PROPERTY TAXES -
HONG KONG, MONACO, UK, ITALY AND FRANCE
Property is an easy target for tax administrations to raise income. It does not tend to move when you tax it. The following examples show how different approaches are being taken in five countries; all evidencing that real estate taxes in one form or another are becoming the latest fiscal panacea to budget woes.
On the 26th October 2012 the Hong Kong Government announced that changes would be introduced to the Stamp Duty Ordinance that will affect foreign buyers investing in Hong Kong’s residential property market.
The Government wishes to take the heat out of a booming property market which has seen property prices double in three years. The changes to stamp duty are the third set of measures to be introduced in the last two months.
Changes to the Stamp Duty Ordinance include adjustments to the Special Stamp Duty (SSD) and the introduction of a Buyer’s Stamp Duty (BSD).
The Special Stamp Duty rates will be applied at three rates depending on the length of ownership. If the property has been held for:
a) 6 months or less, a tax of 20%;
b) Over 6 months but 12 months or less, a tax of 15%
c) Over 12 months but less than 36 months, a tax of 10%
Purchasers who are not a Hong Kong Permanent Resident, ie those who do not have a permanent right of abode in the Hong Kong Special Administrative Region, will be obliged to pay an additional stamp duty, the BSD at a flat rate of 15%. There are certain limited exemptions, for example, transactions involving a HKPR and his or her close relatives who are not HKPR.
A spokesman for the HK Financial Secretary confirmed that "Subject to the enactment of the legislative amendments to the Ordinance, the adjusted rates and extended holding period of SSD and the new BSD will be applicable to all residential properties acquired on or after 27th October 2012".
The current boom in property has been aided by historically low interest rates and high liquidity with the result that the price of apartments have risen by 20% in the first nine months of 2012, 107% since the trough in property prices in 2008. By September 2012 flat prices were 26% higher than the 1997 peak.
Monaco recently introduced Law 1381 which significantly reduced the registration tax payable on the purchase of real estate in the Principality by individuals in their own name or through a transparent Monaco SCI. However, purchases by an opaque entity, ie through an offshore structure, would be subject to a higher tax that applies on the acquisition. A subsequent share sale would also be subject to tax. In addition, the opaque entity is obliged to appoint a Monaco ‘mandataire’ and make an annual return.
If property is transferred out of an opaque entity and transferred to an SCI or a direct holding by an individual, a reduced registration tax of 1% will apply providing the transaction completes before June 2014.
Recently released figures indicate that some 2,600 companies were identified as owning property of which 1,900 have appointed a ‘mandataire’ and slightly over 3% have opted for transparency. In the first year the tax is thought to have raised €77million in additional revenue.
In the UK a ‘mansion tax’ will be introduced and will apply to high value residential properties that are owned by owned by ‘non-natural persons’ that is corporate entities, companies, partnerships and trusts. ‘High value’ for these purposes is defined as a single residential property worth over £2 million.
The new rate of tax will be 15% for such properties purchased by non-natural persons, with a lower rate of 7% applying to direct purchases by individuals in their own name.
The government is also considering the introduction of an annual charge on properties worth over £2 million and an extension of capital gains tax on the disposal of residential properties worth more than £2 million. In both cases the charge would be on properties held by non-UK resident ‘non-natural persons’.
The 2011 Budget reintroduced the local property tax on residences (the ‘IMU’ tax) that had been abolished by the government of Silvio Berlusconi.
The IMU will now apply a standard rate of tax of 0.76% to all properties, subject to a reduced rate for first residences and local variations.
However, while most municipalities have yet to finalise their IMU rate, the government maintains that the tax must be paid by mid-December 2012. The tax is calculated by the taxpayer by reference to an official property valuation, as the municipalities are not required to issue a tax demand.
Recent tax changes in France affecting real estate include the introduction of a liability to social contributions at the standard rate of 15.5%, on income derived from property held by non-residents. As a result a non-French resident will see the minimum tax rate on rental income rise from a rate of 20% to 35.5%.
The tax on capital gains tax realised on a property sale by a non-French EU resident will rise from 19% to 34.5% and for a non-EU resident from 33.33% to 48.83%.
Changes to Inheritance and Gift Tax and the annual Wealth Tax have also been introduced and are considered in our French Tax Newsletter- http://www.rosemont-int.com/news/08-09-2012-rosemont-consulting-newsletter-autumn-2012/
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