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An overview of the taxation of residential property: is it a good idea?
Marta Rodriguez-Vives* 
Miguel Angel Gavilan-Rubio*
Miguel Angel Gavilan-Rubio
Affiliation: Researcher at Analysis and Research Division, Bank of Slovenia, Ljubljana, Slovenia
 0000-0002-0001-9663
Preliminary communication | Year: 2021 | Pages: 283 - 303 | Volume: 45 | Issue: 2 Received: May 29, 2020 | Accepted: February 8, 2021 | Published online: June 6, 2021
|
FULL ARTICLE
FIGURES & DATA
REFERENCES
CROSSMARK POLICY
METRICS
LICENCING
PDF
Source: Own representation.
Note: For Greece, Japan and the OECD average the data refer to 2017. Recurrent taxes on net wealth include current taxes on capital; capital transactions include taxes on stamp duties; and “other taxes” include other non-recurrent taxes on property (capital levies) and other recurrent taxes on property (current taxes on capital). Own representation.Source: Authors based on OECD Revenue Statistics database and Eurostat.
Note: For Greece, Japan and OECD average the data refer to 2017. “Other taxes on property” includes taxes on net wealth, heritage and gift taxes, taxes on financial and capital transactions, other non-recurrent taxes on property and other recurrent taxes on property. Source: Authors based on OECD Revenue Statistics database and Eurostat.
Source: Eurostat, IMF database (IMF.org/housing).
* The last available years for Austria, Italy and Luxemburg are 2016, 2015 and 2013 respectively. Source: Barrios et al. (2019), Eurostat and ECB database.
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|
Log Implicit Recurrent Tax Rate on
Immovable Property
|
|
Model 1 (RE)
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Model 2 (RE)
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Model 3 (RE)
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Model 4 (RE)
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Model 5 (RE)
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Model 6 (RE)
|
|
Constant
|
-1.478***
|
-4.043***
|
5.356
|
1.078
|
0.0953
|
2.145
|
|
(0.28)
|
(0.58)
|
(3.51)
|
(3.23)
|
(3.04)
|
(3.14)
|
|
Growth of stock dwellings
|
-0.1250***
|
-0.0959***
|
-0.1310***
|
-0.1200***
|
-0.1320***
|
-0.0869**
|
|
(0.04)
|
(0.03)
|
(0.05)
|
(0.04)
|
(0.04)
|
(0.04)
|
|
Growth of price of m2
|
-0.0076***
|
-0.0011
|
-0.0081***
|
-0.0013
|
-0.0017
|
-0.0048
|
|
(0.00)
|
(0.00)
|
(0.00)
|
(0.00)
|
(0.00)
|
(0.00)
|
|
Log HH debt ratio
|
|
0.5590***
|
|
0.7150***
|
0.7480***
|
0.5560***
|
|
(0.11)
|
|
(0.18)
|
(0.18)
|
(0.17)
|
|
Log Gini index
|
|
|
-1.9890*
|
-1.7090*
|
-1.4280*
|
-1.7260**
|
|
|
(1.04)
|
(0.96)
|
(0.86)
|
(0.87)
|
|
Transfer tax rate
|
|
|
|
|
-0.0886*
|
-0.0893*
|
|
|
|
|
(0.05)
|
(0.05)
|
|
Interests income tax rate
|
|
|
|
|
0.0077***
|
0.0077***
|
|
|
|
|
(0.00)
|
(0.00)
|
|
Long term interest rate
|
|
|
|
|
|
-0.0471***
|
|
|
|
|
|
(0.01)
|
|
No of observations
|
338
|
337
|
256
|
255
|
255
|
255
|
|
No of countries
|
19
|
19
|
19
|
19
|
19
|
19
|
|
R2 overall
|
0.0258
|
0.2610
|
0.0168
|
0.2190
|
0.2140
|
0.1780
|
|
R2 within
|
0.0332
|
0.0795
|
0.0736
|
0.1200
|
0.1720
|
0.2040
|
|
R2 between
|
0.0367
|
0.2960
|
0.0277
|
0.2370
|
0.2130
|
0.1770
|
|
Hausman testa
|
0.8142
|
0.1058
|
0.8204
|
0.5624
|
0.2053
|
0.2578
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Note: Standard errors in parentheses. Standard errors are obtained using robust estimations. * p<0.10, ** p<0.05, and *** p<0.01. a p-values reported.
|
|
Estimation of implicit recurrent tax
rate functions using stochastic frontier analysis
|
|
Model 7 (TI)
|
Model 8 (TI)
|
Model 9 (TI)
|
Model 10 (TI)
|
Model 11 (TI)
|
Model 12 (TI)
|
|
Constant
|
1.047***
|
-1.737***
|
7.9910***
|
3.330
|
2.427
|
4.475*
|
|
(0.31)
|
(0.65)
|
(2.41)
|
(2.43)
|
(2.34)
|
(2.41)
|
|
Growth of stock dwellings
|
-0.1250**
|
-0.0955**
|
-0.1310**
|
-0.1200**
|
-0.1310***
|
-0.0854*
|
|
(0.05)
|
(0.05)
|
(0.05)
|
(0.05)
|
(0.05)
|
(0.05)
|
|
Growth of price of m2
|
-0.0076**
|
-0.0012
|
-0.0080**
|
-0.0012
|
-0.0017
|
-0.0049
|
|
(0.00)
|
(0.00)
|
(0.00)
|
(0.00)
|
(0.00)
|
(0.00)
|
|
Log HH debt ratio
|
|
0.5530***
|
|
0.7200***
|
0.7410***
|
0.5450***
|
|
(0.11)
|
|
(0.15)
|
(0.15)
|
(0.17)
|
|
Log Gini index
|
|
|
-1.9590***
|
-1.6790***
|
-1.4390**
|
-1.7390***
|
|
|
(0.67)
|
(0.63)
|
(0.62)
|
(0.62)
|
|
Transfer tax rate
|
|
|
|
|
-0.0904***
|
-0.0904***
|
|
|
|
|
(0.03)
|
(0.03)
|
|
Interests income tax rate
|
|
|
|
|
0.0076**
|
0.0076**
|
|
|
|
|
(0.00)
|
(0.00)
|
|
Long term interest rate
|
|
|
|
|
|
-0.0476***
|
|
|
|
|
|
(0.02)
|
|
Log sigma2
|
|
|
|
|
|
|
|
Constant
|
0.4420
|
0.1680
|
0.3760
|
0.0957
|
0.1400
|
0.1950
|
|
(0.34)
|
(0.32)
|
(0.33)
|
(0.32)
|
(0.35)
|
(0.36)
|
|
Log t gamma
|
|
|
|
|
|
|
|
Constant
|
1.8300***
|
1.6020***
|
2.0310***
|
1.8320***
|
1.9530***
|
2.0610***
|
|
(0.40)
|
(0.39)
|
(0.38)
|
(0.38)
|
(0.41)
|
(0.42)
|
|
mu
|
|
|
|
|
|
|
|
Constant
|
2.4760***
|
2.2510***
|
2.7080***
|
2.3600***
|
2.2210***
|
2.1780***
|
|
(0.44)
|
(0.42)
|
(0.52)
|
(0.48)
|
(0.41)
|
(0.40)
|
|
No of observations
|
338
|
337
|
256
|
255
|
255
|
255
|
|
No of countries
|
19
|
19
|
19
|
19
|
19
|
19
|
|
AIC
|
537.7
|
506.6
|
369.4
|
339
|
328.8
|
322.4
|
|
BIC
|
560.6
|
533.3
|
394.2
|
367.3
|
364.2
|
361.3
|
|
Log likelihood
|
-262.8
|
-246.3
|
-177.7
|
-161.5
|
-154.4
|
-150.2
|
Note: Standard errors in parentheses. Standard errors are obtained using robust observed information matrix. * p<0.10, ** p<0.05, and *** p<0.01.
Source: Authors’ construction based on Model 12.
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Policy tool
|
Definition
|
Primary
objective
|
Regulation
|
|
Taxation
|
|
|
ESA
2010
|
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1. Buying property
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Refers
to the one-off transaction tax for the sale of real estate either for the
first time or subsequent times. It typically takes the form of stamp duty,
VAT (first transaction), transaction tax, or capital acquisition tax.
Purchase costs usually are not deductible in the tax declaration. This tax is
widely applied in advanced countries as it is administratively appealing
since transactions can often be reasonably easily observed. These taxes could
also contribute to reducing asset price volatility. However, taxing real
estate transactions may also lead to undesirable outcomes, such as adversely
impacting labour mobility, reducing house affordability, and ownership
ratios.
|
|
Value added tax (VAT)
|
VAT on the value of the property, sold
for the first time
|
Generate government revenue
Reduce housing demand (especially
speculative house purchases)
|
D.211
|
|
Stamp taxes / transfer tax
|
One-off - Transaction taxes
All investors (domestic / foreign);
borrowers / equity investors
|
D.214 B, C
Stamp taxes
Taxes on financial and capital
transactions
|
|
2. Holding
property
|
This
involves recurrent taxes on
property, usually levied at sub-national/local level. It has
particular appeal as a source of local-government finance since property
values will reflect the benefits of local public spending. This type of tax
is somehow underutilised. It is attractive in the sense that the base is
relatively immobile and hard to hide, the tax comes at the top of the
hierarchy of long-run growth-friendliness mentioned earlier, and it can be
made progressive through a basic allowance or by varying the rate with the
value of the property. However, it requires some intense administrative
build-up and maintenance of infrastructure. Income from owner-occupied
property, whether in the form of imputed rental income or capital gains, is
typically untaxed or taxed at low rates. It also includes recurrent taxes on
net wealth (assets less liabilities), but they have been declining and only
four countries are currently using them.*
|
|
Recurrent taxes on immovable property
|
Taxes paid annually and linked to the
value of the property.
Households: Current taxes on capital,
other (D.59)
Other: Taxes on land buildings or other
structures (D.29)
|
Generate government revenue
Finance regional/local level services
|
D.59 Current taxes on capital
|
|
Recurrent taxes on net wealth
|
Assets minus liabilities
|
Inequality
|
D.59 Current taxes on capital
|
|
Other recurrent taxes on property
|
Other recurrent taxes on capital
|
D.59 Current taxes on capital
|
|
3. Renting
property
|
Residential rental property is
typically taxed on a comprehensive basis, in a similar way to interest
income. No tax relief is provided upfront, and returns are taxed as they are
earned-marked.
|
|
Rental income
|
Property Income and Personal Income Tax
(PIT)
|
Generate government revenue
|
D.45 and D.5
|
|
4. Selling
property
|
When people sell residential
property for more than the purchase price, they generally realize a capital
gain that is subject to taxation as income. The capital gain is defined as
the difference between selling and purchase prices, also known as the basis.
Capital gains taxes on the sale of residential properties are treated
differently depending on the holding period. Long-term capital gains relate
to dwellings held for more than a year, and are usually taxed with lower
rates and have a tax-free threshold for owner-occupied housing to protect
household net wealth. Short-term capital gains are generated when the sale of
the dwelling is made within a year, and are usually taxed with higher rates
to avoid housing bubbles.
|
|
Other non-recurrent taxes on property
|
Capital gains taxes (occasional or
exceptional levies on capital or wealth)
|
Inequality
Reduce housing demand and supply
|
D.91 Capital levies
|
|
5. Bequest
|
This includes taxes on inheritances and gifts. The yield is
usually relatively limited: rates are low, and exemptions and special
arrangements create multiple avoidance opportunities. The yield in the
countries with the highest returns (about 0.7% of GDP in Belgium and France)
suggests its potential as a revenue raising
tool. The main policy objective of inheritance taxes is to limit the
intergenerational transmission of inequality, but they also produce
distortions, which are difficult to assess. Theoretical results on optimal
bequest taxation differ widely, but Piketty and Saez (2013) find a positive
and relatively high rate.
|
|
Inheritance and gift taxes
|
Death duties or taxes on gifts inter-vivos,
to be levied on the capital of the beneficiaries
|
Inequality
Generate
government revenue
|
D.91 Taxes on capital transfers
|
* Spain, Iceland, Norway, and Switzerland.
|
Variable
|
|
Mean
|
Std. Dev.
|
Min
|
Max
|
Observations
|
|
Log implicit recurrent tax rate on immovable property
|
overall
|
-1.49
|
1.21
|
-3.97
|
0.78
|
N=364
|
|
between
|
|
1.13
|
-3.42
|
0.71
|
n=19
|
|
within
|
|
0.47
|
-3.75
|
-0.11
|
T=19.2
|
|
Growth of stock dwellings
|
overall
|
1.96
|
0.99
|
-1.35
|
11.89
|
N=430
|
|
between
|
|
0.62
|
0.27
|
2.75
|
n=20
|
|
within
|
|
0.80
|
-2.33
|
11.48
|
T=21.5
|
|
Growth of price of m2
|
overall
|
5.19
|
9.30
|
-37.39
|
54.96
|
N=407
|
|
between
|
|
2.14
|
0.92
|
9.16
|
n=20
|
|
within
|
|
9.07
|
-41.35
|
51.00
|
T=20.4
|
|
Log HH debt ratio
|
overall
|
4.42
|
0.82
|
1.06
|
5.83
|
N=454
|
|
between
|
|
0.69
|
2.90
|
5.59
|
n=20
|
|
within
|
|
0.46
|
2.50
|
5.54
|
T=22.7
|
|
Log Gini index
|
overall
|
3.42
|
0.12
|
3.14
|
3.66
|
N=315
|
|
between
|
|
0.12
|
3.21
|
3.60
|
n=20
|
|
within
|
|
0.04
|
3.27
|
3.57
|
T=15.8
|
|
Transfer tax rate
|
overall
|
3.68
|
3.00
|
0.00
|
15.00
|
N=448
|
|
between
|
|
2.82
|
0.00
|
10.76
|
n=20
|
|
within
|
|
1.23
|
0.72
|
16.11
|
T=22.4
|
|
Interests tax rate
|
overall
|
24.91
|
15.48
|
0.00
|
62.70
|
N=460
|
|
between
|
|
12.36
|
2.61
|
54.91
|
n=20
|
|
within
|
|
9.71
|
7.94
|
68.35
|
T=23
|
|
Long term interest rate
|
overall
|
4.16
|
2.16
|
0.09
|
14.00
|
N=424
|
|
between
|
|
0.58
|
3.37
|
5.46
|
n=20
|
|
within
|
|
2.09
|
-0.28
|
13.41
|
T=21.2
|
Note: "N" denotes number of observations, "n" number of countries and "T" average period observed per country.
|
Country
|
Average
Log-IRTRIP
|
Model 7
|
Model 8
|
Model 9
|
Model 10
|
Model 11
|
Model 12
|
|
Austria
|
-3.4233
|
0.0237
|
0.0301
|
0.0402
|
0.0550
|
0.0604
|
0.0592
|
|
Belgium
|
-1.7104
|
0.0891
|
0.1144
|
0.1717
|
0.2349
|
0.4260
|
0.4188
|
|
Czech Republic
|
-2.4327
|
0.0856
|
0.1272
|
0.0826
|
0.1381
|
0.1579
|
0.1443
|
|
Denmark
|
-0.3223
|
0.3748
|
0.2757
|
0.2940
|
0.2245
|
0.1795
|
0.2021
|
|
Finland
|
-1.5155
|
0.1036
|
0.1254
|
0.1463
|
0.1820
|
0.2047
|
0.2007
|
|
France
|
0.2522
|
0.5455
|
0.6615
|
0.5756
|
0.7111
|
0.8747
|
0.8814
|
|
Germany
|
-2.0309
|
0.0583
|
0.0695
|
0.0699
|
0.0923
|
0.0972
|
0.0983
|
|
Ireland
|
-2.2790
|
0.7220
|
0.8587
|
0.7228
|
0.8625
|
0.8586
|
0.8674
|
|
Italy
|
-1.0560
|
0.2788
|
0.3735
|
0.4415
|
0.5668
|
0.6894
|
0.6948
|
|
Latvia
|
-2.5971
|
0.3355
|
0.3913
|
0.8366
|
0.8588
|
0.8642
|
0.8650
|
|
Lithuania
|
-3.3523
|
0.1092
|
0.1470
|
0.1130
|
0.1722
|
0.1670
|
0.1651
|
|
Luxembourg
|
-2.6653
|
0.0541
|
0.0557
|
0.1003
|
0.1074
|
0.1466
|
0.1479
|
|
Netherlands
|
-0.9303
|
0.1735
|
0.1319
|
0.2258
|
0.1857
|
0.2338
|
0.2576
|
|
Portugal
|
-1.4678
|
0.0999
|
0.1085
|
0.2491
|
0.2589
|
0.2514
|
0.2909
|
|
Slovakia
|
-1.9490
|
0.1375
|
0.2019
|
0.1566
|
0.2600
|
0.2405
|
0.2327
|
|
Slovenia
|
-2.0983
|
0.1254
|
0.1848
|
0.1183
|
0.1972
|
0.2022
|
0.1889
|
|
Spain
|
-1.4739
|
0.1103
|
0.1231
|
0.1700
|
0.1939
|
0.2460
|
0.2482
|
|
Sweden
|
-0.3691
|
0.2843
|
0.2787
|
0.2614
|
0.2663
|
0.2530
|
0.2655
|
|
United Kingdom
|
0.7084
|
0.8440
|
0.8444
|
0.8711
|
0.8775
|
0.7489
|
0.8125
|
|
Average
|
-1.4934
|
0.2738
|
0.3013
|
0.3288
|
0.3689
|
0.3919
|
0.3989
|
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Arnold, J., 2008. Do Tax Structures Affect Aggregate Economic Growth? OECD Economics Department Working Papers, No. 643 [ Crossref]
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June, 2021
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