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NZ levies one of the world’s lowest property purchase taxes

25th July 2016

New Zealand levies one of the world’s lowest property purchase taxes on prime real estate - global UHY study reveals

Encourages labour market mobility of senior executives and High-Net-Worth investment from overseas
Western European economies’ property taxes among the highest

New Zealand levies one of the lowest property purchase taxes in the world on prime real estate, charging no tax (0%) 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 by keeping taxes in this price bracket low, governments can encourage labour market mobility of senior executives and valuable overseas investment from High Net Worth individuals, although they also risk losing out on an attractive source of revenue.

UHY says that major European economies including France, Germany and Spain levy among the highest property purchase taxes in the world (see table below).

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.

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 when the transaction is between two persons who are both unregistered for GST.

Similarly Russia imposes no transfer taxes on the buyer, who only pays a minor fixed amount of State Duty of around USD$30.

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).

UHY tax professionals studied tax data for individuals purchasing a house worth USD$1 million in 26 countries across its international network, including all members of the G7, as well as key emerging economies.

Comments Tim Livingstone, Director of UHY Haines Norton (Auckland) Ltd, a member of UHY: “Many economies risk over-exploiting property purchase taxes as a way to bolster finances, so it’s encouraging to see New Zealand exercising restraint.”

“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.”

“Similar to New Zealand, 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. Now, the US is seen as having enviable labour market mobility.”

“Levying significant taxes on the cost of a new property can 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.”

Tim Livingstone adds “Prime properties, especially in capital cities, are particularly desirable for wealthy investors from overseas, but where there are excessively high taxes, these markets could become less attractive. Capitals such as Paris or Berlin could lose out to locations such as Auckland and Wellington.”

“These wealthy overseas investors contribute to the local economy in many other ways, through discretionary spending while they are staying in the property, as well as maintenance costs, for instance by refurbishing extensively or employing staff.”

Residential property transfer taxes for the purchaser of a property worth USD$1,000,000

RankCountryRate**USD Amount
1Belgium*11.3%$113,131.00
2Spain8.0%$80,000.00
3Pakistan6.0%$60,000.00
4France5.1%$50,900.60
5India5.0%$50,262.60
6=Croatia5.0%$50,000.00
6=Germany5.0%$50,000.00
6=Malta5.0%$50,000.00
9Australia****4.8%$48,155.50
10Uruguay***4.0%$40,000.00
-Europe Average3.8%$38,355.94
11UK3.5%$35,382.68
-World Average3.3%$33,037.99
12Japan3.0%$30,135.00
-G7 Average3.0%$29,719.71
13Israel2.7%$27,368.30
-BRIC Average2.3%$22,719.71
14Denmark2.1%$21,000.00
15China2.1%$20,585.80
16Poland2.0%$20,019.40
17=Brazil2.0%$20,000.00
17=Mexico2.0%$20,000.00
17=Netherlands2.0%$20,000.00
20Canada****1.8%$17,833.33
21Italy***1.7%$16,713.00
22Rep of Ireland1.0%$10,000.00
23USA****0.6%$5,970.00
24Romania0.2%$1,500.00
25Russia0.0%$30.45
26New Zealand0.0%$0.00

* This figure represents an average of the rates in Brussels, Flanders, and Wallonia which can vary from 9.8% to as high as 12.5%.
** Rates rounded to nearest tenth
*** Rate paid on cadastral value of property, not market price; for Italy (based on 2015 data), it includes the law with the provision that the rate applies on the cadastral value of the property, which is largely lower than the market price
**** Average of local variations


ENDS

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