In my last column I reviewed some of the low-tax jurisdictions where Hong Kong residents might choose to move upon retirement or the end of their work contract to avoid the punitive levels of tax that will surely have to be, or have already been, imposed by those countries that have raised their spending and national debt to unprecedented levels to combat the effects of the credit crisis.
The great tax transmigration is already under way. Sovereign Trust recently conducted a survey of world property prices and found that while property prices had fallen dramatically in most countries, they had actually risen in most "offshore tax havens". So investing in property in these countries might offer you a double whammy of saving money by moving to a low-tax jurisdiction and investing in property that seems to be heading in only one direction - up.
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 £175 billion (HK$2.2 trillion) and public sector debt was close to reaching £1 trillion. He announced that from next April, incomes above £150,000 would 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 migrate to these regions. 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.
Much of this disparity is down to interest from a new breed of tax refugees as governments' tax-and-spend folly begins to bite. No wonder that offshore locations are benefiting with healthy property markets.
Governments appear to believe their most productive citizens will sit still to be fleeced. In times gone by, currency controls and limited communications made it difficult to relocate yourself and your business. Nowadays voting with your feet where tax is concerned is a very viable option for many. Everyone has to compete these days and tax authorities are no different.
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 - almost the same amount they have fallen in neighbouring Provence. Monaco's system of charging no personal taxation seems to ensure the market remains buoyant and prices stable, so investment in Monaco property continues to be attractive but expensive.
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 developers report healthy demand from 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," Gibaut said.
Residential property prices in Guernsey have been 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 house prices - representing 60 per cent of residential property sales - are 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". 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 a report on Swiss housing published by Credit Suisse earlier this year.
Data from property consultant Knight Frank show 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.
It is strange that resident and domiciled persons are fleeing the UK because of high taxes but non-UK citizens are also attracted by the very different low-tax regime that applies to them - and perhaps by the falling pound, which is making property look good value to those with foreign currency to spend.
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, you would do well to look offshore for the foreseeable future. Property may be relatively expensive in these "offshore tax havens" but it is still a bargain if it goes up in value - and it appears to do that inexorably due to their low tax regimes.
TAX FILE
