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October 18, 2013 6:59 pm
The seriously rich wrestle with issues that most of us never have to consider. Problems such as: shall I customise my Learjet so that I can stand upright in it? How can I make it to number one on the rich list? Do I own too many Basquiats and Koonses? Should I go public on my $2bn Gates Foundation donation?
While many deliberate over these conundrums, one overriding issue surpasses all the others: where should I stash my cash and, therefore, where should I live?
Those whose idea of living it up involves cuckoo clocks, lederhosen and a night in around the fondue set may find their ideal tax-friendly location in Switzerland. Sir Richard Branson enjoys the more adventurous options of kitesurfing and surfing which is why he has opted to swap life in Oxfordshire for life in the Caribbean on his very own Necker Island, part of the British Virgin Islands.
Others may want to explore alternatives, which is why Knight Frank has come up with some handy facts and figures about tax-friendly areas that might appeal to the world’s wealthy. For example, cities with reasonably priced Cristal, sunshine, proximity to an airport, lots of international schools and, more bizarrely, cheap milk (dead cheap in Palma de Mallorca according to Knight Frank’s survey).
The Knight Frank Lifestyle Report analysed 23 tax favourable locations around the world, and came out with an overall ranking (see graphic), which puts Dubai at number one.
The city scored well for the number of international schools, as well as leisure pursuits and hours of sunshine. The Cayman Islands, Mallorca and Geneva came joint second, scoring consistently well across the 10 lifestyle categories.
So how did the traditional tax havens score? Surprisingly low, says Knight Frank. Monaco came 10th – joint with Madrid and Moscow. Of the more established cities, Geneva was closely followed by London and Hong Kong, as all scored well in terms of education and the number of Michelin-starred restaurants.
Zug, a small Alpine town in Switzerland, famous for its ultra-low tax rates and for being the headquarters for a large number of multinationals, also scored poorly – ranking 15th.
Alex Koch de Gooreynd, head of Knight Frank’s Switzerland office, recounts numerous phone calls from wealthy people keen to live in Zug based on advice from accountants that it’s one of Switzerland’s cheapest cantons.
“I always ask them if they have ever been to Zug. It’s essentially a lovely, pretty town in the countryside of Switzerland. But there isn’t a restaurant open past 9pm [and] the nearest theatre is in Zurich. There isn’t the sort of lifestyle that you would have enjoyed in, say, Knightsbridge in London,” he explains.
Like all of the many surveys that attempt to measure cities by their “liveability”, Knight Frank’s findings have to be taken with a pinch of salt. Auckland, which comes out top for leisure pursuits, could come as a surprise to some but it’s one of few cities to offer skiing, as well as golf, watersports, horseracing and the theatre.
Not all billionaires are alike: for every one who opts for a 1978 Henri Jayer Richebourg Grand Cru, there’s another who prefers a Blue Nun 2013. Yolande Barnes of Savills claims that, broadly speaking, “newly wealthy Chinese tend not to like sunshine and beaches, prefer urban locations to countryside and are not yet into sailing.”
Instead, the growing numbers of rich Asians looking to emigrate have tended to focus on the US, New Zealand, Canada and Australia. Over the past few years, America’s investor visa programme, EB-5, has seen a surge in interest from Chinese applicants, as the country’s wealthy look to settle abroad or secure foreign citizenship.
The programme, which grants a green card to any foreigner who invests at least $500,000 in a business that creates 10 jobs in the US, received 2,408 Chinese applications in 2011, compared with 772 in 2010, and 63 in 2006. This has helped make China one of the fastest-growing sources of international buyers for US real estate.
Beverly Sunn, president of Asia Pacific Properties, says wealthy Asians have varying reasons for where they purchase property. Some are buying because they want to emigrate or they have children who will go to school there.
“Investors at the luxury sector are highly sophisticated and look to invest in major cities to meet the educational requirements of their children,” says Sunn.
She also points out that transparent property and legal systems, to ensure longevity of ownership, is critical for Asian buyers.
This is where cities such as London, New York and Paris, traditional havens for foreign money, stand out from the rest on a global standing. London, unlike many cities that appear high on liveability lists, has few controls on property ownership, meaning international buyers can securely invest their money.
But more countries want a slice of this action. Over the past year, the governments of the debt-ridden southern European economies have gone out of their way to attract foreign residents to help stimulate their ailing property markets.
In May, Greece introduced a new law that means foreign nationals from non-EU countries, who buy a property worth more than €250,000 can get a five-year renewable residence permit for themselves and their families.
Alexandros Moulas, an associate at Savills Greece, says he has seen increased interest from buyers from the Middle East since the new law was introduced. “A huge market for Greece would be the Chinese one and we have established an office there to make the most of the opportunity,” says Moulas.
Portugal passed a similar law for non-EU investors last year. To gain residency, new arrivals need either to transfer €1m or more in capital into the country, set up a business that creates a minimum of 30 jobs or purchase a property worth €500,000 or more. The Spanish government is also following suit with plans for a so-called golden visa that will allow non-EU residents who purchase homes priced above €500,000 to qualify for Spanish residency.
Agents point out that potential buyers of property in any country need to bear in mind the tax implications of a purchase and what capital gains tax might apply on the sale of that home.
Richard Montague, tax partner at accountants BDO, says tax rates can vary from a low headline rate of tax, exemption for tax on foreign income, tax breaks on local employment income, and lump sum tax regimes.
Cyprus, for example, has long been a popular jurisdiction for tax reasons, he says, as well as being an attractive family-friendly destination for individuals looking to relocate or retire to the sun. It came fifth in the Knight Frank rankings.
“This island boasts a favourable tax regime, with relatively low income tax rates, capital gains tax generally restricted to disposals of immovable property situated in Cyprus, no gift or inheritance taxes, no withholding taxes on investment income and an extensive double tax treaty network,” says Montague.
However, somewhere such as London, which is popular with wealthy overseas buyers because of its political stability and which ranks sixth in the rankings, levies some of the highest charges for stamp duty for its most expensive properties.
Research from accountancy firm UHY Hacker Young shows that, internationally, the average cost of stamp duty and other compulsory property purchase fees for a property worth more than $3.5m is 3.4 per cent, while the UK charges 7 per cent.
“The UK government has been desperate to plug its deficit,” says Ladislav Hornan, chairman of UHY. “One populist way to do this has been by levying a new top rate of stamp duty on the purchase of the most expensive properties, which often attract foreign buyers.”
In comparison, while Monaco failed to score highly in Knight Frank’s lifestyle index, its tax rates mean it is likely to remain a popular destination for the rich. Residents are exempt from income and capital gains tax, as well as tax on rental income.
“I don’t think it’s the sole reason why people move here,” says Irene Luke, partner at Monaco Real Estate. “We’re seeing a lot of families coming to live here and I think security is a significant factor in that. I think people here feel their children can go and do whatever they want. It’s quite Enid Blyton-esque.”
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