US billionaire’s London property splurge spurs calls to keep tax local
The body representing regional government in England and Wales has called for more taxation to be retained by local councils in the wake of two huge London property purchases by a US hedge fund billionaire.
Three of the most expensive homes in the world have been sold recently to one man, American financier Ken Griffin, who has become known for spending his fortune on lavish properties in some of the world’s most glamorous cities. All of the latest properties have been eulogised as stunning.
Two of the houses are in central London, and will attract taxes that will be banked by central rather than local government. One, a penthouse currently under construction, will overlook Buckingham Palace at Hyde Park Corner as part of the Peninsula London development and will cost £100m. Another is a townhouse across the park at Carlton Gardens, costing £95m. The third is a penthouse atop a “pencil tower” at New York’s 220 Central Park South, costing $238m (£200m).
In the US federal system, New York City levies the taxes due on property purchases and will receive $217,000 a year from Griffin’s New York purchase, according to calculations by property tax consultants MGNY Consulting.
However, in the UK, most of the taxes due on Griffin’s two latest purchases will end up going to central government, aside from the £2,842 per year in council taxes due to Westminster council and the Greater London Authority for both properties. Griffin appears to be facing a UK bill in the region of £30m in stamp duty for the privilege of being a double neighbour to the Queen, but this one-off sum is paid to central government via HM Revenue & Customs. Griffin, 50, is reportedly worth $8.8bn thanks to the success of his Citadel hedge fund.
Depending on how he structures the purchases of his two new UK homes, he may also face other charges. If the properties are acquired via a company, there will be an annual tax on enveloped dwelling (ATED) of £232,000 a year per property, which is also paid to central government.
However, housing experts say very few residential properties are now acquired through companies, since the introduction of this charge. ATED applies to high-value UK residential property owned indirectly on, or acquired after, 1 April 2013, by “non-natural persons” (NNPs).
A spokesman for the Local Government Association, which represents 370 English and Welsh councils, said: “Local government in England faces an overall funding gap of £8bn by 2025. The UK is one of the most centralised economies in the western world.
“If local areas are given freedom and control over their own finances, and the responsibility for growing their local economies, they will be able to take on increasing and enhanced leadership roles for their place.”
He added that local authorities should be allowed to retain a proportion of nationally collected taxes paid by their residents “such as income tax or stamp duty, along with appropriate redistribution arrangements and control over discounts and reductions where appropriate”.
In the US federal system of government, property taxes can be levied locally. New York City says that property taxes represented 44% of all “city tax dollars” collected in the year to 30 June 2018.
Of the total city tax take, New York spends 30% on “uniform agencies” including the police, fire and prisons; 30% on education; 19% on health and welfare; and 21% on “other agencies”, which includes housing and transport.
In the UK, the financial position of local councils has long been a topic of concern, particularly since austerity budgets were imposed after the global financial crisis.
This has resulted in scores of councils complaining that services are having to be cut, and finding themselves struggling to balance the books.
In November, the government in effect bailed out Tory-run Northamptonshire county council after giving it unprecedented permission to spend up to £60m of cash received from the sale of its HQ on funding day-to-day services.
Northamptonshire declared itself effectively bankrupt in February 2018 after it realised it could not balance its books. It declared insolvency again in July after a review revealed it had understated the extent of its financial problems. It must make good a £70m deficit by the end of March to avoid insolvency for a third time.
The recent purchases are only the latest in Griffin’s global shopping spree for glamorous homes. During recent years, he has reportedly spent more than $750m on homes in Chicago, New York, Florida and now London. Griffin earned around $1.4bn in in 2017, according to financial publisher Institutional Investor.
He has now set six housing price records, according to US broadcaster CNBC. Last year, he paid the highest price ever for a home in Chicago, buying the top four floors of a Gold Coast condo tower for $58.5m.
The “taxable value” for Griffin’s new Manhattan property comes in at around $1.7m, which is then taxed at a rate of 12.6%. The resulting annual tax bill is slightly lower than the $280,000 projected by developers back in 2015, but it should still be a notable tax boost to local New York City services.
Neither the UK’s Ministry of Housing, Communities and Local Government, nor Griffin’s fund Citadel commented.