Hong Kong: Tax Refugees Stoke Offshore Property Prices

Last Updated: 30 November 2009

Article by Howard Bilton

In my last column I reviewed some of the low or no tax jurisdictions where departing Hong Kong residents might elect to move – upon retirement or the end of their work contract – in order to avoid the punitive levels of tax that will surely have to be, or already have been, imposed by those countries that have raised their spending and national debt to unprecedented levels in a bid to combat the effects of the credit crisis.

But the great tax transmigration is already underway. Sovereign Trust recently conducted a survey of world property prices and found that while they had fallen dramatically in most onshore countries they had actually risen in most of the offshore centres.

In this year's Budget, UK chancellor Alistair Darling conceded that the likely underperformance of the economy was so great that public spending would soon account for 48 per cent of national income, borrowing would hit £175bn and public sector debt was close to reaching £1,000bn. He announced that from next April incomes above £150,000 are to be taxed at 50 per cent.

Not surprisingly, our survey found that most offshore tax jurisdictions within easy reach of the UK are bucking the European property market slump as UK taxpayers exit. Property values in Monaco and Gibraltar are holding firm or increasing while prices around them on the Cote d'Azur and the Costa del Sol have plunged by up to 50 per cent. Jersey, Guernsey, the Isle of Man and Geneva are also enjoying trend-bucking strength in their housing markets.

We believe, and all our local sources are telling us, that much of this disparity is down to interest from a new breed of tax refugee as the UK government's tax-and-spend folly begins to bite. It is no wonder that the offshore locations are benefitting with healthy property markets, but it is a very sorry situation for the UK and for those taxpayers who aren't able to go offshore.

What is extraordinary is that the UK government appears to believe its most productive citizens will sit still to be fleeced. This is not the 1960s, when currency controls and limited communications made it difficult to relocate yourself and your business. This is the broadband age, when voting with your feet where tax is concerned is a very viable option for many. Everyone has to compete these days and tax authorities should wake up and smell the coffee.

In Monaco (which, significantly, now boasts 100 per cent broadband coverage), reports indicate that property prices have risen by as much as 30 per cent – the same amount that even the most optimistic observer would acknowledge they have fallen in neighbouring Provence. One leading estate agent said recently that Monaco's "tax haven status ensures the market remains buoyant and prices stable so investment in Monaco property continues to be attractive."

The situation is similar in Gibraltar where – despite prices on the Costa del Sol continuing to plummet by record levels – several major new residential property developments have recently been completed and the developers say they have been finished "in the nick of time" to satisfy a wave of new residents.

Even closer to Britain, a few dozen miles from the English south coast's languishing property market, Jersey's chief government statistician Dr Duncan Gibaut said property prices had risen 7 per cent and the worst scenario in the coming months would be a period of "stabilising" house values. "Prices are still rising but at a lower annual rate," said Dr Gibaut.

Residential property prices in Guernsey were mixed, with small apartments falling in value by up to 17 per cent, according to the island's Policy Council. However, at the same time the price of houses – representing 60 per cent of residential property sales – were up a fraction at 0.1 per cent. Buoyancy at the wealthier end of the market appears to come from a steady stream of new interest from the UK mainland.

In the Isle of Man, property prices last year increased by 4 per cent and this year are "holding steady" according to Chrystals estate agents, "Following the UK Budget where income tax was increased to 50% for those earning in excess of £150,000 pa it will come as little surprise to learn that enquires from UK applicants have risen strongly," said the company.

In Geneva, housing demand hit a new peak when the apartment vacancy rate fell to between 0.25 per cent and 0.5 per cent last year and it will continue to hold firm this year, according to "Swiss Issues Real Estate 2009," a report on Swiss housing published by Credit Suisse earlier this year. Savills have recently published extensive research on the residential market in Geneva, concluding: "The Geneva market is expected to plateau, but not decrease during 2009."

In an article in this esteemed publication last week, entitled "Asian buyers eye London bargains". Data from property consultant Knight Frank showed that overseas buyers accounted for 43 per cent of all deals done for prime London properties in August that were priced at over £1 million, up from 35 per cent a year ago. Those buyers could be pure speculators or could be people who intend living in the UK and taking advantage of the UK's very advantageous tax treatment of non domiciled residents. More on that later.

If you are looking for somewhere to live where you will not be obliged to place your hard-earned capital at the disposal of a government that will be looking to squeeze its taxpayers until the pips squeak, then you would do well to look offshore for the foreseeable future. Property may be relatively expensive in these "offshore tax havens" but its still a bargain if it goes up in value... and it appears to do that inexorably because of its low tax charges. High tax countries should take note. You can create wealth by encouraging people to live in your country and pay some tax and destroy it by forcing your wealthiest residents to leave by trying to charge too much.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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