Taxand T3 (Total Tax Take) research conducted by Taxand, the world's largest independent organisation of tax advisors to multinational businesses, has shown that the UK is one of the cheapest countries for investors involved in the development and sale of residential property, when considering the total tax take.
The UK has a total tax rate of 8.88% on the development of residential property for sale, the second lowest and only beaten by Luxembourg which has an overall rate of 8.46%. The UK stands in stark contrast to those countries at the other end of the table, such as Chile, which has a total tax take of 27.53% or Denmark with 26.41% on residential sales.
Furthermore the UK's overall tax rate for development and sale of commercial properties has fallen (from 9.48%) since Taxand last conducted its T3 analysis in 2011. This is mirrored in the three other sectors analysed where the UK overall rates have also dropped.
In the other categories, the UK also offers an attractive overall tax rate in residential rental of just 23.00%, the fourth cheapest of those countries analysed and significantly more attractive when compared to Argentina, which has the highest rate in this category of 44.00%.
The T3 research analyses the tax take for real estate investors across four asset classes: residential for sale; residential for rent; commercial sale and commercial rent, across 20 countries around the world. The highest and lowest tax take rankings are:
More generally, European countries appears to offer some of the most attractive total tax rates for real estate investment, with Luxembourg, Switzerland and Poland amongst the cheapest across the four segments analysed in the research.
The research also presented the following key findings:
♦ Chile is the most expensive country when it comes to the development and sale of both residential and commercial units, predominantly due to the 19% rate of non-recoverable VAT on construction;
♦ Despite a 2% transfer tax on the acquisition of land, Luxembourg still has the lowest total tax take on residential sales;
♦ Argentina tops the rankings on tax take for the development and rental of residential units, explained primarily by its high income tax rate (35%). The lowest rates in China and Chile can be attributed to low rates of income tax, 10% and 20% respectively, as well as the low rates of transfer tax on the acquisition of land;
♦ Romania and Poland's recoverable VAT on construction, in combination with their low income tax rates, mean that they are the most attractive locations for commercial development and sales;
♦ The USA appears as the most expensive for commercial rents in terms of tax take, largely due to the real estate tax on construction materials and state income taxes.
Charles Beer, Head of Real Estate at Taxand UK, said:
"The research highlights the fact that the UK has retained its position as an attractive destination for property developers and investors, primarily because of its low corporate tax rate – currently 23% and reducing to 20% in 2015. It is also unusual in having no tax on land ownership, as both Council Tax (on residential property) and Business Rates (on commercial property) are levied on the occupier, unless the property is empty. However, one issue for the longer term investor is the very limited tax depreciation offered, with none at all for residential buildings.
"The attractiveness of the UK market and tax regime has led to a huge inflow of investment from round the world, particularly into London, and this trend is likely to continue well into the future."