Taxes Rise in London, Will That bring Buyers to New York?


The friendly rivalry between London and New York City just tipped in New York’s favor in the global competition for wealthy buyers of million-dollar homes.  According to a recent study by Knight Frank, an international property consulting firm in London, the difference hinges on the tax burdens faced when heading to the closing tables in each city, with New York real estate purchases  over $3.1 million (about £2 million) resulting in about half as much in transaction taxes as those in buying in London.

In March, the British government raised the ‘stamp duty’ on properties valued over £2 million from 5% to 7% of the total purchase price.  Offshore corporations pay a staggering 15% to capture the revenue from wealthy foreigners who are the biggest buyers of central London properties.  For years, they have been legally avoiding paying stamp duty by structuring their deals through offshore entities.  Foreigners will also be subject to capital gains taxes when they sell their British properties.  The total sales in central London over £2 million has fallen by at least 3% from April to July compared to the same period in 2011.

Members of the London real estate community are outraged, saying the government is trying to wring more revenue from a thriving part of the British Economy.

European countries, who are struggling with recession and deficits, including France and Italy, have made similar moves to extract more from the wealthy.

Many billionaires who are, for the most part, obsessed with secrecy, tend to hide their identities inside complex corporate structures to protect their privacy.  These corporate structures will now cost buyers additional tax to protect their privacy.

The big question is, will the higher cost of buying in London and other cities in Europe drive high-end buyers to New York?  Even though New York is lagging in revenues, and already impose a ‘mansion tax’ on purchases of more than $1 million, there haven’t been any serious moves to push real estate taxes higher at this point.

Inspired by New York Times article


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