Figures and tables in Homeownership Investment and Tax Neutrality: a Joint Assessment of Income and Property Taxes in Europe

Abstract

Western countries’ income tax system exempts the return from investing in owner-occupied housing. Returns from other investments are instead taxed, thus distorting households’ portfolio choices, although it is argued that housing property taxation might act as a counterbalance. Based on data drawn from the Statistics of Income and Living Conditions and the UK Family Resources Survey, and building on the tax benefit model EUROMOD, we provide novel evidence on the interplay of income and property taxation in budgetary, efficiency and equity terms in eight European countries. Results reveal that, even accounting for recurrent housing property taxation, a sizeable ‘homeownership bias’ i.e. a lighter average and marginal taxation for homeownership investment, is embedded in current tax systems, and displays heterogeneous distributional profiles across different countries. Housing property taxation represents only a partial correction towards neutrality.

This article contains 2 figures and 5 tables.

Figures

**Figure 1.** Effective Marginal Tax Rates for homeownership and financial investment.. Source: Own calculations on the basis of EU-SILC/FRS and EUROMOD.

**Figure 2.** Average tax rates for homeownership and financialinvestment.. Source: Own calculations on the basis of EU-SILC/FRS and EUROMOD.

Tables

Table 1. Income Taxation of investment returns, by investment type, 2012.

	Owner-occupied housing		Financial	Personal income tax
	Tax on return	Mortgage Interest tax relief	Tax rate on return	Top marginal rate
Austria	Exempt from PIT	YES, low amount allowed for low incomes	20%	50%
Belgium	Exempt from PIT	YES	15%	50%
Finland	Exempt from PIT	YES	Progressive with rate equal to 30% and 32%	29.75%
France	Exempt from PIT	NO – abolished in 2010 (tax credit maintained for second properties)	39% & 32%	45%
Germany	Exempt from PIT	NO	PIT with deduction	45%
Italy	Exempt from PIT	YES, with high limits	12.5%	43%
Spain	Exempt from PIT	Mortgage tax credit removed since 2012 (still compensation for house acquired before 2006).	21% & 25%	30.5%
United Kingdom	Exempt from PIT	NO (after lengthy phasing-out), maintained on other taxed properties.	10%	50%

Source: Taxes in Europe database.

Table 2. Property taxation on owner-occupied housing, 2012.

	Recurrent Taxation	Revenues (as % of GDP)	Latest values assessment
Austria	Real Estate Tax: federal and municipal rate on standard value of the property	0.2	1973
Belgium	Real Estate Tax: regional and municipal rate on Cadastral Income	1.22	1975
Finland	Real Estate Tax: municipal rate on taxable value of the property	0.64	2011
France	Real Estate Tax: municipal rate on Cadastral Income	1.33	1978
Germany	Real Estate Tax: federal and municipal rate on standard value of the property	0.45	1964
Italy	Real Estate Tax: municipal rate on Cadastral Income	1.51	1988
Spain	Real Estate Tax: municipal rate on Cadastral Income.	1.09	1994
United Kingdom	NO	-	-

Source: Taxes in Europe database except in the case of Italy (official national tax revenues data).

Table 3. Homeownership rates, 2010.

	Owned on mortgage	Owned outright	Total
AT	25.4	32.1	57.5
BE	41.6	30.2	71.8
FI	42.0	32.3	74.3
ES	33.2	46.7	79.9
FR	28.9	33.3	62.2
DE	27.8	25.5	53.3
IT	15.4	56.5	71.9
UK	41.3	27.7	69.0

Source: Own calculations on the basis of EU-SILC/FRS.

Table 4. Budgetary size of homeownership bias, components and total, in % of counterfactual tax revenue, and absolute amount.

	Exempting IR (1)	MITRs (2)	Property tax on main residence (3)	Total homeownership bias (1)+(2)+(3)	Absolute amount (million € per year)
	As % of counterfactual tax revenue^a			Total homeownership bias (1)+(2)+(3)	Absolute amount (million € per year)
AT	-6.35	- - -	- - -	-6.35	-1,906.2
BE	-6.06	-5.61	2.78	-8.89	-4,077.6
FI	-17.90	-0.16	1.10	-16.96	-5,178.2
ES	-19.99	-3.86	13.16	-10.69	-8,046.4
FR	-5.23	- - -	7.20	1.98	3,776.1
DE	-9.28	- - -	2.27	-7.01	-18,945.0
IT	-5.2	-0.78	2.21	-3.78	-7,403.8
UK	-14.60	- - -	- - -	-14.60	-23,444.3

Notes ^a:Tax revenues corresponds to the sum of final personal income and property tax. Tax provision abolished in countries where existed. A negative (positive) amount represents a revenue loss (gain). The ‘- - -'‘ sign indicates no such policy exists in the country (or, as in the case of property tax in Austria, it is negligible in size)

Source: Own calculations on the basis of EU-SILC/FRS.

Table 5. Progressivity of income taxes and property taxes, homeownership and financial investment.

		Baseline scenario: Taxation under actual homeownership investment rules		Alternative scenario: homeownership investment is taxed as financial investment
		Total	Components	Total	Components
Austria	Total taxes	0.289		0.268
	Property tax		-		-
	Income taxes		0.289		0.268
Belgium	Total taxes	0.269		0.248
	Property tax		0.049		-
	Income taxes		0.279		0.248
Finland	Total taxes	0.162		0.133
	Property tax		0.055		-
	Income taxes		0.165		0.133
France	Total taxes	0.182		0.193
	Property tax		0.044		-
	Income taxes		0.194		0.193
Germany	Total taxes	0.290		0.271
	Property tax		0.092		.
	Income taxes		0.298		0.271
Italy	Total taxes	0.191		0.179
	Property tax		0.019		-
	Income taxes		0.196		0.179
Spain	Total taxes	0.261		0.253
	Property tax		-0.125		-
	Income taxes		0.343		0.253
UK	Total taxes	0.263		0.262
	Property tax		-		-
	Income taxes		0.263		0.262

Source: Own calculations on the basis of EU-SILC/FRS and EUROMOD.

Notes: In the index computation, pre-tax income is extended original income (i.e. including imputed rent) plus benefits.