Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.
Q: Which has a better property tax rate: a luxury condo in Tribeca, Manhattan, or a luxury condo in prime central London?
The property tax structures differ in the two areas. But, "if [you’re] looking solely at the property tax and ignoring all other taxes in both locations, London clearly wins," said James Smith, a partner in the London law office of Baker McKenzie.
More:What Are the Property Tax Differences Between Condos and Co-Ops in New York City?
Different council boroughs set different council rates. "Property tax, known as council tax, in Knightsbridge—in the Royal Borough of Kensington and Chelsea —is capped at £2,124 (about US$2,800) annually," he said. This applies to any property with a rateable value of more than £320,000 (about US$420,000), Mr. Smith said.
Rateable value is based on the 1991 value of the property. Historic values, rather than something more recent, are likely used because "it is time-consuming for the local council to have to assess the value of each property," he said. So no matter whether a Knightsbridge home has a 1991 value of £320,500 or £3 million, the maximum tax is £2,124.
Property tax in Tribeca, on the other hand, is generally based on the taxable value, said David Pope, a partner in Baker McKenzie’s New York office. Taxable value is calculated based upon the market value of the property multiplied by an assessment ratio, he said. (For Class 2 property—co-ops and condos with more than three units— that ratio is 45%.)
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Market value is not the purchase price, Mr. Pope took care to note, and is determined differently depending on the type of property. For example, according to state law, market value for condos and co-ops is generally based on the amount of rent that condos and co-ops would produce even if they’re not income-producing property, he said.
"For a luxury home in Tribeca valued in the millions, the annual property tax will almost certainly be greater than $2,800," Mr. Pope said.
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