, however 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 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 and now, 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.”

UHY adds that in Spain, along with several other countries, including Italy, and Uruguay, property purchase taxes are calculated using the value of the property in government registries, but these prices can often differ from the market value.

UHY cites 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.

UHY says that while the G7 economies charge on average 3% (USD 29,720) – broadly in line with the global average – tax charges in the BRIC economies are around a third lower at 2.3% (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

Residential property transfer taxes