Research article

The bigger picture

global cities

Look beyond the purchase price for a more realistic view of buying prime property around the world


The costs associated with buying, holding and selling property vary across the world, particularly for foreign buyers. In some of the most globally invested cities, additional taxes have been levied to try and cool demand.

In London, this is in the form of higher rates of stamp duty. For overseas buyers, this has been accompanied by greater exposure to capital gains tax and inheritance tax, to level the playing field with domestic buyers. It has also been supplemented by measures such as the snappily titled Annual Tax on Enveloped Dwellings, that are targeted at those seeking to shield their assets from the full scope of the UK tax regime.

But where does this leave prime London property in a global context? Is it over-taxed compared with its peers?

To understand this, we analysed 15 world cities on a like-for-like basis (see note below) to illustrate what the costs of ownership and disposal might be over five years.

London’s position on the global stage

London property may have seen tax changes over the past few years, but it remains significantly cheaper than Vancouver, Hong Kong and Singapore, all of which have levied substantial additional stamp duties on overseas buyers. Such policies have also been pursued, though not as vigorously, in Sydney where there is a surcharge purchaser levy of 8%. This puts in context the recent proposals for a similarly targeted stamp duty levy of between 1% and 3%. The UK government expects to raise up to £120 million from this levy, a fraction of the £1.9 billion which the wider-reaching 3% surcharge on additional homes generated in the 2017/18 fiscal year.

In the US, relatively high annual property taxes make longer holds more costly

Savills Research

Though the costs of buying are some way ahead of old world cities, such as Paris and New York, costs of disposal, primarily agency fees, are lower than in these locations.

More noticeably, annual taxes are a fraction of those in most other locations. In London, they are just 0.7%. In the US, relatively high annual property taxes make longer holds more costly. In New York and San Francisco, for example, property taxes amount to 4.3% and 5.9% of the property’s purchase price, over a five-year hold.

That leaves London ninth in our list of 15 competing cities. For a $10 million property, total costs go from 13% to 16% of the property value, pushing it to eighth in the list. Even so, it suggests that once tax changes have been absorbed into the market, they do not make London look uncompetitive in relation to other international markets.

Buying and selling

Buying and selling a $2 million property
Source: Savills Research | Note: Our scenario assumes a non-resident overseas buyer purchasing a $2 million property (which in the UK equates to £1.5 million). This is for use as a second home for less than nine months of the year over a five-year hold. No capital growth has been applied, avoiding the complication of having to forecast that for each city.

Could London taxes change?

The stamp duty system in the UK has gone through major reform over the past five years. Having seen a period of cuts for the bulk of the UK housing market and hikes for the most expensive properties, it seems likely that the current system will be allowed to bed in.

In London, the council tax system is widely regarded as outdated. Yet there is little consensus as to what it should be replaced with or indeed what the purpose of reform would be. Largely, this is because, at heart, it is a local tax that happens to be based on historic property values.

The Labour Party and Liberal Democrats have historically put forward proposals for so-called mansion taxes to overcome the perceived inequities in the system. Difficult and costly to implement, they could create almost as many problems as they are designed to solve.

That suggests we have seen the bulk of changes likely under the current government administration. A change in government could alter that, but even in this scenario the effectiveness of wealth taxes will be heavily debated.

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