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UK Leads Key Economies As Least Expensive Country For Buy-To-Let Investors

UK Leads Key Economies As Least Expensive Country For Buy-To-Let Investors

US is least attractive country for rental income on residential property

Taxand T3 (Total Tax Take) research conducted by Taxand, the world's largest independent global network of specialist tax advisors to multinational businesses, has shown that the UK is the least expensive of the key economies across the world for investment in buy-to-let properties, with a mere 22% of rental income absorbed by the taxman.

The UK is second only to Cyprus (20%) in having the lowest tax on buy-to-let property owners. This is explained by the absence in the UK of VAT on construction and also the medium rate of income tax in operation, when compared to other countries. This proves the value for property investors of buy-to-let portfolios in the UK as a means of regular, tax-efficient income and may fuel further future growth in the buy-to-let investment market in the UK.

The very low rate in the UK is in stark contrast to the other Western European countries analysed in the rankings, with France, Spain, Netherlands, Portugal and Germany all enforcing a tax take of over 30% on rental income.

The top five most attractive countries for buy-to-let investors were Cyprus (20%), UK (22%), Luxembourg (22%), Switzerland (23%) and Poland (25%).

The highest rate of tax was seen in the USA, with a rate of 42%. This has severe implications for investors considering a portfolio of buy-to-let properties in the country. It could result in a slower recovery for the property market, as potential landlords think twice about investing due to the impact of taxes on their profit.

The research, conducted in over 20 key global markets, also shows that India (40%), Russia (39%), Malta (38%) and France (37%) follow the USA as among the most expensive countries for buy-to-let properties with the taxman taking a sizeable chunk of rental earnings.

Keith O'Donnell of Taxand, said: "Our research on buy-to-let markets across the globe highlights significant disparity, particularly between developed countries, in the tax take on residential property income for landlords. Of the key global economies, the UK leads the way in the attractiveness of its tax rate for buy-to-let investors."

"Amazingly, the rate for buy-to-let investors in the UK is almost half of the figure in the USA. This could account for the rampant nature of the buy-to-let market and subsequent house price inflation in the UK in the run up to the credit crunch last year."

"As governments, combating the global economic downturn, look to bolster their total revenues through increased tax on residential property, investors need to carefully consider where their next buy-to-let purchases will be with these greatly varying rates across the world."

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Taxand T3 research methodology

To arrive at the figures, Taxand has taken into account VAT (or its local equivalent), corporate income tax, and property taxes. The property taxes were usually subject to country specific assumptions and modifications as they often differ on a municipality basis or sometimes just location basis.

Those were reviewed by the coordinating Taxand team to assure comparability. Administrative fees, notary fees, court fees were excluded as having a relatively low impact on the overall tax take.

To ensure comparability of the results, certain data has been fixed such as size of the building, investment costs, and 100 percent non-interest bearing equity financing. With all of that built into the model, each real estate team from Taxand adopted it to the local law to ensure comparability.

Taxand's Take

Taxand's Take Author