Taylor Scott International News
As the rate of price growth slows in many global city markets, transaction costs and taxation are becoming increasingly important considerations for investors, a new analysis suggests. With slower price growth forecast in a number of prime city markets, investors are looking more closely at the cost side of the investment equation, according to the report from international real estate firm Knight Frank. While there may be a number of factors behind the choice of location, the research shows that the tax burden across the cities in this report varies considerably both in amount and extent. The tax costs range from as low as 3.5% or 3.6% of the property price in year five in Monaco and Dubai respectively, to over 30% in Sao Paulo. Despite encompassing a wide variety of cities and policies, a number of common themes and trends have arisen throughout the research. For example, in some cities, most notably in Geneva and in Mumbai, there are significant legal restrictions for non-residents who wish to purchase property so it is important to consider these before an investment decision is made. In some jurisdictions, the tax costs are represented primarily by acquisition taxes, notably in Monaco and Dubai, while in most other jurisdictions, tax costs usually comprise acquisition duties payable when purchasing the property; wealth or yearly taxes when holding the property; taxes on rental income, and taxes on disposal of the property, including tax on gains and/or duties at the point of the sale of the property. While in some countries the relative/percentage tax costs are almost equal for both US$1 million and US$10 million properties, in others the tax costs of holding the US$10 million property are almost double those for US$1 million property, the report points out. ‘Finally, it is important to note that some taxes, such as inheritance/gift taxes have not been taken into account in this analysis. Nor were home country taxes. Moreover, we have assumed that investors purchase in their personal name but that might not necessarily be the most efficient from a host or investment country’s tax perspective,’ the report says. However, overall property costs remain largely the same for both a $1 million and $10 million property in many cities such as Sao Paulo, Mumbai and Geneva whilst others see a significant reduction in percentage terms at the $10 million level such as New York and Paris. Reviewing the tax costs across the 15 main cities shows that taxation is highest in Sao Paulo, at both the US$1 million and US$10 million levels, where investors are taxed at 31.5% of the sale value at year five. Hong Kong and Sydney also rank highly. An investor purchasing a US$1 million property in Hong Kong is taxed 22.4%, whilst at the US$10 million level investors in Sydney are taxed 26.0%, in both cases as a percentage of year five price. Monaco offers non-resident investors the lowest rate of tax at 3.5% as a percentage of… Taylor Scott International
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